<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C> <C>
HEDSTROM CORPORATION HEDSTROM HOLDINGS, INC.
(and certain Subsidiaries Identified in Footnote 1 (Exact Name of Co-Registrant as Specified in its
Below) Charter)
(Exact Name of Co-Registrant as Specified in its
Charter)
DELAWARE 51-0329829 DELAWARE 51-0329830
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction jurisdiction
of incorporation or Identification No.) of incorporation or Identification No.)
organization) organization)
3944
(Primary Standard Industrial
Classification Code Number)
DAVID F. CROWLEY
585 SLAWIN COURT 585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056 MOUNT PROSPECT, ILLINOIS 60056
(847) 803-9200 (847) 803-9200
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Number,
Including Area Code of Co-Registrants' Including Area Code, of Agent for Service)
Principal Executive Offices)
</TABLE>
Copies to:
GLENN D. WEST
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT
SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due 2007 of
Hedstrom Corporation(2)...................... $110,000,000 $1,000.00 $110,000,000 $33,333.33
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Senior Guarantee(2)............................
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Senior Subordinated Guarantees(2)..............
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12% Senior Discount Notes due 2009 of Hedstrom
Holdings, Inc.(3)............................ $ 44,612,000 $ 568.45 $ 25,359,691 $ 7,684.75
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(1) The following direct and indirect subsidiaries of Hedstrom Corporation are
Co-Registrants (the "Subsidiary Guarantors"), each of which is incorporated
in the state and has the I.R.S. Employer Identification Number indicated:
ERO, Inc., a Delaware corporation (36-3573286); ERO Industries, Inc., a
Delaware corporation (36-1047920); ERO Marketing, Inc., an Illinois
corporation (36-3807010); Priss Prints, Inc., a Delaware corporation
(54-1389361); Impact, Inc., a Delaware corporation (36-3918720); ERO Canada,
Inc., a Delaware corporation (36-3969563); Amav Industries, Inc., a Delaware
corporation (36-4051894).
(2) The 10% Senior Subordinated Notes due 2007 are unconditionally (as well as
jointly and severally) guaranteed by Hedstrom Holdings, Inc., the sole
stockholder of Hedstrom Corporation, on an unsecured, senior basis and by
the Subsidiary Guarantors on an unsecured, senior subordinated basis.
Pursuant to Rule 457(n) under the Securities Act of 1933, no separate
consideration will be paid in respect to these guarantees.
(3) The "Amount to be Registered" with respect to the 12% Senior Discount Notes
due 2009 represents the aggregate principal amount at maturity of such
notes. The 12% Senior Discount Notes due 2009 were sold at a substantial
discount from their principal amount at maturity. The registration fee with
respect to the 12% Senior Discount Notes due 2009 was calculated based on
the approximate accreted value thereof as of July 25, 1997 determined
pursuant to the provisions of the indenture governing such notes.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
HEDSTROM CORPORATION
HEDSTROM HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-1
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<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors;
Business; Selected Consolidated Historical
Financial Data of Holdings; Selected
Consolidated Historical Financial Data of
ERO; Unaudited Pro Forma Consolidated
Financial Information
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Front Cover Page of Prospectus; The
Exchange Offers; Plan of Distribution
9. Description of Securities to be Registered........... Description of New Senior Subordinated
Notes; Description of New Discount Notes
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Cover Page of Registration Statement;
Prospectus Summary; Risk Factors; Selected
Consolidated Historical Financial Data of
Holdings; Selected Consolidated Financial
Data of ERO; Unaudited Pro Forma
Consolidated Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Hedstrom and Holdings;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of ERO; Business; Management;
Stock Ownership and Certain Transactions;
Description of the Senior Credit
Facilities; Legal Matters
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 30, 1997
PROSPECTUS
<TABLE>
<C> <C>
OFFER FOR ALL OUTSTANDING OFFER FOR ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2007 12% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2007 12% SENIOR DISCOUNT NOTES DUE 2009
OF OF
HEDSTROM CORPORATION HEDSTROM HOLDINGS, INC.
</TABLE>
Pursuant to the terms and subject to the conditions set forth in this
Prospectus and the accompanying letters of transmittal, (i) Hedstrom
Corporation, a Delaware Corporation ("Hedstrom"), Hedstrom Holdings, Inc., a
Delaware corporation and the sole stockholder of Hedstrom ("Holdings"), and the
Subsidiary Guarantors (as defined) hereby offer (the "Senior Subordinated Notes
Exchange Offer") to exchange $1,000 principal amount of registered 10% Senior
Subordinated Notes Due 2007 (the "New Senior Subordinated Notes") issued by
Hedstrom, for each $1,000 principal amount of unregistered 10% Senior
Subordinated Notes Due 2007 (the "Old Senior Subordinated Notes", and together
with the New Senior Subordinated Notes, the "Senior Subordinated Notes") issued
by Hedstrom, of which an aggregate principal amount of $110,000,000 is
outstanding and (ii) Holdings hereby offers (the "Discount Notes Exchange
Offer," and together with the Senior Subordinated Notes Exchange Offer, the
"Exchange Offers") to exchange $1,000 principal amount at maturity of registered
12% Senior Discount Notes Due 2009 (the "New Discount Notes") issued by
Holdings, for each $1,000 principal amount at maturity of unregistered 12%
Senior Discount Notes Due 2009 (the "Old Discount Notes," and together with the
New Discount Notes, the "Discount Notes") issued by Holdings, of which an
aggregate principal amount at maturity of $44,612,000 is outstanding. The Old
Senior Subordinated Notes and the Old Discount Notes are sometimes collectively
referred to herein as the "Old Notes" and the New Senior Subordinated Notes and
the New Discount Notes are sometimes collectively referred to herein as the "New
Notes." Hedstrom and Holdings are sometimes collectively referred to herein as
the "Issuers."
The form and terms of the New Notes are identical to the form and terms of
the Old Notes except that (i) interest on the New Senior Subordinated Notes
shall accrue from the date of issuance of the Old Senior Subordinated Notes,
(ii) the Accreted Value (as defined) of the New Discount Notes will be
calculated from the date of issuance of the Old Discount Notes, and (iii) the
New Notes are being registered under the Securities Act of 1933, as amended (the
"Securities Act"), and will not bear any legends restricting their transfer. The
New Senior Subordinated Notes will evidence the same debt as the Old Senior
Subordinated Notes and will be issued pursuant to, and entitled to the benefits
of, the indenture governing the Old Senior Subordinated Notes. The New Discount
Notes will evidence the same debt as the Old Discount Notes and will be issued
pursuant to, and entitled to the benefits of, the indenture governing the Old
Discount Notes. The Exchange Offers are being made in order to satisfy certain
contractual obligations of Hedstrom and Holdings. See "The Exchange Offers",
"Description of New Senior Subordinated Notes" and "Description of New Discount
Notes."
The net proceeds from the sale of the Old Notes were used to effect the
acquisition by Hedstrom of ERO, Inc. ("ERO") and its subsidiaries. Such
acquisition was effected pursuant to a tender offer by HC Acquisition Corp., a
wholly owned subsidiary of Hedstrom ("Acquisition Co."), for all of the
outstanding common stock of ERO and the subsequent merger of Acquisition Co.
with and into ERO with ERO surviving as a wholly owned subsidiary of Hedstrom.
See "Prospectus Summary -- The Transactions."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
NEW NOTES.
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Hedstrom and Holdings will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1997, unless extended (as so extended, the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date.
The Exchange Offers are subject to certain customary conditions. See "The
Exchange Offers."
In order for a holder of Old Notes to participate in an Exchange Offer, such
holder must represent to Hedstrom or Holdings, as appropriate, that, among other
things, (i) the New Notes acquired pursuant to such Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder of the Old Notes, (ii) neither
the holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes, and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated under the
Securities Act, of Hedstrom or Holdings. See "The Exchange Offers -- Purpose and
Effect."
Each broker-dealer that receives New Notes for its own account pursuant to
either of the Exchange Offers must acknowledge that it will deliver a prospectus
in connection with any resale of those New Notes. The letters of transmittal
accompanying this Prospectus state that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Hedstrom and Holdings have agreed that,
for a period of 180 days after the Expiration Date, they will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
No public market has existed for the Old Notes before the Exchange Offers.
Hedstrom and Holdings currently do not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system, and no active public market for the New Notes is currently
anticipated. Hedstrom and Holdings will pay all the expenses incident to the
Exchange Offers.
The Exchange Offers are not conditioned upon any minimum principal amount of
Old Senior Subordinated Notes or Old Discount Notes being tendered for exchange
pursuant to the Exchange Offers.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE> 4
(continued from front cover)
The New Senior Subordinated Notes will bear interest at a rate of 10% per
annum, payable on June 1 and December 1 of each year, commencing December 1,
1997. The New Senior Subordinated Notes will mature on June 1, 2007. Hedstrom
will not be required to make any sinking fund payment with respect to the New
Senior Subordinated Notes. The New Senior Subordinated Notes will not be
redeemable at the option of Hedstrom prior to June 1, 2002, except (i) that
until June 1, 2000, Hedstrom may redeem, at its option, in the aggregate up to
$44,000,000 principal amount of the Senior Subordinated Notes at the redemption
price set forth herein with the net proceeds of one or more Equity Offerings (as
defined) if at least $66,000,000 principal amount of the Senior Subordinated
Notes remains outstanding after any such redemption and (ii) upon a Change of
Control (as defined), as described below. On or after June 1, 2002, the New
Senior Subordinated Notes may be redeemed at the option of Hedstrom, in whole or
in part, at the redemption prices set forth herein.
The Old Discount Notes were issued at a substantial discount from the
principal amount at maturity of such notes. Principal on each New Discount Note
will accrete from the date of issuance of the Old Discount Notes to a principal
amount of $1,000 on June 1, 2002, representing a yield to maturity of 12% (based
upon the issue price of a Unit and computed on a semi-annual bond equivalent
basis). Except as described herein, no cash interest will accrue on the New
Discount Notes prior to June 1, 2002. Thereafter, the New Discount Notes will
accrue cash interest at a rate of 12% per annum, and cash interest will be
payable on June 1 and December 1 of each year, commencing December 1, 2002. The
New Discount Notes will mature on June 1, 2009. Holdings will not be required to
make any sinking fund payment with respect to the New Discount Notes. The New
Discount Notes will not be redeemable at the option of Holdings prior to June 1,
2002, except (i) that until June 1, 2000, Holdings may redeem, at its option, in
the aggregate up to 40% of the Accreted Value of the Discount Notes at the
redemption price set forth herein with the net proceeds of one or more Equity
Offerings if at least $26,767,200 principal amount at maturity of the Discount
Notes remains outstanding after any such redemption and (ii) upon a Change of
Control (as described below). On or after June 1, 2002, the New Discount Notes
may be redeemed at the option of Holdings, in whole or in part, at the
redemption prices set forth herein. The New Discount Notes will bear original
issue discount ("OID"), and the holders of the New Discount Notes will be
required to include such OID in gross income for U.S. federal income tax
purposes, on a constant yield to maturity basis, in advance of the receipt of
the cash payments to which such income is attributable. See "Certain United
States Federal Income Tax Considerations with Respect to the New Notes."
The New Senior Subordinated Notes will be unsecured senior subordinated
obligations of Hedstrom and will be unconditionally guaranteed (jointly and
severally) on a senior basis (the "Holdings Guaranty") by Holdings and on a
senior subordinated basis (the "Subsidiary Guaranties" and, together with the
Holdings Guaranty, the "Guaranties") by each domestic subsidiary of Hedstrom
(the "Subsidiary Guarantors"). The New Senior Subordinated Notes will be
subordinated to all Senior Indebtedness (as defined) of Hedstrom and will rank
pari passu in right of payment with all Senior Subordinated Indebtedness (as
defined) of Hedstrom. The New Discount Notes will be senior unsecured
obligations of Holdings and will rank pari passu in right of payment with all
Senior Indebtedness of Holdings. The New Discount Notes will be effectively
subordinated to all Indebtedness (as defined) and obligations of Hedstrom and
its subsidiaries. As of June 30, 1997, Holdings Senior Indebtedness (as defined)
and Senior Indebtedness (as defined) of Hedstrom were approximately $244.3
million and $117.7 million, respectively, and Senior Subordinated Indebtedness
of Hedstrom was $110.0 million.
Upon a Change of Control, (i) each Issuer will have the option, at any time
on or prior to June 1, 2002, to redeem such Issuer's New Notes, in whole but not
in part, at a redemption price equal to 100% of (A) in the case of the New
Senior Subordinated Notes, the principal amount thereof, and (B) in the case of
the New Discount Notes, the Accreted Value thereof, in each case plus the
Applicable Premium (as defined) and accrued and unpaid interest, if any, to the
date of redemption, and (ii) if an Issuer does not so redeem its New Notes
pursuant to clause (i) above or if such Change of Control occurs after June 1,
2002, each holder of such New Notes may require the Issuer thereof to repurchase
such New Notes at a purchase price equal to 101% of (A) in the case of the New
Senior Subordinated Notes, the principal amount thereof, and (B) in the case of
the New Discount Notes, the Accreted Value thereof, in each case plus accrued
and unpaid interest, if any, to the date of repurchase.
2
<PAGE> 5
AVAILABLE INFORMATION
Hedstrom, Holdings and the Subsidiary Guarantors have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(which term shall encompass any amendments thereto) on Form S-1 under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all information set forth in the Registration Statement and the
exhibits thereto, to which reference is hereby made. Although the Issuers
believe that statements made in this Prospectus as to the contents of any
contract, agreement, or other document describe all material elements of such
documents, such statements are not necessarily complete. With respect to each
such contract, agreement, or other document filed as an exhibit to the
Registration Statement, reference is hereby made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of the filing of the Registration Statement with the
Commission, Holdings, Hedstrom and the Subsidiary Guarantors each will become
subject to the informational reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will
be required to file reports and other information with the Commission. Such
reports and other information can be inspected and copied at the principal
office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the following Regional Offices of the Commission: Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60611 and New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.
The Issuers will furnish holders of the securities offered hereby with
annual reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year. The Issuers will also furnish such other reports as it may
determine or as may be required by law or by the indentures governing the New
Notes. In reliance upon certain Staff Accounting Bulletins of the Commission,
interpretations of the staff of the Commission and no-action relief granted by
the staff of the Commission to unrelated third parties, the Issuers intend to
seek no-action relief permitting Hedstrom and the Subsidiary Guarantors to not
file periodic reports with the Commission under the Exchange Act separately from
Holdings, and in lieu thereof, to set forth in Holding's periodic reports
selected financial information and certain other information with respect to
Holdings, Hedstrom, the Subsidiary Guarantors and the subsidiaries of Hedstrom
which are not guarantors of the Senior Subordinated Notes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, such statements under "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations Hedstrom and Holdings," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of ERO," and
"Business" and located elsewhere herein are forward-looking statements. Although
the Issuers believe that the expectations reflected in such forward-looking
statements are reasonable, they can give no assurance that such expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from expectations ("Cautionary Statements") are
disclosed in this Prospectus, including, without limitation, in conjunction with
the forward-looking statements included in this Prospectus and/or under "Risk
Factors." All subsequent written or oral forward-looking statements attributable
to an Issuer or persons acting on behalf of an Issuer are expressly qualified in
their entirety by the Cautionary Statements.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless otherwise indicated or unless the context otherwise
requires, references herein to (i) the "Transactions" refer collectively to the
Acquisition (as defined) and the Financings (as defined), (ii) "Holdings" refer
to Hedstrom Holdings, Inc. and, where appropriate, its subsidiaries, (iii)
"Hedstrom" refer to Hedstrom Corporation and, where appropriate, its
subsidiaries, (iv) "ERO" refer to ERO, Inc. and, where appropriate, its
subsidiaries, and (v) the "Company" refer to Hedstrom and its subsidiaries and
ERO and its subsidiaries on a combined basis after completion of the
Transactions, including the businesses conducted by Hedstrom and ERO prior to
the Transactions. Unless otherwise specified, all financial, statistical and
other data regarding the Company contained herein is presented on a pro forma
basis after giving effect to the Transactions. Market and market share data used
throughout this Prospectus are estimates provided by the management of the
Company. Such estimates are based on management's internal research and
experience in the Company's markets. Such estimates, while believed by
management to be accurate, have not been verified by any independent source.
THE COMPANY
The Company (consisting of the businesses of Hedstrom and ERO) is a leading
North American manufacturer and marketer of well-established children's leisure
and activity products. The Company's diversified product lines are in such
"evergreen" product categories as outdoor gym sets, wood gym kits and slides,
spring horses, playballs, arts and crafts kits, game tables, and licensed indoor
sleeping bags, play tents and wall decorations. The Company considers such
product categories to be "evergreen" in nature because each is characterized by
proven longevity, demonstrated market demand and consistent sales over time. For
example, the Company believes products such as outdoor gym sets and playballs
have been marketed and sold in the United States for over 30 years.
The Company believes that in the U.S. markets for nine of its ten principal
product categories, it enjoys the competitive advantage of being the market
share leader, the low-cost producer or both. For the twelve-month period ended
December 31, 1996, approximately half of the Company's pro forma net sales were
derived from product categories for which the Company believes it has a market
share of approximately 75% or greater. As a result of the Company's leading
market shares, the Company enjoys favorable relationships with its customers and
suppliers and with licensors of popular characters that decorate certain of the
Company's products. The Company believes its focus on evergreen product
categories in which it has competitive advantages provides consistent sales and
cash flows. The Company's products are sold primarily through national
retailers, mass merchants, home improvement centers, sporting goods stores, drug
store chains and supermarkets. For the twelve-month period ended December 31,
1996, the Company's pro forma net sales and EBITDA (as defined) were $283.3
million and $44.5 million, respectively.
COMPETITIVE STRENGTHS
The Company believes that the following characteristics contribute to the
Company's position as a leading manufacturer and marketer of children's leisure
and activity products:
- Leading Share in Selected Niche Markets. The Company believes its outdoor
gym sets, spring horses, playballs, ball pits and licensed sleeping bags
and play tents each command market shares of approximately 75% or
greater. Sales from these product categories accounted for approximately
half of the Company's pro forma net sales for the twelve-month period
ended December 31, 1996. In addition, the Company believes it is one of
the leading suppliers in the U.S. markets for wood gym kits and slides,
children's arts and crafts kits, game tables and wall decorations. The
Company believes its position as a market share leader in selected niche
markets (i) provides the Company with certain advantages over existing
competitors and prospective entrants in such markets, (ii) creates the
strong relationships with retailers that are critical to securing and
maintaining valuable retail shelf space for existing and new products and
(iii) provides a platform for introducing new products.
4
<PAGE> 7
- Stable and Established Product Categories. Substantially all of the
Company's products are in evergreen categories within the children's
leisure and activity products industry. For example, the Company believes
products such as outdoor gym sets and playballs have been marketed and
sold in the United States for over 30 years. The Company believes its
diverse portfolio of evergreen products will contribute to stable
revenues and cash flows, providing resources for the Company to implement
its business strategies. See "-- Business Strategy."
- Low-Cost Manufacturing Capabilities. The Company believes that it is the
low-cost manufacturer in the markets for each major product category
which the Company manufactures internally. The Company believes its
leading market share in such niche markets as outdoor gym sets, spring
horses, playballs and ball pits provides it with a significant cost
advantage relative to smaller competitors in such markets due to the
Company's greater sales volume and resultant operating leverage and
efficiencies. With respect to the Company's children's arts and crafts
kits and game tables, the Company is able to realize cost advantages from
the low labor rates, low overhead and extensive vertical integration of
its Canadian manufacturing facility. The Company believes its position as
a low-cost manufacturer will enable it to (i) maintain operating profit
margins, (ii) respond to competitive pressures through flexibility in
pricing strategies, (iii) realize sales growth by offering superior
quality products at competitive prices and (iv) expand its existing
product lines and enter new product categories.
BUSINESS STRATEGY
The Company's strategy is to enhance its operating margins and strengthen
its position as a leading manufacturer and marketer of children's leisure and
activity products. The Company plans to improve its profitability by
rationalizing its cost structure and utilizing the Company's excess capacity at
certain of its facilities through, among other things, pursuing counter-seasonal
sales opportunities. Furthermore, the Company has identified several
opportunities for revenue growth, including enhancing existing products,
introducing complementary products, focusing its licensed products on
traditional characters and pursuing international sales opportunities.
- Achieve Cost Savings. Management believes it will realize annual cost
savings in excess of $6 million as a result of cost saving initiatives
implemented or being implemented as a result of the Acquisition, such as
rationalizing sales, marketing and general administrative functions,
consolidating purchases of raw materials and eliminating less profitable
product lines. Independent of the Acquisition, the Company expects to
realize in excess of $9 million of permanent cost savings in 1997 and
thereafter as a result of cost reduction programs implemented at Hedstrom
in the second half of 1996. See "-- Hedstrom 1996 Cost Reduction Plan,"
"Unaudited Pro Forma Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of Hedstrom and Holdings."
- Utilize Excess Capacity. The Company produces its outdoor gym sets, wood
gym kits and slides at its facility in Bedford, Pennsylvania, primarily
in the period from December through April. During the balance of the
year, the Bedford facility remains relatively inactive. The Company
believes it can enhance sales and profitability by identifying products
that it can manufacture during the May through November period, either
for itself or for original equipment manufacturers ("OEMs"). The Company
has already identified several products that it will begin producing in
the second half of 1997. In addition, management is pursuing
opportunities to increase the utilization of its low-cost plastic molding
operations at its Ashland, Ohio facility, which already supplies a
variety of components to OEMs of industrial and consumer products.
- Enhance Existing Products and Develop Complementary Products. The Company
has maintained sales growth and its leading market shares by continuously
enhancing its principal products and designing and developing
complementary products and accessories. Management believes that by
pursuing this strategy it can continue growth within its core product
lines with minimal economic risk. In addition, the Company will evaluate
opportunities to expand its product lines, increase its market shares and
acquire complementary products through strategic acquisitions.
5
<PAGE> 8
- Focus Licensed Products on Traditional Characters. The Company believes
that it can differentiate certain of its products and stimulate sales
more effectively and inexpensively through the licensing of recognized
traditional characters rather than the development and promotion of its
own brand names. For the Company's products lines that feature licensed
characters, such as sleeping bags, play tents and wall decorations, the
Company intends to emphasize traditionally popular characters such as the
classic Disney and Looney Tunes(TM) characters, although the Company will
also complement such characters by obtaining licenses for event-driven
characters. The Company estimates that products featuring licensed
traditional characters (including products featuring the 101 Dalmatians
characters, which experienced increased sales in 1996 as a result of the
release of a new version of the 101 Dalmatians movie) accounted for
approximately 14% of the Company's pro forma net sales for the
twelve-month period ended December 31, 1996, while products based on
licensed event-driven characters also accounted for approximately 14% of
the Company's pro forma net sales for such period.
- Pursue International Sales Opportunities. To date, the Company has not
focused a significant amount of resources toward the development of an
international customer base. For the twelve-month period ended December
31, 1996, the Company's pro forma net sales outside the United States and
Canada totaled less than 4% of the Company's total pro forma net sales.
The Company believes there are significant sales opportunities for the
Company's products in Europe and Latin America, particularly its
children's arts and crafts kits, outdoor gym sets, playballs and ball
pits.
ACQUISITION RATIONALE
Hedstrom and ERO are leading manufacturers and marketers of children's
leisure and activity products. Hedstrom's principal products include outdoor gym
sets, wood gym kits and slides, spring horses, playballs and ball pits. ERO's
principal products include children's arts and crafts kits, game tables and
licensed indoor sleeping bags, play tents and wall decorations. The acquisition
of ERO by Hedstrom created one of the largest North American manufacturers and
marketers of children's evergreen leisure and activity products and provides
Hedstrom with (i) a more diverse portfolio of products, (ii) significant growth
potential through ERO's Amav division ("Amav"), (iii) decreased seasonality as a
result of more balanced sales throughout the year, (iv) significant cost savings
and operating efficiencies and (v) additional advantages resulting from
increased scale.
- Product Diversity in Well-Established Markets. The combination of
Hedstrom and ERO significantly reduces the Company's dependence on any
particular product line while expanding the Company's overall presence in
children's evergreen leisure and activity product categories. With the
combination of Hedstrom and ERO, the Company has ten principal product
categories, with its largest product line (outdoor gym sets) accounting
for approximately 20% of the Company's pro forma net sales for the
twelve-month period ending December 31, 1996.
- Growth Potential at Amav. In October 1995, ERO established its Amav
division through the acquisition of Amav Industries, Ltd., a
Canadian-based manufacturer of children's arts and crafts kits and game
tables. Amav has grown rapidly over the four-year period ended December
31, 1996, with sales increasing at a compound annual rate in excess of
40% over such period. Management attributes Amav's success to its
strategy of targeting large, established product lines in which it can
apply its design, engineering and manufacturing expertise to produce a
high-quality product at a lower cost than its competitors. Management
believes Amav's low-cost manufacturing, design and engineering
capabilities will enable the Company to continue to increase sales of its
existing products lines as well as to add complementary product lines.
- Reduced Seasonality. The combination of Hedstrom and ERO significantly
reduces the effect of seasonality on the Company's business. The peak
selling season for Hedstrom's products is the first half of the calendar
year whereas the peak selling season for ERO's products is the second
half of the calendar year. As a result of the Acquisition, the Company's
sales throughout the year will be relatively balanced. Pro forma net
sales for the Company for each calendar quarter during the twelve months
ended December 31, 1996 were 24.6%, 26.5%, 22.8% and 26.1%, respectively,
of total pro forma net sales for
6
<PAGE> 9
such twelve-month period. Balanced sales throughout the year will reduce
seasonal fluctuations in working capital and will enable the Company to
generate more consistent cash flow.
- Cost Savings. As discussed under "-- Business Strategy," management
believes that the cost saving initiatives which have been or which are
being implemented as a result of the combination of Hedstrom and ERO will
allow the Company to realize cost savings in excess of $6 million per
year.
- Additional Advantages Resulting from Increased Scale. With over $280
million in pro forma net sales for the twelve-month period ending
December 31, 1996, management believes the Company will have
significantly more clout with retailers, suppliers and licensors than
either Hedstrom or ERO individually. In addition, management anticipates
that the Company's size also will enable it to pursue international sales
opportunities more effectively.
HEDSTROM 1996 COST REDUCTION PLAN
From fiscal 1992 through fiscal 1995, Hedstrom's EBITDA increased at a
compound annual rate of approximately 25%. In fiscal 1996, Hedstrom's EBITDA
declined modestly. In order to improve Hedstrom's profitability in 1997 and
thereafter, management implemented a plan in the second half of 1996 (the "1996
Cost Reduction Plan") to reduce costs by over $9 million in 1997 and thereafter
as compared with fiscal 1996 levels. Important elements of the plan include:
- Implementing Just-in-Time Manufacturing. In late 1996, Hedstrom
restructured certain of its manufacturing operations to increase its
daily production capacity of outdoor gym sets. This restructuring has
enabled Hedstrom to manufacture outdoor gym sets to specific customer
orders rather than producing outdoor gym sets in anticipation of customer
orders, which Hedstrom had done in the past because of capacity
constraints. In fiscal 1996, prior to implementing this restructuring,
Hedstrom experienced a significant and unexpected change in its sales mix
of outdoor gym sets, requiring Hedstrom to use third party warehouses to
store many of the outdoor gym sets it had produced in anticipation of
customer demand. As a result, Hedstrom incurred approximately $2.1
million of higher warehouse and material handling costs. Through the
first six months of 1997, Hedstrom has successfully manufactured outdoor
gym sets on a just-in-time basis, resulting in significantly lower
warehouse and material handling expense as compared to the same period in
1996. The implementation of just-in-time manufacturing of outdoor gym
sets has enabled Hedstrom to carry a lower level of outdoor gym set
inventory and, as a result, to eliminate the need for utilizing third
party warehouses for outdoor gym sets. Management believes the Company
will save approximately $2.1 million of warehouse and material handling
expense in 1997 and thereafter as a result of implementing just-in-time
manufacturing of outdoor gym sets.
- Improved Manufacturing Procedures. In an effort to streamline outdoor gym
set production and improve manufacturing efficiencies, in 1996 Hedstrom
(i) reduced its number of outdoor gym set product offerings, (ii)
redesigned certain outdoor gym set components to reduce the cost of such
components and (iii) further standardized many of the components among
its various outdoor gym set product offerings. Management believes these
actions will improve profitability by approximately $2.0 million in 1997
and thereafter over fiscal 1996 levels.
- In-sourcing Certain Plastic Components. Hedstrom periodically evaluates
the economics of producing internally certain plastic components used in
the production and assembly of its outdoor gym sets versus purchasing
such components externally. In 1996, Hedstrom invested approximately $3.0
million in new plastic blow-molding equipment to manufacture many of the
plastic slides that it had previously purchased from third-party vendors.
Management estimates that producing these slides internally is currently
providing annual cost savings of approximately $1.5 million as compared
to fiscal 1996 levels.
- Discontinuation of Trial Advertising Campaign. Hedstrom historically has
advertised its products in cooperation with its retail customers,
principally through print media such as newspaper circulars and
free-standing inserts sponsored by its customers. In fiscal 1996,
Hedstrom initiated, on a trial basis, its own multi-media advertising
program designed to increase consumer awareness of the Hedstrom brand
over time. The total cost for this advertising program was approximately
$1.5 million. After careful
7
<PAGE> 10
review, management determined that this trial advertising campaign would
not provide an acceptable return on investment and elected to discontinue
it. Therefore, such costs will not be incurred in 1997 and thereafter.
- Restructure Promotional Programs. Consistent with industry practice,
Hedstrom provides retailers with certain promotional allowances, a
portion of which typically is fixed in nature and a portion of which is
based on the volume of customer purchases of Hedstrom products. In late
1996, Hedstrom reduced the fixed component of certain of its promotional
allowances and restructured its promotional programs with several
customers by raising the required volumes necessary to achieve certain
promotional discounts. Management believes these initiatives will improve
profitability in 1997 and thereafter by approximately $1.4 million over
fiscal 1996 levels.
- Personnel Reductions. Hedstrom reduced its number of full-time employees
by approximately 30 people in a variety of departments in the second half
of 1996. Management believes that such personnel reductions will result
in savings of approximately $0.7 million in 1997 and thereafter over
fiscal 1996 levels.
The implementation of the 1996 Cost Reduction Plan has resulted in marked
improvement in Hedstrom's profitability in 1997 and management expects that such
initiatives will continue to contribute to enhanced profitability during the
remainder of 1997. For the six months ended June 30, 1997, which includes the
results of ERO for the month of June 1997, Hedstrom recorded net sales and
EBITDA of $104.1 million and $17.0 million, respectively, as compared with net
sales and EBITDA for the comparable period in 1996 of $96.1 million and $10.4
million, respectively. EBITDA as a percentage of net sales increased to 16% for
the six-month period ended June 30, 1997 from 11% for the comparable period in
1996. Management believes the results of operations of ERO for the period from
June 1, 1997 through June 11, 1997, prior to the tender, are not significant to
Holdings results of operations for the six-months ended June 30, 1997.
THE TRANSACTIONS
On April 10, 1997, Hedstrom and HC Acquisition Corp., a wholly owned
subsidiary of Hedstrom ("Acquisition Co."), entered into an Agreement and Plan
of Merger with ERO (the "Merger Agreement") to acquire ERO for a total
enterprise value of approximately $200 million. Pursuant to the Merger
Agreement, Acquisition Co. commenced a tender offer for all of the outstanding
shares of the common stock of ERO at a purchase price of $11.25 per share (the
"Tender Offer"). The Tender Offer was consummated on June 12, 1997. On that
date, subsequent to the consummation of the Tender Offer, (i) Acquisition Co.
was merged with and into ERO (the "Merger") with ERO surviving the Merger as a
wholly owned subsidiary of Hedstrom, (ii) certain of ERO's outstanding
indebtedness was refinanced by Hedstrom (the "ERO Refinancing") and (iii)
Hedstrom refinanced (the "Hedstrom Refinancing") its then existing revolving
credit facility (the "Old Revolving Credit Facility") and term loan facility
(the "Old Term Loan Facility"). The Tender Offer, the Merger, the ERO
Refinancing and the Hedstrom Refinancing are collectively referred to herein as
the "Acquisition".
Holdings and Hedstrom required approximately $301.1 million in cash to
consummate the Acquisition, including approximately (i) $122.6 million paid in
connection with the Tender Offer and the Merger, (ii) $82.6 million paid in
connection with the ERO Refinancing, (iii) $74.9 million paid in connection with
the Hedstrom Refinancing and (iv) $21.0 million incurred in respect of fees and
expenses. The funds required to consummate the Acquisition were provided by (i)
$75.0 million of term loans (the "Tranche A Term Loans") under a new six-year
senior secured term loan facility (the "Tranche A Term Loan Facility"), (ii)
$35.0 million of term loans (the "Tranche B Term Loans" and, together with the
Tranche A Term Loans, the "Term Loans") under a new eight-year senior secured
term loan facility (the "Tranche B Term Loan Facility" and, together with the
Tranche A Term Loan Facility, the "Term Loan Facilities"), (iii) $16.1 million
of borrowings under a new $70.0 million senior secured revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Loan Facilities,
the "Senior Credit Facilities"), (iv) $110.0 million of gross proceeds from the
offering (the "Original Senior Subordinated Notes Offering") by Hedstrom of the
Old Senior Subordinated Notes, (v) $25.0 million of gross proceeds from the
offering (the "Units Offering" and, together with the Original Senior
Subordinated Notes Offering, the "Original Offerings") by Holdings of 44,612
units (the "Units")
8
<PAGE> 11
consisting of the Old Discount Notes and 2,705,896 shares (the "Shares") of
common stock, $.01 par value per share, of Holdings ("Holdings Common Stock")
and (vi) $40.0 million of gross proceeds from the private placement (the "Equity
Private Placement" and, together with the Original Offerings and the borrowings
under the Senior Credit Facilities, the "Financings") of shares of non-voting
common stock, $.01 par value per share, of Holdings ("Holdings Non-Voting Common
Stock") and Holdings Common Stock.
The following table sets forth the sources and uses of funds in connection
with the Transactions.
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT USES OF FUNDS AMOUNT
---------------- ------ ------------- ------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Revolving Credit Facility........ $ 16.1 Tender Offer/Merger.............. $122.6
Tranche A Term Loans............. 75.0 ERO Refinancing(a)............... 82.6
Tranche B Term Loans............. 35.0 Hedstrom Refinancing(a).......... 74.9
Original Senior Subordinated
Notes Fees and expenses(b)............. 21.0
------ ------
Offering....................... 110.0
Units Offering................... 25.0
Equity Private Placement......... 40.0
------
Total Sources............... $301.1 Total Uses....................... $301.1
====== ======
</TABLE>
- ---------------
(a) Includes accrued interest expense.
(b) Fees and expenses include Initial Purchasers' discount, bank fees, financial
advisory fees, legal and accounting fees, printing costs and other expenses
related to the Transactions.
9
<PAGE> 12
ORGANIZATIONAL CHART
The following chart depicts (i) the summary organizational structure of
Holdings and the Company and its material subsidiaries after consummation of the
Transactions and (ii) the sources of financing for the Transactions.
LOGO
- ---------------
(1) The Revolving Credit Facility provides for borrowings of up to $70 million
(subject to certain borrowing base requirements). See "Description of the
Senior Credit Facilities."
10
<PAGE> 13
MANAGEMENT AND OWNERSHIP
The principal shareholders of Holdings are Hicks, Muse, Tate & Furst Equity
Fund II, L.P. ("HM Fund II"), an affiliate of Hicks, Muse, Tate & Furst
Incorporated ("Hicks Muse"), and certain members of Hedstrom's senior
management. Hicks Muse is a private investment firm based in Dallas, New York,
St. Louis and Mexico City that specializes in acquisitions, recapitalizations
and other principal investing activities. Since Hicks Muse's inception in 1989,
the firm has completed or has pending over 70 transactions having a combined
transaction value of approximately $19 billion. Hedstrom's senior management
team, led by Arnold E. Ditri, its President and Chief Executive Officer, has
extensive and diverse experience in managing consumer and industrial products
companies, especially within the confines of a leveraged capital structure.
In October 1995, HM Fund II, together with certain other investors (the "HM
Group"), acquired an 82% common equity interest in Holdings in a transaction
that was accounted for as a recapitalization (the "1995 Recapitalization"). The
total enterprise value of Hedstrom at the time of the 1995 Recapitalization,
including the assumption and refinancing of certain indebtedness, was
approximately $75 million. The HM Group paid approximately $27 million for its
common equity interest, which, together with Hedstrom senior management's 18%
retained common equity ownership, implied a total equity value of Holdings at
that time of approximately $33 million. Pursuant to the Equity Private
Placement, HM Fund II and certain affiliates thereof purchased an additional $40
million of Holdings' common equity.
11
<PAGE> 14
THE EXCHANGE OFFERS
THE SENIOR SUBORDINATED NOTES EXCHANGE OFFER:
The Senior Subordinated Notes Exchange Offer applies to $110.0 million
aggregate principal amount of the Old Senior Subordinated Notes. The form and
terms of the New Senior Subordinated Notes will be the same as the form and
terms of the Old Senior Subordinated Notes except that (i) interest on the New
Senior Subordinated Notes will accrue from the date of issuance of the Old
Senior Subordinated Notes, and (ii) the New Senior Subordinated Notes are being
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer. The New Senior Subordinated Notes will evidence the
same debt as the Old Senior Subordinated Notes and will be entitled to the
benefits of the Senior Subordinated Notes Indenture (as defined) pursuant to
which the Old Senior Subordinated Notes were issued. The Old Senior Subordinated
Notes and the New Senior Subordinated Notes are sometimes referred to
collectively herein as the "Senior Subordinated Notes." See "Description of New
Senior Subordinated Notes."
The Senior Subordinated
Notes Exchange Offer....... $1,000 principal amount of New Senior Subordinated
Notes in exchange for each $1,000 principal amount
of Old Senior Subordinated Notes. As of the date
hereof, Old Senior Subordinated Notes representing
$110.0 million aggregate principal amount are
outstanding. The terms of the New Senior
Subordinated Notes and the Old Senior Subordinated
Notes are substantially identical.
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to Hedstrom, Holdings and
the Subsidiary Guarantors, Hedstrom, Holdings and
the Subsidiary Guarantors believe that New Senior
Subordinated Notes issued pursuant to the Senior
Subordinated Notes Exchange Offer in exchange for
Old Senior Subordinated Notes may be offered for
resale, resold and otherwise transferred by any
person receiving the New Senior Subordinated Notes,
whether or not that person is the holder (other
than any such holder or such other person that is
an "affiliate" of Hedstrom, Holdings or any
Subsidiary Guarantors within the meaning of Rule
405 under the Securities Act), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that (i)
the New Senior Subordinated Notes are acquired in
the ordinary course of business of that holder or
such other person, (ii) neither the holder nor such
other person is engaging in or intends to engage in
a distribution of the New Senior Subordinated
Notes, and (iii) neither the holder nor such other
person has an arrangement or understanding with any
person to participate in the distribution of the
New Senior Subordinated Notes. See "The Exchange
Offers -- Purpose and Effect." Each broker-dealer
that receives New Senior Subordinated Notes for its
own account in exchange for Old Senior Subordinated
Notes, where those Old Senior Subordinated Notes
were acquired by the broker-dealer as a result of
its market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
New Senior Subordinated Notes. See "Plan of
Distribution."
Registration Rights
Agreement.................. The Old Senior Subordinated Notes were sold by
Hedstrom on June 12, 1997, in a private placement.
In connection with the sale, Hedstrom and Holdings
entered into a Registration Rights Agreement with
the initial purchasers (the "Initial Purchasers")
of the Old Notes (the "Registration Rights
Agreement") providing for, among other things, the
Senior Subordinated Notes Exchange Offer. See "The
Exchange Offers -- Purpose and Effect."
12
<PAGE> 15
Expiration Date............ The Senior Subordinated Notes Exchange Offer will
expire at 5:00 p.m., New York City time, on ,
1997, or such later date and time to which it is
extended.
Withdrawal................. The tender of Old Senior Subordinated Notes
pursuant to the Senior Subordinated Notes Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Old Senior Subordinated Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Senior
Subordinated Notes Exchange Offer.
Interest on the New Senior
Subordinated Notes and
Old
Senior Subordinated
Notes.................... Interest on each New Senior Subordinated Note will
accrue from the date of issuance of the Old Senior
Subordinated Note for which such New Senior
Subordinated Note is exchanged.
Conditions to the Senior
Subordinated Notes
Exchange Offer........... The Senior Subordinated Notes Exchange Offer is
subject to certain customary conditions, certain of
which may be waived by Hedstrom. See "The Exchange
Offers -- Certain Conditions to the Exchange
Offers."
Procedures for Tendering
Old
Senior Subordinated
Notes.................... Each holder of Old Senior Subordinated Notes
wishing to accept the Senior Subordinated Notes
Exchange Offer must complete, sign and date the
accompanying letter of transmittal relating to the
Senior Subordinated Notes Exchange Offer (the
"Senior Subordinated Notes Letter of Transmittal"),
or a copy thereof, in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver the Senior Subordinated Notes
Letter of Transmittal, or the copy, together with
the Old Senior Subordinated Notes and any other
required documentation, to the Senior Subordinated
Notes Exchange Agent (as defined) at the address
set forth in the Senior Subordinated Notes Letter
of Transmittal. Persons holding Old Senior
Subordinated Notes through the Depository Trust
Company ("DTC") and wishing to accept the Senior
Subordinated Notes Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program, by which each tendering Participant will
agree to be bound by the Senior Subordinated Notes
Letter of Transmittal. By executing or agreeing to
be bound by the Senior Subordinated Notes Letter of
Transmittal, each holder will represent to Hedstrom
that, among other things, (i) the New Senior
Subordinated Notes acquired pursuant to the Senior
Subordinated Notes Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Senior Subordinated
Notes, whether or not such person is the holder of
the Old Senior Subordinated Notes, (ii) neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Senior Subordinated
Notes within the meaning of the Securities Act,
(iii) neither the holder nor any such other person
is an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of Hedstrom,
Holdings or any Subsidiary Guarantor, or if it is
an affiliate, such holder or such other person will
comply with the registration and prospectus
delivery requirements of the Securities Act to the
extent applicable, (iv) if such holder or other
person is not a broker-dealer, neither the holder
nor any such other person is engaged in or intends
to engage in the distribution of such New
13
<PAGE> 16
Senior Subordinated Notes, and (v) if such holder
or other person is a broker-dealer, that it will
receive New Senior Subordinated Notes for its own
account in exchange for Old Senior Subordinated
Notes that were acquired as a result of
market-making activities or other trading
activities and that it will be required to
acknowledge that it will deliver a prospectus in
connection with any resale of such New Senior
Subordinated Notes. See "The Exchange
Offers -- Procedures for Tendering."
Shelf Registration
Requirement................ Pursuant to the Registration Rights Agreement,
Hedstrom and Holdings are required to file a
"shelf" registration statement for a continuous
offering pursuant to Rule 415 under the Securities
Act in respect of the Old Senior Subordinated Notes
(and use their reasonable best efforts to cause
such shelf registration statement to be declared
effective by the Commission and keep it
continuously effective, supplemented and amended
for prescribed periods) if (i) Hedstrom is not
permitted to effect the Senior Subordinated Notes
Exchange Offer because of any change in law or in
applicable interpretations thereof by the staff of
the Commission, (ii) the Senior Subordinated Notes
Exchange Offer is not consummated within 180 days
of the date of issuance of the Old Senior
Subordinated Notes, (iii) any Initial Purchaser so
requests with respect to Old Senior Subordinated
Notes not eligible to be exchanged for New Senior
Subordinated Notes in the Senior Subordinated Notes
Exchange Offer and held by it following
consummation of the Senior Subordinated Notes
Exchange Offer, or (iv) any holder of Old Senior
Subordinated Notes (other than a broker-dealer
electing to exchange Old Notes, acquired for its
own account as a result of market-making activities
or other trading activities, for New Notes (an
"Exchanging Dealer")) is not eligible to
participate in the Senior Subordinated Notes
Exchange Offer or, in the case of any holder of Old
Senior Subordinated Notes (other than an Exchanging
Dealer) that participates in the Senior
Subordinated Notes Exchange Offer, such holder does
not receive freely tradeable New Senior
Subordinated Notes upon consummation of the Senior
Subordinated Notes Exchange Offer.
Acceptance of Old Senior
Subordinated Notes and
Delivery of New Senior
Subordinated Notes....... Hedstrom will accept for exchange any and all Old
Senior Subordinated Notes which are properly
tendered in the Senior Subordinated Notes Exchange
Offer prior to the Expiration Date. The New Senior
Subordinated Notes issued pursuant to the Senior
Subordinated Notes Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offers -- Terms of the Exchange Offers."
Senior Subordinated Notes
Exchange Agent........... IBJ Schroder Bank & Trust Company is serving as
Exchange Agent (the "Senior Subordinated Notes
Exchange Agent") in connection with the Senior
Subordinated Notes Exchange Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Senior Subordinated
Notes Exchange Offer should not be a taxable event
for federal income tax purposes. See "Certain
Federal Income Tax Considerations of the Exchange
Offers."
Effect of Not Tendering.... Old Senior Subordinated Notes that are not tendered
or that are tendered but not accepted will,
following the completion of the Senior Subordinated
14
<PAGE> 17
Notes Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof.
THE DISCOUNT NOTES EXCHANGE OFFER:
The Discount Notes Exchange Offer applies to $44,612,000 aggregate
principal amount at maturity of the Old Discount Notes. The form and terms of
the New Discount Notes will be the same as the form and terms of the Old
Discount Notes except that (i) the Accreted Value (as defined) of the New
Discount Notes will be calculated from the date of issuance of the Old Discount
Notes, and (ii) the New Discount Notes are being registered under the Securities
Act and, therefore, will not bear legends restricting their transfer. The New
Discount Notes will evidence the same debt as the Old Discount Notes and will be
entitled to the benefits of the Discount Notes Indenture (as defined) pursuant
to which the Old Discount Notes were issued. The Old Discount Notes and the New
Discount Notes are sometimes referred to collectively herein as the "Discount
Notes." See "Description of New Discount Notes."
The Discount Notes Exchange
Offer.................... $1,000 principal amount at maturity of New Discount
Notes in exchange for each $1,000 principal amount
at maturity of Old Discount Notes. As of the date
hereof, Old Discount Notes representing $44,612,000
aggregate principal amount at maturity are
outstanding. The terms of the New Discount Notes
and the Old Discount Notes are substantially
identical.
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to Holdings, Holdings
believes that New Discount Notes issued pursuant to
the Discount Notes Exchange Offer in exchange for
Old Discount Notes may be offered for resale,
resold and otherwise transferred by any person
receiving the New Discount Notes, whether or not
that person is the holder (other than any such
holder or such other person that is an "affiliate"
of Holdings within the meaning of Rule 405 under
the Securities Act), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) the New
Discount Notes are acquired in the ordinary course
of business of that holder or such other person,
(ii) neither the holder nor such other person is
engaging in or intends to engage in a distribution
of the New Discount Notes, and (iii) neither the
holder nor such other person has an arrangement or
understanding with any person to participate in the
distribution of the New Discount Notes. See "The
Exchange Offers -- Purpose and Effect." Each
broker-dealer that receives New Discount Notes for
its own account in exchange for Old Discount Notes,
where those Old Discount Notes were acquired by the
broker-dealer as a result of its market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Discount
Notes. See "Plan of Distribution."
Registration Rights
Agreement.................. The Old Discount Notes were sold by Holdings on
June 12, 1997, in a private placement. In
connection with the sale, Hedstrom and Holdings
entered into the Registration Rights Agreement
providing for, among other things, the Discount
Notes Exchange Offer. See "The Exchange Offers --
Purpose and Effect."
Expiration Date............ The Discount Notes Exchange Offer will expire at
5:00 p.m., New York City time, on , 1997, or
such later date and time to which it is extended.
Withdrawal................. The tender of Old Discount Notes pursuant to the
Discount Notes Exchange Offer may be withdrawn at
any time prior to the Expiration
15
<PAGE> 18
Date. Any Old Discount Notes not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination
of the Discount Notes Exchange Offer.
Accreted Value of the New
Discount Notes and Old
Discount Notes........... The Accreted Value of each New Discount Note will
be calculated from the date of issuance of the Old
Discount Note for which such New Discount Note is
exchanged.
Conditions to the Discount
Notes Exchange Offer....... The Discount Notes Exchange Offer is subject to
certain customary conditions, certain of which may
be waived by Hedstrom. See "The Exchange
Offers -- Certain Conditions to the Exchange
Offers."
Procedures for Tendering
Old Discount Notes......... Each holder of Old Discount Notes wishing to accept
the Discount Notes Exchange Offer must complete,
sign and date the accompanying letter of
transmittal relating to the Discount Notes Exchange
Offer (the "Discount Notes Letter of Transmittal";
the Discount Notes Letter of Transmittal and the
Senior Subordinated Notes Letter of Transmittal are
sometimes referred to herein individually as a
"Letter of Transmittal" and collectively as the
"Letters of Transmittal"), or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Discount Notes Letter of Transmittal, or the copy,
together with the Old Discount Notes and any other
required documentation, to the Discount Notes
Exchange Agent (as defined) at the address set
forth in the Discount Notes Letter of Transmittal.
Persons holding Old Discount Notes through the
Depository Trust Company ("DTC") and wishing to
accept the Discount Notes Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program, by which each tendering Participant will
agree to be bound by the Discount Notes Letter of
Transmittal. By executing or agreeing to be bound
by the Discount Notes Letter of Transmittal, each
holder will represent to Holdings that, among other
things, (i) the New Discount Notes acquired
pursuant to the Discount Notes Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such New Discount Notes,
whether or not such person is the holder of the Old
Discount Notes, (ii) neither the holder nor any
such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Discount Notes within the
meaning of the Securities Act, (iii) neither the
holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the
Securities Act, of Holdings, or if it is an
affiliate, such holder or such other person will
comply with the registration and prospectus
delivery requirements of the Securities Act to the
extent applicable, (iv) if such holder or other
person is not a broker-dealer, neither the holder
nor any such other person is engaged in or intends
to engage in the distribution of such New Discount
Notes, and (v) if such holder or other person is a
broker-dealer, that it will receive New Discount
Notes for its own account in exchange for Old
Discount Notes that were acquired as a result of
market-making activities or other trading
activities and that it will be required to
acknowledge that it will deliver a prospectus in
connection with any resale of such new Discount
Notes.
16
<PAGE> 19
Shelf Registration
Requirement................ Pursuant to the Registration Rights Agreement,
Holdings is required to file a "shelf" registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the
Old Discount Notes (and use its best efforts to
cause such shelf registration statement to be
declared effective by the Commission and keep it
continuously effective, supplemented and amended
for prescribed periods) if (i) Holdings is not
permitted to effect the Discount Notes Exchange
Offer because of any change in law or in applicable
interpretations thereof by the staff of the
Commission, (ii) the Discount Notes Exchange Offer
is not consummated within 180 days of the date of
issuance of the Old Discount Notes, (iii) any
Initial Purchaser so requests with respect to Old
Discount Notes not eligible to be exchanged for new
Discount Notes in the Discount Notes Exchange Offer
and held by it following consummation of the
Discount Notes Exchange Offer, or (iv) any holder
of Old Discount Notes (other than an Exchanging
Dealer) is not eligible to participate in the
Discount Notes Exchange Offer or, in the case of
any holder of Old Discount Notes (other than an
Exchanging Dealer) that participates in the
Discount Notes Exchange Offer, such holder does not
receive freely tradeable New Discount Notes upon
consummation of the Discount Notes Exchange Offer.
Acceptance of Old Discount
Notes and Delivery of New
Discount Notes........... Holdings will accept for exchange any and all Old
Discount Notes which are properly tendered in the
Discount Notes Exchange Offer prior to the
Expiration Date. The New Discount Notes issued
pursuant to the Discount Notes Exchange Offer will
be delivered promptly following the Expiration
Date. See "The Exchange Offers -- Terms of the
Exchange Offer."
Discount Notes Exchange
Agent...................... United States Trust Company of New York is serving
as Exchange Agent (the "Discount Notes Exchange
Agent"; the Senior Subordinated Notes Exchange
Agent and the Discount Notes Exchange Agent are
sometimes referred to herein individually as an
"Exchange Agent" and collectively as the "Exchange
Agents") in connection with the Discount Notes
Exchange Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Discount Notes
Exchange Offer should not be a taxable event for
federal income tax purposes. See "Certain Federal
Income Tax Considerations of the Exchange Offers."
Effect of Not Tendering.... Old Discount Notes that are not tendered or that
are tendered but not accepted will, following the
completion of the Discount Notes Exchange Offer,
continue to be subject to the existing restrictions
upon transfer thereof.
17
<PAGE> 20
TERMS OF THE NEW NOTES
NEW SENIOR SUBORDINATED NOTES:
Issuer..................... Hedstrom Corporation.
Securities Offered......... $110.0 million aggregate principal amount of 10%
Senior Subordinated Notes Due 2007.
Maturity................... June 1, 2007.
Interest Payment Dates..... June 1 and December 1 of each year, commencing
December 1, 1997.
Optional Redemption........ The New Senior Subordinated Notes will not be
redeemable at the option of Hedstrom prior to June
1, 2002, except (i) that until June 1, 2000,
Hedstrom may redeem, at its option, in the
aggregate up to $44,000,000 principal amount of the
Senior Subordinated Notes at the redemption price
set forth herein with the net proceeds of one or
more Equity Offerings (as defined) if at least
$66,000,000 principal amount of the Senior
Subordinated Notes remains outstanding after any
such redemption and (ii) upon a Change of Control
(as defined), as described below. On or after June
1, 2002, the New Senior Subordinated Notes may be
redeemed at the option of Hedstrom, in whole or in
part, at any time at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. See
"Description of the New Senior Subordinated
Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control, (i) Hedstrom will have
the option, at any time on or prior to June 1,
2002, to redeem the New Senior Subordinated Notes,
in whole but not in part, at a redemption price
equal to 100% of the principal amount thereof plus
the Applicable Premium (as defined) and accrued and
unpaid interest, if any, to the date of redemption,
and (ii) if Hedstrom does not redeem the New Senior
Subordinated Notes pursuant to clause (i) above or
if such Change of Control occurs after June 1,
2002, each holder of New Senior Subordinated Notes
may require Hedstrom to repurchase all or any
portion of such holder's New Senior Subordinated
Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. There
can be no assurance that Hedstrom will be able to
raise sufficient funds to meet this repurchase
obligation should it arise. See "Description of the
New Senior Subordinated Notes -- Optional
Redemption" and " -- Change of Control."
Ranking and Guaranties..... The New Senior Subordinated Notes will be unsecured
senior subordinated obligations of Hedstrom and
will be unconditionally guaranteed (jointly and
severally) on a senior basis by Holdings (the
"Holdings Guaranty") and on a senior subordinated
basis (the "Subsidiary Guaranties" and, together
with the Holdings Guaranty, the "Guaranties") by
each domestic subsidiary of Hedstrom (the
"Subsidiary Guarantors"). The New Senior
Subordinated Notes will be subordinated in right of
payment to all Senior Indebtedness (as defined) of
Hedstrom and will rank pari passu in right of
payment with all Senior Subordinated Indebtedness
(as defined) of Hedstrom. The Holdings Guaranty
will be an unsecured senior obligation of Holdings
and will rank pari passu in right of payment with
all Holdings Senior Indebtedness (as defined). Each
Subsidiary Guaranty will be subordinated in right
of payment to all Subsidiary Guarantor Senior
18
<PAGE> 21
Indebtedness (as defined) of the relevant
Subsidiary Guarantor and will rank pari passu in
right of payment with all Subsidiary Guarantor
Senior Subordinated Indebtedness (as defined) of
the relevant Subsidiary Guarantor. As of June 30,
1997, Senior Indebtedness of Hedstrom, Holdings
Senior Indebtedness and Subsidiary Guarantor Senior
Indebtedness were approximately $117.7 million,
$244.3 million and $112.7 million, respectively,
and Senior Subordinated Indebtedness of Hedstrom
and Subsidiary Guarantor Senior Subordinated
Indebtedness were approximately $110.0 million and
$110.0 million, respectively. See "Description of
New Senior Subordinated Notes -- Guaranties" and
"-- Ranking and Subordination."
Restrictive Covenants...... The Senior Subordinated Notes Indenture contains
certain covenants that, among other things, limit
(i) the incurrence of additional Indebtedness by
Hedstrom and its Restricted Subsidiaries (as
defined), (ii) the payment of dividends and other
restricted payments by Hedstrom and its Restricted
Subsidiaries, (iii) restrictions on distributions
from Restricted Subsidiaries, (iv) asset sales, (v)
transactions with affiliates, (vi) sales or
issuances of Restricted Subsidiary capital stock
and (vii) mergers and consolidations. All of these
limitations and prohibitions, however, are subject
to a number of important qualifications and
exceptions. See "Description of New Senior
Subordinated Notes -- Certain Covenants."
Use of Proceeds............ There will be no cash proceeds to Hedstrom from the
exchange of New Senior Subordinated Notes for Old
Senior Subordinated Notes pursuant to the Senior
Subordinated Notes Exchange Offer. The net proceeds
from the Original Senior Subordinated Notes
Offering were used, together with proceeds from the
other Financings, to effect the Acquisition.
NEW DISCOUNT NOTES:
Issuer..................... Hedstrom Holdings, Inc.
Securities Offered......... $44,612,000 aggregate principal amount at maturity
of 12% Senior Discount Notes Due 2009.
Maturity................... June 1, 2009.
Yield and Interest......... The Old Discount Notes were issued at a substantial
discount from the principal amount at maturity of
such notes. Principal on each New Discount Note
will accrete from the date of issuance of the Old
Discount Notes to a principal amount of $1,000 on
June 1, 2002, representing a yield to maturity of
12% (based on the issue price of a Unit and
computed on a semi-annual bond equivalent basis).
Except as described herein, no cash interest will
accrue on the New Discount Notes prior to June 1,
2002. Thereafter, cash interest will accrue at a
rate of 12% per annum, and cash interest will be
payable on June 1 and December 1 of each year,
commencing December 1, 2002. There can be no
assurance that Holdings will have adequate cash
available at the time of any scheduled cash
interest payments.
Original Issue Discount.... For U.S. federal income tax purposes, the New
Discount Notes will bear original issue discount
("OID") and each holder of a New Discount Note will
be required to include such OID in gross income for
U.S. federal income tax purposes, on a constant
yield to maturity basis, in advance of the receipt
of the cash payments to which such income is
attributable. See
19
<PAGE> 22
"Certain United States Federal Income Tax
Considerations with Respect to the New Notes."
Optional Redemption........ The New Discount Notes will not be redeemable at
the option of Holdings prior to June 1, 2002,
except (i) that until June 1, 2000, Holdings may
redeem, at its option, in the aggregate up to 40%
of the Accreted Value of the Discount Notes at the
redemption price set forth herein with the net
proceeds of one or more Equity Offerings if at
least $26,767,200 principal amount at maturity of
the Discount Notes remains outstanding after any
such redemption and (ii) upon a Change of Control,
as described below. On or after June 1, 2002, the
New Discount Notes may be redeemed at the option of
Holdings, in whole or in part, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
See "Description of the New Discount
Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control, (i) Holdings will have
the option, at any time on or prior to June 1,
2002, to redeem the New Discount Notes, in whole
but not in part, at a redemption price equal to
100% of the Accreted Value thereof plus the
Applicable Premium and accrued and unpaid interest,
if any, to the date of redemption, and (ii) if
Holdings does not redeem the New Discount Notes
pursuant to clause (i) above or if such Change of
Control occurs after June 1, 2002, each holder of
New Discount Notes may require Holdings to
repurchase all or any portion of such holder's New
Discount Notes at a purchase price equal to 101% of
the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of repurchase. There
can be no assurance that Holdings will be able to
raise sufficient funds to meet this repurchase
obligation should it arise. See "Description of the
New Discount Notes -- Optional Redemption" and
"-- Change of Control."
Ranking.................... The New Discount Notes will be unsecured senior
obligations of Holdings and will rank pari passu in
right of payment with all Senior Indebtedness of
Holdings, including the Holdings Guaranty and
Holdings' guarantee of the Senior Credit
Facilities. Except for the 1995 Recapitalization
Notes (as defined) in an aggregate principal amount
of $2.5 million, Holdings has not issued, and does
not have any arrangement to issue, any indebtedness
that would be subordinated to the New Discount
Notes. Holdings is a holding company with no
operations of its own and whose primary asset is
the capital stock of Hedstrom, all of which is
pledged to secure Holdings' guarantee of the Senior
Credit Facilities. As a result of the holding
company structure, the holders of the New Discount
Notes will effectively rank junior in right of
payment to all creditors of Hedstrom and its
subsidiaries, including the lenders under the
Senior Credit Facilities, holders of the Senior
Subordinated Notes and trade creditors. As of June
30, 1997, the New Discount Notes were effectively
subordinated to approximately $282.4 million of
aggregate liabilities (including trade payables) of
Hedstrom and its subsidiaries.
Restrictive Covenants...... The Discount Notes Indenture (as defined) contains
certain covenants that, among other things, limit
(i) the incurrence of additional Indebtedness by
Holdings and its Restricted Subsidiaries, (ii) the
payment of dividends and other restricted payments
by Holdings and its Restricted Subsidiaries, (iii)
restrictions on distributions from Restricted
Subsidiaries, (iv) asset sales, (v) transactions
with affiliates, (vi) sales or issuances of
Restricted
20
<PAGE> 23
Subsidiary capital stock and (vii) mergers and
consolidations. All of these limitations and
prohibitions, however, are subject to a number of
important qualifications and exceptions. See
"Description of the New Discount Notes -- Certain
Covenants."
Use of Proceeds............ There will be no cash proceeds to Holdings from the
exchange of New Discount Notes for Old Discount
Notes pursuant to the Discount Notes Exchange
Offer. The net proceeds from the Units Offering
were used, together with the proceeds from the
other Financings, to effect the Acquisition.
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors" for risks involved with an investment in
the New Notes.
21
<PAGE> 24
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma consolidated
financial data for Holdings and the Company. The pro forma information is
derived from the "Unaudited Pro Forma Consolidated Financial Information"
contained elsewhere herein that gives pro forma effect to the Transactions and a
portion of the cost savings expected to result from the 1996 Cost Reduction
Plan. The pro forma income statement and other financial data give effect to the
Transactions and such cost savings as if they were consummated on January 1,
1996. The pro forma financial data do not purport to represent what the results
of operations of the Company and Holdings and its subsidiaries would actually
have been had the Transactions and the cost savings in fact been consummated on
the assumed date or to project the results of operations of Holdings and its
subsidiaries for any future period. The pro forma information presented below is
based on assumptions which management believes are reasonable and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Hedstrom and Holdings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of ERO" and the
consolidated financial statements and the notes thereto for each of Holdings and
ERO included elsewhere herein.
<TABLE>
<CAPTION>
COMPANY HOLDINGS
------------------------------- -------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------------ ---------------- ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $283,307 $142,355 $283,307 $142,355
Cost of sales..................... 196,646 102,315 196,646 102,315
-------- -------- -------- --------
Gross profit...................... 86,661 40,040 86,661 40,040
Selling, general and
administrative expenses........ 56,684 25,233 56,684 25,233
-------- -------- -------- --------
Operating income.................. 29,977 14,807 29,977 14,807
OTHER FINANCIAL DATA:
EBITDA(a)......................... $ 44,494 $ 20,721 $ 44,494 $ 20,721
Depreciation and
amortization(b)................ 11,967 5,914 11,967 5,914
Capital expenditures.............. 10,397 5,258 10,397 5,258
Cash interest expense(c).......... 22,969 11,498 23,219 11,623
Ratio of EBITDA to cash interest
expense(d)..................... 1.9x -- 1.9x --
Ratio of EBITDA to interest
expense(d)..................... 1.8x -- 1.6x --
Ratio of debt to EBITDA(d)(e)..... 5.2x -- 5.7x --
</TABLE>
footnotes on following page
22
<PAGE> 25
- ---------------
(a) EBITDA represents operating income plus depreciation, amortization, and,
for the twelve months ended December 31, 1996, certain other one-time
charges aggregating approximately $2.55 million, as follows: (i) $0.8
million related to a one-time design adjustment to one of Hedstrom's
outdoor gym set accessories to address certain alleged defects, (ii) a
non-cash inventory write-down of $0.75 million related to the mix shift in
Hedstrom's outdoor gym set product line, and (iii) a $1.0 million non-cash
write-off of advertising barter credits by Hedstrom in connection with its
decision to discontinue its trial advertising campaign. Management believes
EBITDA for the twelve months ended December 31, 1996, as adjusted for these
one-time charges, provides a more meaningful comparison of historical
results. While EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an indicator
of operating performance or an alternative to cash flow or operating income
(as measured by GAAP) or as a measure of liquidity, it is included herein
to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in interest
expense.
(c) Excludes non-cash interest expense on the Discount Notes and non-cash
amortization of debt issuance costs.
(d) A significant portion of the Company's EBITDA is generated by its Amav
division in the second half of the Company's fiscal year. As a result, the
ratios of EBITDA to cash interest expense, EBITDA to interest expense, and
total debt to EBITDA for the six months ended June 30, 1997 are not
accurate representations of full-year results.
(e) Calculated using pro forma debt as of December 31, 1996 and pro forma
EBITDA for the year ended December 31, 1996 for Hedstrom and Holdings.
23
<PAGE> 26
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF HOLDINGS
The summary information below represents financial information of Holdings
and its subsidiaries for each of the fiscal years indicated in the three-year
period ended July 31, 1996, for the five-month periods ended December 31, 1995
and December 31, 1996, and for the six-month periods ended June 30, 1996 and
June 30, 1997, which information was derived from the audited consolidated
financial statements of Holdings for each of the fiscal years in the three-year
period ended July 31, 1996, from the audited consolidated financial statements
of Holdings for the five-month period ended December 31, 1996, and from the
unaudited consolidated financial statements of Holdings for the five-month
period ended December 31, 1995 and the six-month periods ended June 30, 1996 and
June 30, 1997. Income statement and other financial data for the six months
ended June 30, 1997 reflects the operations of ERO for the month of June 1997
and the balance sheet data as of June 30, 1997 includes the Transactions.
Holdings historically had a fiscal year ending July 31 but switched its fiscal
year to December 31, effective in 1997.
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, DECEMBER 31, JUNE 30,
------------------------------ ------------------ -------------------
1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $108,655 $133,862 $133,194 $ 31,792 $23,994 $ 96,059 $104,051
Cost of sales......................... 87,170 107,312 105,068 26,000 21,973 72,897 73,579
-------- -------- -------- -------- ------- -------- --------
Gross profit.......................... 21,485 26,550 28,126 5,792 2,021 23,162 30,472
Selling, general and administrative
expenses............................ 18,181 19,207 24,603 7,067 7,546 15,107 16,242
-------- -------- -------- -------- ------- -------- --------
Operating income (loss)............... 3,304 7,343 3,523 (1,275) (5,525) 8,055 14,230
OTHER FINANCIAL DATA:
EBITDA(a)............................. $ 5,529 $ 10,088 $ 9,420 $ (393) $(3,549) $ 10,377 $ 16,997
Depreciation and amortization(b)...... 2,225 2,745 3,347 882 1,976 2,322 2,767
Capital expenditures.................. 2,988 2,574 6,738 1,342 1,376 4,792 3,446
Ratio (deficiency) of earnings to
fixed charges(c).................... 1.1x 1.6x (11,973) (12,648) (7,640) -- --
BALANCE SHEET DATA (END OF PERIOD):
Total assets.......................... $ 60,005 $ 69,809 $ 85,024 $ 70,459 $72,075 $100,206 $349,962
Total debt (including current
maturities)......................... 29,811 32,710 69,306 57,750 60,171 77,956 255,389
Stockholders' equity (deficit)........ 14,647 15,392 1,674 2,055 (3,097) 4,556 44,332
</TABLE>
- ---------------
(a) EBITDA represents operating income plus depreciation and amortization and,
for the twelve months ended July 31, 1996, certain other one-time charges
aggregating $2.55 million (see "Unaudited Pro Forma Consolidated Financial
Information"). Management believes EBITDA for the twelve months ended
December 31, 1996, as adjusted for these one-time charges, provides a more
meaningful comparison of historical results. While EBITDA is not intended
to represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow or operating income (as measured by GAAP) or as a measure of
liquidity, it is included herein to provide additional information with
respect to the ability of Holdings to meet its future debt service, capital
expenditures and working capital requirements.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred financing costs that is included in interest
expense.
(c) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes and fixed charges.
Fixed charges consist of (i) interest, whether expensed or capitalized;
(ii) amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized; and (iii) that portion of
rental expense considered to represent interest cost (assumed to be one-
third). Due to the seasonal nature of Hedstrom's business, the ratio of
earnings to fixed charges for the six months ended June 30, 1996 and June
30, 1997 are not accurate representations of full-year results. If the
ratio is less than 1.0x, the deficiency is shown.
24
<PAGE> 27
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF ERO
The summary information below represents financial information of ERO and
its subsidiaries for each of the fiscal years indicated in the three-year period
ended December 31, 1996, and for the three-month periods ended March 31, 1996
and March 31, 1997, which information was derived from the audited consolidated
financial statements of ERO for each of the fiscal years in the three-year
period ended December 31, 1996, and from the unaudited consolidated financial
statements of ERO for the three-month periods ended March 31, 1996 and March 31,
1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $126,734 $128,722 $157,913 $ 18,883 $ 19,939
Cost of sales......................... 79,776 80,693 97,802 13,264 13,814
-------- -------- -------- -------- --------
Gross profit.......................... 46,958 48,029 60,111 5,619 6,125
Selling, general and administrative
expenses........................... 34,078 33,183 38,896 7,553 7,763
-------- -------- -------- -------- --------
Operating income (loss)............... 12,880 14,846 21,215 (1,934) (1,638)
OTHER FINANCIAL DATA:
EBITDA(a)............................. $ 15,949 $ 18,411 $ 26,504 $ (590) $ (315)
Depreciation and amortization(b)...... 3,069 3,565 5,289 1,344 1,323
Capital expenditures.................. 1,287 1,772 3,625 448 289
Ratio of earnings to fixed
charges(c)......................... 5.5x 5.9x 2.2x -- --
BALANCE SHEET DATA (END OF PERIOD):
Total assets.......................... $ 56,792 $144,138 $159,994 $131,353 $136,381
Total debt (including current
maturities)........................ 11,875 84,998 95,640 82,041 79,431
Stockholders' equity.................. 27,997 36,064 43,014 32,789 40,649
</TABLE>
- ---------------
(a) EBITDA represents operating income plus depreciation, and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow or operating income (as measured
by GAAP) or as a measure of liquidity, it is included herein to provide
additional information with respect to the ability of ERO to meet its
future debt service, capital expenditures and working capital requirements.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred financing costs that is included in interest
expense.
(c) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized; (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized; and (iii)
that portion of rental expense considered to represent interest cost
(assumed to be one-third). Due to the seasonal nature of ERO's business,
the ratio of earnings to fixed charges for the three months ended March 31,
1996 and March 31, 1997 are not accurate representations of full year
results.
25
<PAGE> 28
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the New Notes offered hereby. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, the risk factors set forth below.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
Holdings and Hedstrom incurred a substantial amount of indebtedness in
connection with the Transactions. As of June 30, 1997, Holdings had $255.4
million of consolidated indebtedness and $44.3 million of consolidated
shareholders' equity, and Hedstrom had $231.3 million of consolidated
indebtedness and $67.5 million of consolidated shareholder's equity. After
giving pro forma effect to the Transactions and a portion of the cost savings
expected to result from the 1996 Cost Reduction Plan, Holdings' ratio of
earnings to fixed charges would have been 1.1 to 1.0 for the twelve months ended
December 31, 1996, and Hedstrom's ratio of earnings to fixed charges would have
been 1.2 to 1.0 for the twelve months ended December 31, 1996. See
"Capitalization" and "Unaudited Pro Forma Consolidated Financial Information."
Holdings and Hedstrom may incur additional indebtedness in the future, subject
to certain limitations contained in the instruments and documents governing
their respective indebtedness. See "Description of Senior Credit Facilities,"
"Description of the New Senior Subordinated Notes" and "Description of the New
Discount Notes." Accordingly, Holdings and Hedstrom will have significant debt
service obligations.
Holdings' and Hedstrom's high degree of leverage could have important
consequences to holders of the New Notes, including the following: (i) a
substantial portion of Hedstrom's cash flow from operations will be dedicated to
the payment of principal of, premium (if any) and interest on its indebtedness,
thereby reducing the funds available for operations, distributions to Holdings
for payments with respect to the Discount Notes, future business opportunities
and other purposes and increasing the vulnerability of Hedstrom to adverse
general economic and industry conditions; (ii) the ability of Holdings and
Hedstrom to obtain additional financing in the future may be limited; (iii)
certain of Hedstrom's borrowings (including, without limitation, amounts
borrowed under the Senior Credit Facilities) will be at variable rates of
interest, which will expose Hedstrom to increases in interest rates; and (iv)
all the indebtedness incurred in connection with the Senior Credit Facilities
will be secured and will become due prior to the time the principal payments on
the New Notes will become due.
Holdings' and Hedstrom's ability to make scheduled payments of the
principal of, or to pay interest on, or to refinance their respective
indebtedness (including the New Notes) will depend on Hedstrom's future
performance, which to a certain extent will be subject to economic, financial,
competitive and other factors beyond its control. Based upon Hedstrom's current
operations and anticipated growth, management believes that future cash flow
from operations, together with Hedstrom's available borrowings under the
Revolving Credit Facility, will be adequate to meet Holdings' and Hedstrom's
respective anticipated requirements for capital expenditures, interest payments
and scheduled principal payments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hedstrom and
Holdings -- Liquidity and Capital Resources." There can be no assurance,
however, that Hedstrom's business will continue to generate sufficient cash flow
from operations in the future to service its and Holdings' respective
indebtedness and make necessary capital expenditures. If unable to do so,
Holdings and Hedstrom may be required to refinance all or a portion of their
respective indebtedness, including the New Notes, to sell assets or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained.
SUBSTANTIAL RESTRICTIONS AND COVENANTS
The Credit Agreement (as defined), the Senior Subordinated Notes Indenture
and the Discount Notes Indenture contain numerous restrictive covenants,
including, but not limited to, covenants that restrict Holdings' and Hedstrom's
ability to incur indebtedness, pay dividends, create liens, sell assets, engage
in certain mergers and acquisitions and refinance indebtedness. In addition, the
Credit Agreement will also require Hedstrom to
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maintain certain financial ratios. The ability of Holdings and Hedstrom to
comply with the covenants and other terms of the Credit Agreement, the Senior
Subordinated Notes Indenture and the Discount Notes Indenture, to make cash
payments with respect to the New Notes and to satisfy their other respective
debt obligations (including, without limitation, borrowings and other
obligations under the Credit Agreement) will depend on the future operating
performance of Hedstrom. In the event Holdings or Hedstrom fails to comply with
the various covenants contained in the Credit Agreement, the Senior Subordinated
Notes Indenture or the Discount Notes Indenture, as applicable, it would be in
default thereunder, and in any such case, the maturity of substantially all of
its long-term indebtedness could be accelerated. A default under either the
Senior Subordinated Notes Indenture or the Discount Notes Indenture would also
constitute an event of default under the Credit Agreement. The Credit Agreement
will prohibit the repayment, purchase, redemption, defeasance or other payment
of any of the principal of the New Notes at any time prior to their stated
maturity. See "Description of the Senior Credit Facilities," "Description of the
New Senior Subordinated Notes" and "Description of the New Discount Notes."
RANKING OF THE NEW NOTES AND GUARANTIES
The indebtedness evidenced by the New Senior Subordinated Notes will be
unsecured senior subordinated obligations of Hedstrom and the indebtedness
evidenced by each Subsidiary Guaranty will be senior subordinated indebtedness
of the relevant Subsidiary Guarantor. The payment of principal of, premium (if
any), and interest on the New Senior Subordinated Notes and the payment of any
Subsidiary Guaranty will be subordinated in right of payment to all Senior
Indebtedness of Hedstrom or all Subsidiary Guarantor Senior Indebtedness of the
relevant Subsidiary Guarantor, as the case may be, including all indebtedness
and obligations of Hedstrom under the Senior Credit Facilities, and such
Subsidiary Guarantor's guaranty of such obligations. The indebtedness evidenced
by the Holdings Guaranty will be an unsecured senior obligation of Holdings and
will rank pari passu in right of payment with all unsecured Senior Indebtedness
of Holdings. Holdings currently conducts no business and has no significant
assets other than the capital stock of Hedstrom, all of which is pledged to
secure the Senior Credit Facilities. See "-- Structural Subordination of
Holdings." As of June 30, 1997, Senior Indebtedness of Hedstrom, Holdings Senior
Indebtedness and Subsidiary Guarantor Senior Indebtedness were approximately
$117.7 million, $244.3 million and $112.7 million, respectively, and Senior
Subordinated Indebtedness of Hedstrom and Subsidiary Guarantor Senior
Subordinated Indebtedness were approximately $110.0 million and $110.0 million,
respectively. The Senior Subordinated Notes Indenture permits Hedstrom to incur
additional Senior Indebtedness, provided that certain conditions are met, and
Hedstrom expects from time to time to incur additional Senior Indebtedness. In
addition, the Senior Subordinated Notes Indenture permits Senior Indebtedness to
be secured. By reason of the subordination provisions of the Senior Subordinated
Notes Indenture, in the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of Hedstrom or a Subsidiary Guarantor, holders
of Senior Indebtedness of Hedstrom or Subsidiary Guarantor Senior Indebtedness,
as the case may be, will have to be paid in full before Hedstrom makes payments
in respect of the New Senior Subordinated Notes or such Subsidiary Guarantor
makes payments in respect of its Subsidiary Guaranty. In addition, no payment
will be able to be made in respect of the New Senior Subordinated Notes during
the continuance of a payment default under any Designated Senior Indebtedness
(as defined). Accordingly, there may be insufficient assets remaining after such
payments to pay amounts due on the New Senior Subordinated Notes. Furthermore,
if certain non-payment defaults exist with respect to Designated Senior
Indebtedness, the holders of such Designated Senior Indebtedness will be able to
prevent payments on the New Senior Subordinated Notes for certain periods of
time. See "Description of New Senior Subordinated Notes -- Ranking and
Subordination."
The New Discount Notes will be unsecured senior obligations of Holdings and
will rank pari passu in right of payment with all unsecured Senior Indebtedness
of Holdings, including the Holdings Guaranty and Holdings' guarantee of the
Senior Credit Facilities. As a result of the holding company structure, the
holders of the New Discount Notes will effectively rank junior in right of
payment to all creditors of Hedstrom and its subsidiaries, including, without
limitation, the lenders under the Senior Credit Facilities, holders of the New
Senior Subordinated Notes and trade creditors. See "-- Structural Subordination
of Holdings." In the event of the dissolution, bankruptcy, liquidation or
reorganization of Holdings or Hedstrom, the holders of the New Discount Notes
may not receive any amounts in respect of the New Discount Notes until after the
payment in full of all claims of the creditors of Hedstrom and its subsidiaries.
As of June 30, 1997, the New Discount Notes were effectively subordinated to
approximately $282.4 million of aggregate liabilities (consisting of
Indebtedness and
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trade payables) of Hedstrom and its subsidiaries. See "Capitalization" and
"Description of the New Discount Notes -- Ranking."
STRUCTURAL SUBORDINATION OF HOLDINGS
Holdings is a holding company whose only material asset is the capital
stock of Hedstrom. Holdings currently conducts no business (other than in
connection with its ownership of the capital stock of Hedstrom and the
performance of its obligations with respect to the New Discount Notes, the
Holdings Guaranty and the Senior Credit Facilities) and will depend on
distributions from Hedstrom to meet its debt service obligations. Because of the
substantial leverage of both Holdings and Hedstrom and the dependence of
Holdings upon the operating performance of Hedstrom to generate distributions to
Holdings, there can be no assurance that any such distributions will be adequate
to fund Holdings' obligations when due. In addition, the Credit Agreement, the
Senior Subordinated Notes Indenture and applicable federal and state law will
impose restrictions on the payment of dividends and the making of loans by
Hedstrom to Holdings. As a result of the foregoing restrictions, Holdings may be
unable to gain access to the cash flow or assets of Hedstrom in amounts
sufficient to pay cash interest on the New Discount Notes on and after December
1, 2002, the date on which cash interest thereon first becomes payable, and
principal of the New Discount Notes when due or upon a Change of Control or the
occurrence of any other event requiring the repayment of principal. In such
event, Holdings may be required to (i) refinance the New Discount Notes, (ii)
seek additional debt or equity financing, (iii) cause Hedstrom to refinance all
or a portion of Hedstrom's indebtedness with indebtedness containing covenants
allowing Holdings to gain access to Hedstrom's cash flow or assets, (iv) cause
Hedstrom to obtain modifications of the covenants restricting Holdings' access
to cash flow or assets of Hedstrom contained in Hedstrom's financing documents
(including, without limitation, the Credit Agreement and the Senior Subordinated
Notes Indenture), (v) merge Hedstrom with Holdings, which merger would be
subject to compliance with applicable debt covenants and the consents of certain
lenders or (vi) pursue a combination of the foregoing actions. The measures
Holdings may undertake to gain access to sufficient cash flow to meet its future
debt service requirements will depend on general economic and financial market
conditions, as well as the financial condition of Holdings and Hedstrom and
other relevant factors existing at the time. No assurance can be given that any
of the foregoing measures can be accomplished.
ENCUMBRANCES ON ASSETS TO SECURE SENIOR CREDIT FACILITIES
Hedstrom's obligations under the Senior Credit Facilities are secured by a
first priority pledge of, or a first priority security interest in, as the case
may be, substantially all of the assets (including 100% of the common stock) of
Hedstrom and its domestic subsidiaries, as well as a first priority pledge of
65% of the capital stock of each foreign subsidiary of Hedstrom or any
subsidiary thereof. If Hedstrom becomes insolvent or is liquidated, or if
payment under any of the Senior Credit Facilities or in respect of any other
secured Senior Indebtedness is accelerated, the lenders under the Senior Credit
Facilities or holders of such other secured Senior Indebtedness will be entitled
to exercise the remedies available to a secured lender under applicable law (in
addition to any remedies that may be available under documents pertaining to the
Senior Credit Facilities or such other Senior Indebtedness). The New Notes will
not be secured. Accordingly, holders of such secured Senior Indebtedness will
have a prior claim with respect to the assets securing such indebtedness. See
"Description of Senior Credit Facilities", "Description of the New Senior
Subordinated Notes" and "Description of the New Discount Notes."
CERTAIN SUBSIDIARIES NOT INCLUDED AS SUBSIDIARY GUARANTORS
The Subsidiary Guarantors include only Hedstrom's domestic subsidiaries.
However, the historical consolidated financial information (including the
consolidated financial statements of Holdings and ERO included elsewhere in this
Prospectus) and the pro forma consolidated financial information included in
this Prospectus are presented on a consolidated basis, including both domestic
and foreign subsidiaries of Hedstrom and ERO. After giving pro forma effect to
the Transactions, the aggregate annual net sales for the year ended December 31,
1996 of the subsidiaries of Hedstrom which are not Subsidiary Guarantors would
have been approximately $67.8 million. The aggregate total assets as of June 30,
1997 of the subsidiaries of Hedstrom which are not Subsidiary Guarantors were
$24.5 million. In reliance upon certain Staff Accounting Bulletins of the
Commission, interpretations of the staff of the Commission and no-action relief
granted by the staff of the Commission to unrelated third parties, the Issuers
intend to seek no-action relief permitting Hedstrom and the Subsidiary
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Guarantors to not file periodic reports under the Exchange Act separately from
Holdings, and in lieu thereof, to set forth in Holding's periodic reports
selected financial information and certain other information with respect to
Holdings, Hedstrom, the Subsidiary Guarantors and the subsidiaries of Hedstrom
which are not guarantors of the Senior Subordinated Notes. See footnote 15 to
the audited consolidated financial statements of Holdings and footnote 13 to the
audited consolidated financial of ERO contained elsewhere herein.
ORIGINAL ISSUE DISCOUNT; APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Old Discount Notes were issued at a substantial discount from their
stated principal amount at maturity. Consequently, although cash interest on the
New Discount Notes generally will not accrue or be payable prior to June 1,
2002, OID will be includable in the gross income of a holder of the New Discount
Notes for U.S. federal income tax purposes in advance of the receipt of such
cash payments on the New Discount Notes. Since a portion of the issue price of
the Units was allocated for U.S. federal income tax purposes to the Shares, the
amount of OID was greater than the difference between the principal amount at
maturity of the Old Discount Notes and the purchase price of the Units. See
"Certain United States Federal Income Tax Considerations with Respect to the New
Notes" for a more detailed discussion of the U.S. federal income tax
consequences of the purchase, ownership and disposition of the New Discount
Notes.
If a bankruptcy case is commenced by or against Holdings under the U.S.
Bankruptcy Code after the issuance of the New Discount Notes, the claim of a
holder of New Discount Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of (i) the initial offering price and (ii)
that portion of the OID that is not deemed to constitute "unmatured interest"
for purposes of the U.S. Bankruptcy Code. Any OID that was not accrued as of any
such bankruptcy filing would constitute "unmatured interest."
Because the New Discount Notes appear to provide initial holders with a
yield to maturity (for federal income tax purposes) which exceeds 11.99% (a
federally mandated interest rate for June 1997 plus five percentage points), OID
with respect to the New Discount Notes will not be deductible by Holdings until
paid. To the extent that such yield to maturity equals or exceeds 12.99% (a
federally mandated interest rate plus six percentage points), a portion of such
OID will not be deductible by Holdings. See "Certain United States Federal
Income Tax Considerations -- U.S. Holders -- Applicable High Yield Discount
Obligations."
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control, (i) each Issuer will have the option, at any time
on or prior to June 1, 2002, to redeem such Issuer's New Notes, in whole but not
in part, at a redemption price equal to 100% of (A) in the case of the New
Senior Subordinated Notes, the principal amount thereof, and (B) in the case of
the New Discount Notes, the Accreted Value thereof, plus, in each case, the
Applicable Premium and accrued and unpaid interest, if any, to the date of
redemption, and (ii) if an Issuer does not redeem its New Notes pursuant to
clause (i) above, each holder of a New Note may require the Issuer thereof to
repurchase such New Note at a purchase price equal to 101% of (A) in the case of
the New Senior Subordinated Notes, the principal amount thereof and (B) in the
case of the New Discount Notes, the Accreted Value thereof, plus, in each case,
accrued and unpaid interest, if any, to the date of repurchase. There can be no
assurance that Holdings and Hedstrom will be able to raise sufficient funds to
meet their repurchase obligations upon a Change of Control or that in any event,
Holdings and Hedstrom would be permitted under the terms of the Credit Agreement
and/or the Indentures to fulfill such obligations. See "Description of the New
Senior Subordinated Notes -- Change of Control" and "Description of the New
Discount Notes -- Change of Control."
RELIANCE ON KEY CUSTOMERS
After giving pro forma effect to the Transactions, the Company's pro forma
net sales to its four largest customers (Toys "R" Us, Wal-Mart, Kmart and
Target) during the twelve-month period ended December 31, 1996 would have
aggregated approximately 50% of the Company's pro forma net sales. Each of the
four largest customers individually would have accounted for over 9% of the
Company's pro forma net sales during such period. Although the Company has
well-established relationships with its key customers, the Company does not have
long-term contracts with any of them. A decrease in business from any of its key
customers could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Customers."
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DEPENDENCE ON KEY LICENSES AND ON OBTAINING NEW LICENSES
After giving pro forma effect to the Transactions, approximately 28% of the
Company's pro forma net sales for the twelve months ended December 31, 1996
would have been derived from sales of licensed products and approximately
two-thirds of such net sales would have been attributable to licenses covering
ten licensed characters. Approximately 19% of such net sales would have been
derived from licenses with Disney Enterprises, Inc. and its affiliates. Although
the Company intends to renew key existing licenses and to obtain new licenses,
there can be no assurance that the Company will be able to do so. The failure to
renew key existing licenses or obtain new licenses could inhibit the Company's
ability to effectively compete in the licensed product market, which could in
turn have a material adverse effect on the Company. A significant segment of the
Company's business is dependent on obtaining new licenses for its products. The
Company believes that the introduction of products with new licenses and the
introduction of new licenses for existing products are material to its continued
growth and profitability. In addition, the success of the Company's products
bearing a particular licensed character is based on the popularity of the
character, the level of which changes from year to year. Consequently, the
success of the Company's licensed products business is dependent upon obtaining
new licenses for popular characters. No assurance can be given that the Company
will be able to acquire new licenses for popular characters. See
"Business -- Technology and Licensing."
RAW MATERIALS PRICES
The principal raw materials in most of the Company's products are plastic
resins, plastic components, steel and corrugated cardboard. The prices for such
raw materials are influenced by numerous factors beyond the control of the
Company, including general economic conditions, competition, labor costs, import
duties and other trade restrictions and currency exchange rates. Changing prices
for such raw materials may cause the Company's results of operations to
fluctuate significantly. A large, rapid increase in the price of raw materials
could have a material adverse effect on the Company's operating margins unless
and until the increased cost can be passed along to customers.
INTEGRATION OF ERO AND IMPLEMENTATION OF BUSINESS STRATEGY
Hedstrom has no previous experience acquiring and integrating a business as
large as ERO. Successful integration of ERO's operations will depend primarily
on Hedstrom's ability to manage ERO's manufacturing facilities and to eliminate
redundancies and excess costs. There can be no assurance that Hedstrom can
successfully integrate ERO's operations and any failure or inability to do so
may have a material adverse effect on the Company's results of operations.
In addition, the Company intends to continue the implementation of its
business strategy, an element of which is to achieve significant annual cost
savings. The Company's ability to successfully implement its business strategy,
and to achieve the estimated cost savings, is subject to a number of factors,
many of which are beyond the control of the Company. There can be no assurance
that the Company will be able to continue to successfully implement its business
strategy or that the Company will be able to achieve the estimated cost savings.
A failure to successfully implement its business strategy or to achieve the
estimated cost savings may have a material adverse effect on the Company's
results of operations. See "Prospectus Summary -- Business Strategy."
COMPETITION AND IMPORTANCE OF NEW PRODUCT INTRODUCTIONS AND ENHANCEMENTS
The children's leisure and activity product market is highly competitive.
Notwithstanding the competitive nature of the market, the Company has been able
to establish itself as the market share leader in certain niche markets within
the overall children's leisure and activity product market by introducing
innovative new products and regularly enhancing existing products. The Company
believes that new product introductions and enhancements of existing products
are material to its continued growth and profitability. No assurance can be
given that the Company will continue to be successful in introducing new
products or further enhancing existing products. See "Business -- Competition."
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INVENTORY MANAGEMENT; DISTRIBUTION
The Company's key customers use inventory management systems to track sales
of particular products and rely on reorders being rapidly filled by suppliers,
rather than maintaining large on-hand inventories to meet consumer demand. While
these systems reduce a retailer's investment in inventory, they increase
pressure on suppliers like the Company to fill orders promptly and shift a
portion of the retailer's inventory risk onto the supplier. Production of excess
products by the Company to meet anticipated demand could result in increased
inventory carrying costs for the Company. In addition, if the Company fails to
anticipate the demand for its products, it may be unable to provide adequate
supplies of popular products to retailers in a timely fashion and may
consequently lose potential sales. Moreover, disruptions in shipments from the
Company's vendors or from the Company's warehouse facilities could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
GOVERNMENT REGULATIONS
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws
empower the Consumer Product Safety Commission (the "CPSC") to protect consumers
from hazardous products and other articles. The CPSC has the authority to
exclude from the market products which are found to be unsafe or hazardous and
can require a manufacturer to recall such products under certain circumstances.
Similar laws exist in some states and cities in the United States and in Canada
and Europe. While the Company believes that it is, and will continue to be, in
compliance in all material respects with applicable laws, rules and regulations,
there can be no assurance that the Company's products will not be found to
violate such laws, rules and regulations, or that more restrictive laws, rules
or regulations will not be adopted in the future which could make compliance
more difficult or expensive or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT LIABILITY RISKS
The Company's products are used for and by small children. The Company
carries product liability insurance in amounts which management deems adequate
to cover risks associated with such use; however, there can be no assurance that
existing or future insurance coverage will be sufficient to cover all product
liability risks. See "Business -- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend largely on the efforts and abilities of
its executive officers and certain other key employees, and there can be no
assurance that the Company will be able to retain all of such officers and
employees. The failure of such key personnel to remain active in the Company's
management could have a material adverse effect on the Company's operations. See
"Management."
SEASONALITY
Historically, Hedstrom and ERO each experienced a significant seasonal
pattern in sales and cash flow. During each of the twelve-month periods ended
July 31, 1994, July 31, 1995 and July 31, 1996, approximately 67%, 74% and 76%,
respectively, of Hedstrom's net sales were realized during the first and second
calendar fiscal quarters. During each of the twelve month periods ended December
31, 1994, December 31, 1995, and December 31, 1996, approximately 59%, 59% and
69%, respectively, of ERO's net sales were realized during the third and fourth
calendar quarters. Although one of the Company's business strategies is to
pursue opportunities for counter-seasonal sales (including new product and OEM
sales) and the Company expects decreased exposure to seasonality as a result of
the Acquisition, the Company expects that its business will continue to
experience a seasonal pattern for the foreseeable future. Because of such
seasonality, the sales of a substantial portion of each of the Company's product
categories are concentrated in relatively short periods of time during the year.
As a result, a failure by the Company to ship any such product to the
marketplace within the limited selling period would have a material adverse
effect on sales of such product and could in turn have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and
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Analysis of Financial Condition and Results of Operations of Hedstrom and
Holdings -- Seasonality" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of ERO -- Seasonality."
FOREIGN OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS
As part of the Company's business strategy, it is seeking to expand its
international sales base. International operations and exports to foreign
markets are subject to a number of special risks, including currency exchange
rate fluctuations, trade barriers, exchange controls, national and regional
labor strikes, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of the Company.
A portion of the Company's expenses and sales are denominated in foreign
currencies, and accordingly, the Company's revenues, cash flows and earnings may
be affected by fluctuations in certain foreign exchange rates, principally
between the United States dollar and the Canadian dollar, which may also have
adverse tax effects. In addition, because a portion of the Company's sales,
costs of goods sold and other expenses are denominated in Canadian dollars, the
Company has a translation exposure to fluctuations in the Canadian dollar
against the U.S. dollar. Theses currency fluctuations could have a material
impact on the Company as increases in the value of the Canadian dollar have the
effect of increasing the U.S. dollar equivalent of cost of goods sold and other
expenses with respect to the Company's Canadian production facilities.
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Old Notes) in connection with
the Transactions and payments to consummate the Transactions with the proceeds
thereof are subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy or reorganization case or a lawsuit by or on
behalf of creditors of Hedstrom or Holdings. Under these statutes, if a court
were to find that obligations (such as the Old Notes) were incurred with the
intent of hindering, delaying or defrauding present or future creditors or that
Hedstrom or Holdings received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the occurrence of the
obligations, the obligor either (i) was insolvent or rendered insolvent by
reason thereof, (ii) was engaged or was about to engage in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iii) intended to or believed that it would incur debts beyond
its ability to pay such debts as they matured or became due, such court could
void Hedstrom's or Holdings' obligations under the Old Notes or the New Notes,
subordinate the Old Notes or the New Notes to other indebtedness of Hedstrom or
Holdings, or take other action detrimental to the holders of the Old Notes or
the New Notes. Some courts have held that an obligor's purchase of its own
capital stock does not constitute reasonably equivalent value or fair
consideration for indebtedness incurred to finance that purchase.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the applicable jurisdiction. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. Hedstrom and Holdings believe that (i) neither
Hedstrom nor Holdings will be insolvent or rendered insolvent by the incurrence
of indebtedness in connection with the Transactions, (ii) each of Hedstrom and
Holdings will be in possession of sufficient capital to run its business
effectively and (iii) each of Hedstrom and Holdings will have incurred debts
within its ability to pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would apply
to evaluate the parties' intent or to determine whether Hedstrom or Holdings was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transactions or that, regardless of the standard, a court would not determine
that Hedstrom or Holdings was insolvent at the time of, or rendered insolvent
upon consummation of, the Transactions.
In addition, the Guaranties may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Guarantors. In such a case, the analysis set forth above generally would apply.
A court could avoid a Guarantor's
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obligation under its Guaranty, subordinate the Guaranty to other indebtedness of
such Guarantor or take other action detrimental to the holders of the Senior
Subordinated Notes.
CONTROL BY EXISTING STOCKHOLDERS
Hicks Muse and certain of its affiliates control approximately 68% of the
outstanding shares of Holdings Common Stock (approximately 80% on a
fully-diluted basis) and thereby directly control the election of the Board of
Directors and the direction of the affairs of Holdings, and indirectly control
the election of the Board of Directors and the direction of the affairs of
Hedstrom. See "Stock Ownership and Certain Transactions."
ABSENCE OF PUBLIC TRADING MARKET
The New Notes are being offered to the holders of Old Notes, and the
Issuers do not intend to apply to have the New Notes listed on any securities
exchange. The initial purchasers of the Old Notes (the "Initial Purchasers")
have advised the Issuers that they currently intend to make markets in the New
Notes after the consummation of the Exchange Offers, as permitted by applicable
laws and regulations; however, the Initial Purchasers are not obligated to do
so, and may discontinue any such market-making activity at any time without
notice. Therefore, there can be no assurance that active markets for the New
Notes will develop. If trading markets for the New Notes do develop, the New
Notes may trade at a discount from their face value or, with respect to the new
Discount Notes, their Accreted Value depending upon prevailing interest rates,
the market for similar securities, the performance of the Company and other
factors.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the markets for the New Notes will
not be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
USE OF PROCEEDS
The Issuers will not receive any proceeds for the exchange of New Notes for
Old Notes pursuant to the Exchange Offers.
The net proceeds from the sale of the Old Notes, together with the proceeds
from the other transactions including in the Financings, were used to consummate
the Acquisition and meet ongoing working capital needs. See "Prospectus
Summary -- The Transactions."
The following table sets forth the sources and uses of funds in connection
with the Transactions.
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT USES OF FUNDS AMOUNT
---------------- ------ ------------- ------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Revolving Credit Facility......... $ 16.1 Tender Offer/Merger............... $122.6
Tranche A Term Loans.............. 75.0 ERO Refinancing(a)................ 82.6
Tranche B Term Loans.............. 35.0 Hedstrom Refinancing(a)........... 74.9
Old Senior Subordinated Notes
Offering........................ 110.0 Fees and expenses(b).............. 21.0
------
Units Offering.................... 25.0
Equity Private Placement.......... 40.0
------
Total Sources................ $301.1 Total Uses........................ $301.1
====== ======
</TABLE>
- ---------------
(a) Includes accrued interest expense.
(b) Fees and expenses include Initial Purchasers' discount, bank fees, financial
advisory fees, legal and accounting fees, printing costs and other expenses
related to the Transactions.
33
<PAGE> 36
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (i) the capitalization
of Hedstrom and (ii) the capitalization of Holdings. The information set forth
below should be read in conjunction with "Unaudited Pro Forma Consolidated
Financial Information" and the consolidated financial statements and the notes
thereto of each of Holdings and ERO included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------
HEDSTROM HOLDINGS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total debt:
Revolving Credit Facility................................. $ 2,700 $ 2,700
Tranche A Term Loans...................................... 75,000 75,000
Tranche B Term Loans...................................... 35,000 35,000
Senior Subordinated Notes................................. 110,000 110,000
Senior Discount Notes..................................... -- 21,618
Other debt(a)............................................. 8,571 11,071
-------- --------
Total debt........................................ 231,271 255,389
-------- --------
Stockholders' equity(b)..................................... 67,471 44,332
-------- --------
Total capitalization......................... $298,742 $299,721
======== ========
</TABLE>
- ---------------
(a) Other debt of Holdings consists of a $3.5 million Industrial Revenue Bond,
$2.5 million of notes issued in connection with the 1995 Recapitalization
(the "1995 Recapitalization Notes"), a $1.6 million mortgage loan on an ERO
facility, $3.5 million of ERO equipment loans and capital leases and
miscellaneous other debt. Other debt of Hedstrom consists of the other debt
of Holdings other than the 1995 Recapitalization Notes.
(b) Holdings stockholders' equity includes the $27 million investment by the HM
Group as part of the 1995 Recapitalization less certain accounting
adjustments related to the 1995 Recapitalization (see "Prospectus
Summary -- Management and Ownership"), plus $40 million from the Equity
Private Placement, less certain transaction expenses. Holdings'
stockholders equity also reflects the $3.4 million ascribed to the Shares
issued in connection with the Units Offering (although no assurance can be
given that the value allocated to the Shares is indicative of the price at
which the Shares may actually trade). Hedstrom stockholders' equity
includes Holdings stockholders' equity plus $21.6 million in proceeds from
the Units Offering ascribed to the Old Discount Notes, as adjusted to
account for certain transaction expenses.
34
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") include the unaudited pro forma consolidated
income statements for the six months ended June 30, 1997 and for the year ended
December 31, 1996 (the "Pro Forma Consolidated Income Statements").
The Pro Forma Consolidated Income Statements give effect to the
Transactions and the cost reduction items described in the following paragraphs
as if they occurred on January 1, 1996.
Management implemented the 1996 Cost Reduction Plan in the second half of
1996 to reduce costs by over $9 million in 1997 and thereafter as compared with
fiscal 1996 levels. See "Prospectus Summary -- Hedstrom 1996 Cost Reduction
Plan." The Pro Forma Consolidated Income Statement for the year ended December
31, 1996 includes a portion of the cost savings Hedstrom expects to realize from
the 1996 Cost Reduction Plan in the twelve-month period ending December 31,
1997. The pro forma adjustments related to the 1996 Cost Reduction Plan do not
reflect certain other cost savings and operating efficiencies or the cost of
achieving such other cost savings and operating efficiencies that management
also expects to achieve in 1997 and thereafter. See "Prospectus
Summary -- Hedstrom 1996 Cost Reduction Plan."
Independent of the 1996 Cost Reduction Plan, management has implemented or
is implementing a plan that is expected to result in annual cost savings of
approximately $6 million as a result of the Acquisition, which plan includes
rationalizing sales, marketing and general administrative functions, closing of
duplicate facilities and reductions in external administrative expenditures as a
result of operating as a consolidated group (i.e., legal, insurance, tax, audit
and public relations expenditures). The Pro Forma Consolidated Income Statements
include the cost savings Hedstrom expects to realize as a result of personnel
terminations that have occurred or that have been formally communicated to the
employees, closings of duplicative facilities that have occurred and reductions
in external administrative expenses that have been negotiated.
The Acquisition was accounted for using the purchase method of accounting.
The aggregate purchase price for the Acquisition was allocated to the tangible
and intangible assets and liabilities acquired based upon their respective fair
values.
The Pro Forma Financial Statements are based on the historical financial
statements of Holdings, Hedstrom and ERO and the assumptions and adjustments
described in the accompanying notes. The Pro Forma Financial Statements do not
purport to represent what the Company's results of operations actually would
have been had the Transactions and the cost reduction items described herein in
fact occurred on the dates indicated or to project the results of operations for
any future period or date. The Pro Forma Financial Statements are based upon
assumptions that management believes are reasonable and should be read in
conjunction with the consolidated financial statements and the notes thereto of
each of Holdings and ERO included elsewhere herein.
35
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA/
HEDSTROM ERO PRO FORMA HEDSTROM CONSOLIDATION HOLDINGS
HISTORICAL(A) HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $125,394 $157,913 $ -- $283,307 $ -- $283,307
Cost of sales................... 101,044 97,802 (2,200)(b) 196,646 -- 196,646
-------- -------- ------- -------- ------- --------
Gross profit.................... 24,350 60,111 2,200 86,661 -- 86,661
Selling, general and
administrative expenses....... 25,083 38,896 (3,600)(b) 56,684 -- 56,684
2,305(c)
(6,000)(d)
-------- -------- ------- -------- ------- --------
Operating income (loss)......... (733) 21,215 9,495 29,977 -- 29,977
Interest expense................ 5,986 9,062 9,809(e) 24,857 3,386(e) 28,493
250(f)
-------- -------- ------- -------- ------- --------
Income (loss) before income
taxes......................... (6,719) 12,153 (314) 5,120 (3,636) 1,484
Income tax benefit (expense).... 2,158 (4,395) (584)(g) (2,821) 1,381(g) (1,440)
-------- -------- ------- -------- ------- --------
Net income (loss)............... $ (4,561) $ 7,758 $ (898) $ 2,299 $(2,255) $ 44
Net income (loss) per share..... $ .00
Weighted average shares
outstanding................... -- -- -- -- -- 67,647
======== ======== ======= ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA:
Operating income (loss)..... $ (733) $ 21,215 $ 9,495 $ 29,977 $ -- $ 29,977
Depreciation and
amortization.............. 4,373 5,289 2,305 11,967 -- 11,967
Product and inventory
charge.................... 1,550 -- -- 1,550 -- 1,550
Barter credit writedown..... 1,000 -- -- 1,000 -- 1,000
-------- -------- ------- -------- ------- --------
EBITDA(h)................... $ 6,190 $ 26,504 $11,800 $ 44,494 $ -- $ 44,494
======== ======== ======= ======== ======= ========
Pro forma ratio of earnings to
fixed charges(i).............. -- -- -- 1.2x -- 1.1x
======== ======== ======= ======== ======= ========
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA/
HEDSTROM ERO PRO FORMA HEDSTROM CONSOLIDATION HOLDINGS
HISTORICAL(J) HISTORICAL(J) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $104,051 $ 38,304 $ -- $142,355 $ -- $142,355
Cost of sales.................. 73,579 28,736 -- 102,315 -- 102,315
-------- -------- ------- -------- ------- --------
Gross profit................... 30,472 9,568 -- 40,040 -- 40,040
Selling, general and
administrative expenses...... 16,242 11,031 960(c) 25,233 -- 25,233
(3,000)(d)
-------- -------- ------- -------- ------- --------
Operating income (loss)........ 14,230 (1,463) 2,040 14,807 -- 14,807
Interest expense............... 4,584 3,267 4,591(e) 12,442 1,693(e) 14,260
125(f)
-------- -------- ------- -------- ------- --------
Income (loss) before income
taxes........................ 9,646 (4,730) (2,551) 2,365 (1,818) 547
Income tax benefit (expense)... (3,584) 1,940 381(g) (1,263) 690(g) (573)
-------- -------- ------- -------- ------- --------
Net income (loss).............. $ 6,062 $ (2,790) $(2,170) $ 1,102 $(1,128) $ (26)
Net income (loss) per share.... $ .00
Weighted average shares
outstanding.................. -- -- -- -- -- 67,647
======== ======== ======= ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA:
Operating income (loss).... $ 14,230 $ (1,463) $ 2,040 $ 14,807 $ -- $ 14,807
Depreciation and
amortization............. 2,767 2,187 960 5,914 -- 5,914
-------- -------- ------- -------- ------- --------
EBITDA(h).................. $ 16,997 $ 724 $ 3,000 $ 20,721 $ -- $ 20,721
Pro forma ratio of earnings to
fixed charges(i)............. -- -- -- 1.2x -- 1.0x
======== ======== ======= ======== ======= ========
</TABLE>
36
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
(DOLLARS IN THOUSANDS)
(a) The historical balances for Hedstrom are derived from the unaudited
accounting records of Hedstrom for the twelve-month period ended December
31, 1996. Hedstrom historically had a fiscal year ending July 31 but
switched its fiscal year end to December 31, effective in 1997.
Accordingly, Hedstrom's last complete fiscal year was the twelve months
ended July 31, 1996, and Hedstrom's next complete fiscal year will be the
twelve months ended December 31, 1997.
(b) Reflects a portion of the cost savings from the 1996 Cost Reduction Plan
implemented by Hedstrom in the second half of 1996 relating to reductions
in manufacturing costs, elimination of certain full-time employees, the
discontinuation of certain advertising programs and the reduction of
warehouse and shipping costs.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Cost of sales:
Savings from manufacturing certain components
internally(1)......................................... $1,500
Elimination of certain full-time employees(2).......... 700
------
$2,200
======
Selling, general and administrative expenses:
Reductions in warehouse and shipping(3)................ $2,100
Elimination of trial advertising program(4)............ 1,500
------
$3,600
======
</TABLE>
- ---------------
(1) Hedstrom periodically evaluates the economics of producing
internally certain plastic components used in the production and
assembly of its outdoor gym sets versus purchasing such
components externally. In 1996, Hedstrom invested approximately
$3.0 million in new plastic blow-molding equipment to manufacture
many of the plastic slides that it had previously purchased from
third-party vendors. Management believes that producing these
slides internally is currently providing annual cost savings of
approximately $1.5 million.
(2) Hedstrom reduced its number of full-time employees by
approximately 30 persons in a variety of departments in the
second half of 1996. Management believes that such personnel
reductions will result in savings of approximately $0.7 million
in 1997 and thereafter.
(3) In late 1996, Hedstrom restructured certain of its manufacturing
operations to increase its daily production capacity of outdoor
gym sets. This restructuring has enabled Hedstrom to manufacture
outdoor gym sets to specific customer orders rather than
producing outdoor gym sets in anticipation of customer orders,
which Hedstrom had done in the past because of capacity
constraints. In fiscal 1996, prior to implementing this
restructuring, Hedstrom experienced a significant and unexpected
change in its sales mix of outdoor gym sets, requiring Hedstrom
to use third-party warehouses to store many of the outdoor gym
sets it had produced in anticipation of customer demand. As a
result, Hedstrom incurred approximately $2.1 million of higher
warehouse and material handling costs. The implementation of
just-in-time manufacturing of outdoor gym sets has enabled
Hedstrom to carry a lower level of outdoor gym set inventory and,
as a result, eliminate the need for third-party warehouses for
outdoor gym sets. Management believes it will save over $2.1
million of warehouse and material handling expense in 1997 and
thereafter as a result of implementing just-in-time manufacturing
of outdoor gym sets.
(4) Hedstrom historically has advertised its products in cooperation
with its retail customers, principally through print media
sponsored by its customers such as newspaper circulars and free-
standing inserts. In fiscal 1996, Hedstrom initiated, on a trial
basis, its own multi-media advertising program designed to
increase consumer awareness of the Hedstrom brand over time. The
total cost for this advertising program was approximately $1.5
million. After careful review,
37
<PAGE> 40
management determined that this trial advertising campaign would not
provide an acceptable return on investment and elected to discontinue
it. Therefore, such cost will not be incurred in 1997 and thereafter.
(c) Reflects the incremental change in amortization expense due to purchase
accounting and adjustments to intangible assets in connection with the
Acquisition consistent with the amortization policies utilized by the
Company.
(d) Reflects estimated cost savings as a result of the Acquisition from the
elimination of overlapping and duplicative selling, general and
administrative functions, the closing of certain duplicate facilities and
reductions in external administrative expenses such as insurance, legal,
tax, audit and public relations expenses. The estimated cost savings below
reflect personnel terminations that have occurred or that have been
formally communicated to the employees, closings of duplicate facilities
that have occurred and reductions in external administrative expenses that
have been negotiated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Selling, general and administrative expense
adjustment:
Acquisition related:
Salaries and benefits from personnel
terminations.............................. $3,700 $1,850
Duplicative facilities that have been
closed.................................... 900 450
External administrative expenses that have
been reduced.............................. 1,400 700
------ ------
$6,000 $3,000
====== ======
</TABLE>
(e) Reflects interest expense (at assumed rates as indicated below) associated
with the borrowings under the Senior Credit Facilities, the Senior
Subordinated Notes and the Discount Notes, the amortization of deferred
financing costs and the elimination of historical interest expense relating
to debt of Hedstrom and ERO refinanced in connection with the Acquisition:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
HEDSTROM:
Revolving Credit Facility at 8.5%................ $ 1,369 $ 684
Tranche A Term Loans at 8.5%..................... 6,375 3,188
Tranche B Term Loans at 9.0%..................... 3,150 1,575
Senior Subordinated Notes at 10.0%............... 11,000 5,500
Amortization of deferred financing costs......... 1,888 944
Other fees....................................... 396 197
Elimination of historical interest expense for
related debt................................... (14,369) (7,497)
-------- -------
Total Hedstrom......................... $ 9,809 $ 4,591
======== =======
HOLDINGS:
Discount Notes at 12.0%.......................... $ 3,000 $ 1,500
Amortization of deferred financing costs and debt
discount....................................... 386 193
-------- -------
Total Holdings......................... $ 3,386 $ 1,693
======== =======
</TABLE>
38
<PAGE> 41
A 0.125% change in the interest rate payable on the outstanding
balance would change annual interest expense as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility........................ $ 20 $10
Tranche A Term Loans............................. 94 47
Tranche B Term Loans............................. 44 22
---- ---
Total.................................. $158 $79
==== ===
</TABLE>
(f) Represents a consolidation adjustment to reflect interest expense on a $2.5
million note payable at Holdings.
(g) Reflects the adjustment to federal and state income taxes resulting from
the pro forma adjustments, and to recognize federal and state income taxes
at an assumed effective tax rate of approximately 38%, plus the impact of
amortizing the goodwill for book purposes but not tax purposes.
(h) EBITDA represents operating income plus depreciation, amortization, and,
for the twelve months ended December 31, 1996, certain other one-time
charges aggregating approximately $2.55 million, as follows: (i) $0.8
million related to a design adjustment to one of Hedstrom's outdoor gym set
accessories to address certain alleged defects, (ii) a non-cash inventory
write-down of $0.75 million related to the mix shift in Hedstrom's outdoor
gym set product line, and (iii) a $1.0 million non-cash write-off of
advertising barter credits by Hedstrom in connection with its decision to
discontinue its trial advertising campaign. While EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements.
(i) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent pro forma income (loss) before income taxes and fixed
charges. Fixed charges consist of the total of (i) interest, whether
expensed or capitalized; (ii) amortization of debt expense and discount or
premium relating to any indebtedness, whether expensed or capitalized; and
(iii) that portion of rental expense considered to represent interest cost
(assumed to be one-third).
(j) Hedstrom's historical results of operations for the six months ended June
30, 1997 include ERO's results of operations for the month of June 1997.
ERO's historical results of operations for the six months ended June 30,
1997 include the period from January 1, 1997 through May 31, 1997.
39
<PAGE> 42
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF HOLDINGS
The selected consolidated historical financial data presented below (i) as
of and for the years in the three-year period ended July 31, 1996 and the
five-month period ended December 31, 1996, were derived from the consolidated
financial statements of Holdings, which have been audited by Arthur Andersen
LLP, independent auditors, and (ii) as of and for the two years ended July 31,
1993, were derived from audited financial statements of Hedstrom. The selected
historical consolidated financial data presented below as of and for the
five-month period ended December 31, 1995 and the six-month periods ended June
30, 1996 and 1997 have not been audited, but, in the opinion of management,
include all the adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly, in all material respects, such information in
accordance with GAAP applied on a consistent basis. Income Statement and other
financial data for the six months ended June 30, 1997 reflects the operations of
ERO for the month of June 1997 and the balance sheet data as of June 30, 1997
includes the Transactions. Interim results are not necessarily indicative of
Holdings' results for the full fiscal year, principally because of the seasonal
nature of Hedstrom's business. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Hedstrom and Holdings" and the consolidated
financial statements of Holdings and the notes thereto contained elsewhere
herein. Holdings historically had a fiscal year ending July 31 but switched its
fiscal year to December 31, effective in 1997.
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS
ENDED ENDED
FISCAL YEAR ENDED JULY 31, DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------ -------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $87,529 $93,891 $108,655 $133,862 $133,194 $ 31,792 $23,994 $ 96,059 $104,051
Cost of sales................... 68,632 75,592 87,170 107,312 105,068 26,000 21,973 72,897 73,579
------- ------- -------- -------- -------- -------- ------- -------- --------
Gross profit.................... 18,897 18,299 21,485 26,550 28,126 5,792 2,021 23,162 30,472
Selling, general and
administrative expenses....... 15,816 16,890 18,181 19,207 24,603 7,067 7,546 15,107 16,242
------- ------- -------- -------- -------- -------- ------- -------- --------
Operating income (loss)......... 3,081 1,409 3,304 7,343 3,523 (1,275) (5,525) 8,055 14,230
Recapitalization expenses(a).... -- -- -- -- 9,600 9,600 -- -- --
Restructuring expense........... -- 1,476 -- -- -- -- -- -- --
Interest expense................ 2,728 2,512 2,982 4,573 5,896 1,773 2,115 3,545 4,709
------- ------- -------- -------- -------- -------- ------- -------- --------
Income (loss) before income
taxes......................... 353 (2,579) 322 2,770 (11,973) (12,648) (7,640) 4,510 9,521
Income tax benefit (expense).... (257) 663 (103) (1,440) 3,857 4,488 2,869 (1,812) (3,536)
------- ------- -------- -------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations.................... 96 (1,916) 219 1,330 (8,116) (8,160) (4,771) 2,698 5,985
Loss from discontinued
operations(b)................. -- -- (3,180) (585) -- -- -- -- --
------- ------- -------- -------- -------- -------- ------- -------- --------
Net income (loss)............... $ 96 $(1,916) $ (2,961) $ 745 $ (8,116) $ (8,160) $(4,771) $ 2,698 $ 5,985
======= ======= ======== ======== ======== ======== ======= ======== ========
Pro forma net income (loss) per
share(c)...................... $ -- $ -- $ -- $ -- $ (0.12) $ -- $ (0.07) $ -- $ 0.09
OTHER FINANCIAL DATA:
EBITDA(d)....................... $ 5,111 $ 3,651 $ 5,529 $ 10,088 $ 9,420 $ (393) $(3,549) $ 10,377 $ 16,997
Depreciation and
amortization(e)............... 2,030 2,242 2,225 2,745 3,347 882 1,976 2,322 2,767
Capital expenditures............ 1,858 3,010 2,988 2,574 6,738 1,342 1,376 4,792 3,446
Ratio (deficiency) of earnings
to fixed charges(f)........... 1.1x (2,579) 1.1x 1.6x (11,973) (12,648) (7,640) -- --
BALANCE SHEET DATA (END OF
PERIOD):
Total assets.................... $48,116 $55,607 $ 60,005 $ 69,809 $ 85,024 $ 70,459 $72,075 $100,206 $349,962
Total debt (including current
maturities)................... 19,812 28,351 29,811 32,710 69,306 57,750 60,171 77,956 255,389
Stockholders' equity
(deficit)..................... 17,144 15,228 14,647 15,392 1,674 2,055 (3,097) 4,556 44,332
</TABLE>
- ---------------------
(a) In connection with the 1995 Recapitalization, Holdings incurred
approximately $9.6 million in costs, all of which were expensed.
(b) During fiscal 1995, Holdings discontinued the operations of its Hedstrom
Holdings II subsidiary. Hedstrom Holdings II was involved in the
manufacturing of traffic control devices. The sole customer of Hedstrom
Holdings II was a related party with which Holdings no longer has an ongoing
relationship.
(c) As a result of the Units Offering and Equity Private Placement, pro forma
net income (loss) per share is calculated using the common shares
outstanding immediately following the Transactions. Net income (loss) per
share is not shown for the periods prior to the fiscal year ended July 31,
1996.
(d) EBITDA represents operating income plus depreciation, and amortization and,
for the twelve months ended July 31, 1996, certain other one-time charges
aggregating $2.55 million (see "Unaudited Pro Forma Consolidated Financial
Information"). While EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an indicator
of operating performance or an alternative to cash flow or operating income
(as measured by GAAP) or as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of Holdings to
meet its future debt service, capital expenditures and working capital
requirements.
(e) Depreciation and amortization included herein excludes the amortization of
deferred financing costs that is included in interest expense.
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized; (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized; and (iii)
that portion of rental expense considered to represent interest cost
(assumed to be one-third). Due to the seasonal nature of Holdings'
business, the ratio of earnings to fixed charges for the six months ended
June 30, 1996 and June 30, 1997 are not accurate representations of
full-year results. If the ratio is less than 1.0x, the deficiency is shown.
40
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF HEDSTROM AND HOLDINGS
The following discussion generally relates to the historical consolidated
results of operations and financial condition of Holdings and Hedstrom and,
accordingly, does not reflect the significant impact of the Transactions. The
following discussion and analysis should be read in conjunction with the
consolidated financial statements of Holdings, and the notes thereto, included
elsewhere herein. For purposes of this discussion, references to "Hedstrom",
where appropriate, include Holdings and Hedstrom and its subsidiaries
(including, with respect to periods after the consummation of the Acquisition,
ERO and its subsidiaries).
For information regarding the pro forma results of operations of the
Company, see the "Unaudited Pro Forma Consolidated Financial Information".
GENERAL
Hedstrom is a leading United States manufacturer and marketer of children's
leisure and activity products. Hedstrom has two principal divisions -- the
Bedford Division in Bedford, Pennsylvania (the "Bedford Division"), which
principally manufacturers and markets in the United States painted metal and
composite metal and plastic outdoor gym sets, wood gym kits and slides, spring
horses and gym accessories, and the Ashland Division in Ashland, Ohio (the
"Ashland Division"), which manufactures and markets in the United States a wide
variety of children's playballs and ball pit products. Through its International
Division, Hedstrom sells products manufactured by both the Bedford Division and
the Ashland Division outside of the United States.
FISCAL YEAR CHANGE
Hedstrom historically had a fiscal year ending July 31 but switched its
fiscal year-end to December 31, effective in 1997. Accordingly, Hedstrom's last
historical fiscal year was the twelve months ending July 31, 1996, and
Hedstrom's next complete fiscal year will be the twelve months ending December
31, 1997. Management implemented this change primarily to improve the accuracy
of Hedstrom's annual budgeting process. Hedstrom's retail customers generally do
not determine outdoor gym set product placements for the upcoming peak Spring
selling season until the preceding Fall. In the past, Hedstrom prepared its
budgets without the benefit of knowing what its outdoor gym set placements would
be for the upcoming fiscal year. Management believes that the adoption of a
December 31 fiscal year will improve the accuracy of its budgeting process.
As a result of the change in Hedstrom's fiscal year, Hedstrom has presented
financial statements for the five-month period ended December 31, 1996 and for
the comparable period in 1995. Management does not believe that the year over
year comparison for such period is meaningful because, given the concentration
of Hedstrom's net sales in the first and second calendar quarters, overall
changes in production levels in the comparably less active period from August to
December can have a significant impact on stated profitability for such period
due to the absorption of fixed manufacturing costs. This is especially true when
comparing the above-mentioned five-month period in 1996 versus the same
five-month period in 1995. In the last few months of calendar 1995, due to
capacity constraints, Hedstrom manufactured a significant number of outdoor gym
sets in anticipation of the Spring 1996 selling season. This production activity
resulted in absorption of overhead expenses of approximately $1.4 million (these
costs were capitalized into inventory) that otherwise would have been expensed
during the period had there been no production of gym sets. In late 1996,
management took several steps to increase the daily production capacity of
outdoor gym sets in an effort to increase its capacity during peak production
periods, thereby reducing inventory levels and related material and warehouse
expense. As a result of these efforts, Hedstrom is now able to manufacture gym
sets on a just-in-time basis in response to specific customer orders. The move
to just-in-time manufacturing in late calendar 1996 precluded the need to begin
manufacturing gym sets in 1996 for sale in 1997 and thus, unlike in late 1995,
Hedstrom expensed the fixed overhead incurred at its idle outdoor gym set
operations. As a result of the switch to just-in-time manufacturing, Hedstrom's
operating results were significantly better in the second calendar quarter of
1997 versus the second calendar quarter of 1996 because, among other things, it
produced outdoor gym sets in the second calendar quarter of 1997, whereas in the
same period of 1996, Hedstrom met consumer demand for outdoor gym sets out of
inventory. Hedstrom's
41
<PAGE> 44
discontinuation in 1996 of sales of certain low-margin juvenile products (such
as tricycles) that had been sold in 1995 also makes the year over year
comparison less meaningful.
NET SALES
Hedstrom computes net sales by deducting sales allowances, including
allowances for returns, volume discounts and co-operative advertising
("promotions"), from its gross sales. Where information concerning net sales by
product line is provided in this Prospectus, Hedstrom has estimated net sales by
attributing sales allowances to each product line in proportion to the
individual product line's percentage of gross sales.
In 1996, Hedstrom revised certain of its promotional policies, effectively
increasing the sales thresholds at which Hedstrom's customers earn certain
promotional discounts, which management believes will contribute to increasing
Hedstrom's profitability in 1997.
RESULTS OF OPERATIONS
The following table sets forth net sales and gross profit for each of
Hedstrom's three operating divisions and Hedstrom's total selling, general and
administrative expenses and total operating income (loss) for the periods
indicated:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED SIX MONTHS
YEAR ENDED JULY 31, DECEMBER 31, ENDED JUNE 30,
------------------------ ------------- ---------------
1994 1995 1996 1995 1996 1996 1997
------ ------ ------ ----- ----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Bedford Division.......................... $ 71.4 $ 80.9 $ 79.3 $13.5 $12.0 $63.0 $58.7
Ashland Division.......................... 30.4 44.8 46.0 16.7 10.4 27.2 24.8
International Division.................... 6.9 8.2 7.9 1.6 1.6 5.9 6.6
ERO....................................... -- -- -- -- -- -- 14.0
------ ------ ------ ----- ----- ----- -----
Total net sales................... 108.7 133.9 133.2 31.8 24.0 96.1 104.1
------ ------ ------ ----- ----- ----- -----
Gross profit:
Bedford Division.......................... 12.2 11.7 13.7 0.8 (.2) 14.3 16.1
Ashland Division.......................... 8.3 13.4 13.1 4.6 1.9 8.0 7.7
International Division.................... 1.0 1.5 1.3 .4 .3 .9 1.6
ERO....................................... -- -- -- -- -- -- 5.1
------ ------ ------ ----- ----- ----- -----
Total gross profit................ 21.5 26.6 28.1 5.8 2.0 23.2 30.5
------ ------ ------ ----- ----- ----- -----
Total selling, general and administrative
expenses.................................. 18.2 19.3 24.6 7.1 7.5 15.1 16.3
------ ------ ------ ----- ----- ----- -----
Total operating income (loss)............... $ 3.3 $ 7.3 $ 3.5 $(1.3) $(5.5) $ 8.1 $14.2
====== ====== ====== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
A comparison of Hedstrom's results of operations for the six months ended
June 30, 1997 with the same period in 1996 is necessarily affected by the impact
of the consummation of the Transactions on June 12, 1997. Due to the inclusion
of 30 days of combined operations of Hedstrom and ERO in the six months ended
June 30, 1997, management does not believe the comparison of total net sales and
total gross profit with the same period in 1996 is meaningful.
Net Sales. Hedstrom's total net sales increased to $104.1 million in the
first six months of 1997 from $96.1 million in the first six months of 1996, an
increase of $8.0 million, or 8.3%. Such increase was attributable to the
inclusion of ERO, certain selling price increases and the restructuring of
several promotional allowances, offset by a decline in sales at the Bedford and
Ashland Divisions. June net sales of ERO, included in the first six months of
Hedstrom's results, were $14.0 million. Net sales of the Bedford Division
decreased by $4.3 million, or 6.8%, in the first six months of 1997 from the
first six months in 1996, primarily as a result of (i) a shift in product mix to
lower-priced outdoor gym sets and (ii) a decline in sales of Hedstrom's wood
kits to home centers.
42
<PAGE> 45
This decline in sales was partially offset by selling price increases and the
restructuring of certain promotional allowances. Selling prices of products sold
by the Bedford Division increased approximately 3.3% in the first six months of
1997 over the first six months in 1996. Net sales of the Ashland Division
decreased by $2.4 million, or 8.8%, in the first six months of 1997 from the
first six months of 1996, reflecting a decline in sales of certain undecorated
playballs and O.E.M. products, which decline was partially offset by the
successful introduction of "goofballs" and the increase in market share of ball
pits. Selling prices of the Ashland Division increased approximately 2.5% in the
first six months of 1997 over the first six months in 1996. Net sales of the
International Division increased by $.7 million, or 11.9%, in the first six
months of 1997 over the first six months of 1996, due primarily to an increase
in playball sales in Canada.
Gross Profit. As a result of the increase in Hedstrom's total net sales,
total gross profit increased to $30.5 million in the first six months of 1997
from $23.2 million in the first six months of 1996. As a percentage of net
sales, gross profit increased to 29.3% in the first six months of 1997 from
24.1% in the first six months of 1996 due primarily to (i) the inclusion of the
June 1997 results of ERO, which had a higher gross profit margin than the other
divisions of Hedstrom, (ii) the implementation of the 1996 Cost Reduction Plan
and (iii) a shift in mix to higher-margin playballs, the effects of which were
partially offset by a reduction in production volume resulting from the
implementation of just-in-time manufacturing and reduced sales. ERO's June 1997
gross profit was $5.0 million, or 35.7% of ERO's net sales, and is included in
the first six months of Hedstrom's results. The Bedford Division's gross profit
margin in the first six months of 1997 increased to 27.4% from 22.7% in the
first six months of 1996 primarily as a result of the benefits of the 1996 Cost
Reduction Plan and selling price increases, partially offset by sales of
lower-priced and lower-margin outdoor gym sets. Gross profit margin in the
Ashland Division increased to 31.0% in the first six months of 1997 from 29.4%
in the first six months of 1996 primarily as a result of (i) an improvement in
ball pit margins due to new product introductions, (ii) an increase in selling
prices, and (iii) the favorable effects of the 1996 Cost Reduction Plan. Gross
profit margin in the International Division increased to 24.2% in the first six
months of 1997 from 15.3% in the first six months of 1996 primarily as a result
of sales price increases and a shift to higher-margin products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $16.3 million in the first six months of
1997 from $15.1 million in the first six months of 1996, an increase of 7.9%. As
a percentage of net sales, selling, general and administrative expenses
decreased to 15.6% in the first six months of 1997 from 15.7% in the first six
months of 1996, due principally to a reduction in warehouse and shipping costs
resulting from Hedstrom's implementation of just-in-time manufacturing of
outdoor gym sets and the resultant lower inventory levels and material handling
costs, the effects of which were partially offset by the inclusion of ERO's
relatively high selling, general and administrative expenses in June 1997.
FIVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Net Sales. Hedstrom's total net sales decreased to $24.0 million in the
five months ended December 31, 1996 from $31.8 million in the comparable period
in 1995, a decrease of 24.5%. Net sales of the Bedford Division decreased by
$1.5 million, or 11.1%, in the 1996 period from the 1995 period, primarily as a
result of eliminating sales of low-margin juvenile products such as tricycles
and ride-on products. Net sales of the Ashland Division decreased by $6.3
million, or 37.7%, in the 1996 period from the 1995 period. In the 1995 period,
the Ashland Division introduced its new ball pit line of products and obtained
the benefit of the initial "sell-in" of that product during the 1995 Christmas
season. In the 1996 period, ball pit products lacked the benefit of the initial
"sell-in" and were more vulnerable to competitive pressures that management
believes have since dissipated, resulting in a decline in sales of $5.0 million
in the 1996 period from the 1995 period. The decline in the Ashland Division's
sales is also attributable to a decline in OEM sales. Net sales in the
International Division for the 1996 period approximated net sales for the 1995
period.
Gross Profit. Hedstrom's total gross profit decreased to $2.0 million in
the five months ended December 1996 from $5.8 million in the same period of
1995. As a percentage of net sales, gross profit decreased to 8.3% in the 1996
period from 18.2% in the 1995 period. Due to the lower production volume of
outdoor gym sets resulting from the implementation of just-in-time manufacturing
for the 1997 selling season, an additional $1.4 million of fixed manufacturing
costs were unabsorbed in the 1996 period as compared to the 1995 period. In
addition, in December 1996, Hedstrom changed the method of allocating
depreciation for interim reporting periods, resulting in a one-time adjustment
to depreciation of $0.6 million in the 1996 period.
43
<PAGE> 46
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $7.5 million in the five months ended
December 31, 1996 from $7.1 million in the same period in 1995. Selling, general
and administrative expenses in the 1996 period include a $0.2 million lawsuit
settlement.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Hedstrom's total net sales decreased to $133.2 million in fiscal
1996 from $133.9 million in fiscal 1995, a decrease of 0.5%. Net sales in the
Bedford Division decreased by $1.6 million, or 2.0%, in fiscal 1996 as compared
to fiscal 1995. Despite unit volume increases in outdoor gym sets, net sales
declined in fiscal 1996 from fiscal 1995 principally as a result of an
unfavorable product mix shift to lower-priced, lower-margin outdoor gym sets
due, in part, to pricing and promotional policies implemented by certain of
Hedstrom's retail customers. Net sales of the Ashland Division increased $1.2
million, or 2.7%, in fiscal 1996 as compared to fiscal 1995. This increase
reflected the initial Christmas season "sell-in" effect on ball pit sales.
Gross Profit. Total gross profit increased to $28.1 million in fiscal 1996
from $26.6 million in fiscal 1995, an increase of 5.6%. As a percentage of net
sales, gross profit increased to 21.1% in fiscal 1996 from 19.9% in fiscal 1995.
In the Bedford Division, gross profit margin increased to 17.3% in fiscal 1996
from 14.5% in fiscal 1995 primarily as a result of (i) a reduction in plastic
resin prices and (ii) the implementation of the 1996 Cost Reduction Plan. The
gross profit margin of the Ashland Division decreased to 28.5% in fiscal 1996
from 29.9% in fiscal 1995. The decrease was attributable to increased
promotional activity and an unfavorable shift in the mix of playballs. The gross
profit margin of the International Division decreased to 16.5% in fiscal 1996
from 18.3% in fiscal 1995, principally as a result of an unfavorable shift in
product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $24.6 million in fiscal 1996 from $19.3
million in fiscal 1995, an increase of 27.5%. This increase was due primarily to
(i) a $2.0 million increase in material handling and warehousing costs, (ii) a
$2.0 million increase in advertising expenses and (iii) a $1.0 million non-cash
charge related to the write-off of certain advertising barter credits. The
increase in material handling and warehousing costs was due primarily to higher
levels of outdoor gym set inventories arising from the unexpected shift in
product mix and the resultant expense of outside warehouse space and related
material handling. The increased advertising expenditures related primarily to
an unsuccessful trial advertising campaign that has since been discontinued. As
a result of Hedstrom's decision to reduce its advertising expenditures during
fiscal 1997, management determined that $1.0 million of barter credits available
to pay for a portion of future advertising programs could not be utilized before
their expiration and, accordingly, were written off.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Hedstrom's total net sales were $133.9 million in fiscal 1995,
as compared to $108.7 million in fiscal 1994, an increase of 23.2%. This
increase was attributable primarily to increases in volume and selling prices at
both the Bedford Division and the Ashland Division. The Bedford Division's net
sales increased $9.5 million, or 13.3%, in fiscal 1995 over fiscal 1994,
primarily as a result of market share gains across the outdoor gym set and wood
gym kit product lines. The Ashland Division's net sales increased $14.4 million,
or 47.4% in fiscal 1995 over fiscal 1994, primarily as a result of (i) the
introduction of ball pit products, (ii) increases in the sales volume of premium
licensed playballs, (iii) a product mix shift toward higher-priced undecorated
playballs and (iv) overall sales price increases.
Gross Profit. Hedstrom's total gross profit was $26.6 million in fiscal
1995, as compared to $21.5 million in fiscal 1994, an increase of 23.7%.
Hedstrom's fiscal 1995 gross profit margin approximated fiscal 1994's gross
profit margin of 19.8%. The Bedford Division's gross profit margin decreased to
14.5% in fiscal 1995 from 17.1% in fiscal 1994 due to higher costs of raw
materials, particularly plastic resins. The Ashland Division's gross profit
margin increased to 29.9% in fiscal 1995 from 27.3% in fiscal 1994 primarily as
a result of (i) increases in selling prices and (ii) a product mix shift toward
higher-margin playballs that were partially offset by higher material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $19.3 million in fiscal 1995, as compared to $18.2
million in fiscal 1994, an increase of 6.0%. Expressed as a percentage of
44
<PAGE> 47
sales, selling, general and administrative expenses decreased to 14.4% in fiscal
1995 from 16.7% in fiscal 1994 primarily as a result of higher sales volume.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
Interest payments on the Senior Subordinated Notes and interest and
principal payments under the Senior Credit Facilities represent significant cash
requirements for the Company. The Senior Subordinated Notes require semiannual
interest payments of $5.5 million commencing in December 1997. Borrowings under
the Senior Credit Facilities will bear interest at floating rates and will
require interest payments on varying dates depending on the interest rate option
selected by the Company. Borrowings under the Senior Credit Facilities will
consist of $110 million under the Term Loan Facilities, comprised of a $75
million Tranche A Term Loan maturing in 2003 and a $35 million Tranche B Term
Loan maturing in 2005. In addition, the Senior Credit Facilities include a $70
million Revolving Credit Facility. The Term Loan Facilities will require
periodic principal repayments in increasing amounts prior to the maturity of
each Term Loan Facility. The Revolving Credit Facility terminates and all
amounts outstanding thereunder mature on the maturity date of the Tranche A Term
Loan Facility. See "Description of Senior Credit Facilities."
The Company's remaining liquidity demands will be for capital expenditures
and for working capital needs. In each of 1997 and 1998 the Company is expected
to make capital expenditures of approximately $9 million. For the foreseeable
future, the Company expects that its capital expenditures will be limited
primarily to maintaining existing facilities and equipment and completing its
insourcing of manufacturing certain components. The Senior Credit Facilities
impose annual limits on the Company's capital expenditures and investments. In
addition, to achieve the estimated net cost savings of over $9.0 million
described herein (see "Prospectus Summary -- Business Strategy -- Achieve Cost
Savings." and "Unaudited Pro Forma Consolidated Financial Information"), the
Company may incur expenditures related to the restructuring of its operations.
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Revolving Credit Facility. As of June 30, 1997,
approximately $67.3 million was available to the Company (subject to borrowing
base limitations) for borrowings under the Revolving Credit Facility. See
"Description of Senior Credit Facilities." Management believes that cash
generated from operations, together with borrowings under the Revolving Credit
Facility, will be sufficient to meet the Company's working capital and capital
expenditures needs for the foreseeable future.
SEASONALITY OF THE COMPANY
Hedstrom's peak selling season is the first half of the calendar year
whereas ERO's peak selling season is the second half of the calendar year.
Management believes that the Acquisition will smooth the historical seasonality
of Hedstrom's and ERO's businesses, thereby balancing working capital
requirements and enabling the Company to generate more consistent cash flows
throughout the year. Pro forma net sales for the Company for each calendar
quarter during the twelve months ended December 31, 1996 were 24.6%, 26.5%,
22.8% and 26.1%, respectively, of total pro forma net sales for such
twelve-month period.
45
<PAGE> 48
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ERO
The selected consolidated historical financial data presented below as of
and for the years in the five-year period ended December 31, 1996 were derived
from the consolidated financial statements of ERO, which have been audited by
Price Waterhouse LLP. The selected consolidated financial data presented below
as of and for the three-month periods ended March 31, 1996 and 1997 have not
been audited, but, in the opinion of management, include all the adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly,
in all material respects, such information in accordance with GAAP applied on a
consistent basis. Interim results are not necessarily indicative of ERO's
results for the full year, principally because of the seasonal nature of ERO's
business. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of ERO" and the consolidated financial statements of ERO and the
notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $101,777 $95,459 $126,734 $128,722 $157,913 $ 18,883 $ 19,939
Cost of sales................................... 64,984 63,028 79,776 80,693 97,802 13,264 13,814
-------- ------- -------- -------- -------- -------- --------
Gross profit.................................... 36,793 32,431 46,958 48,029 60,111 5,619 6,125
Selling, general and administrative expenses.... 26,919 26,245 34,078 33,183 38,896 7,553 7,763
Restructuring charge............................ -- 1,700 -- -- -- -- --
-------- ------- -------- -------- -------- -------- --------
Operating income (loss)......................... 9,874 4,486 12,880 14,846 21,215 (1,934) (1,638)
Interest expense................................ 2,292 1,261 1,939 1,997 9,062 1,846 2,010
-------- ------- -------- -------- -------- -------- --------
Income before income taxes...................... 7,582 3,225 10,941 12,849 12,153 (3,780) (3,648)
Income tax benefit (expense).................... (2,630) (1,040) (4,482) (5,167) (4,395) 1,552 1,495
-------- ------- -------- -------- -------- -------- --------
Income from continuing operations............... 4,952 2,185 6,459 7,682 7,758 (2,228) (2,153)
Extraordinary expense -- early extinguishment of
debt, net of applicable income taxes.......... (1,558) -- -- -- -- -- --
-------- ------- -------- -------- -------- -------- --------
Income before cumulative effect of the change in
accounting for income taxes................... 3,394 2,185 6,459 7,682 7,758 (2,228) (2,153)
-------- ------- -------- -------- -------- -------- --------
Cumulative effect of the change in accounting
for income taxes.............................. (1,911) -- -- -- -- -- --
-------- ------- -------- -------- -------- -------- --------
Net income...................................... $ 1,483 $ 2,185 $ 6,459 $ 7,682 $ 7,758 $ (2,228) $ (2,153)
======== ======= ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(a)....................................... $ 12,994 $ 7,320 $ 15,949 $ 18,411 $ 26,504 $ (590) $ (315)
Depreciation and amortization(b)................ 3,120 2,834 3,069 3,565 5,289 1,344 1,323
Capital expenditures............................ 1,881 989 1,287 1,772 3,625 448 289
Ratio of earnings to fixed charges(c)........... 3.8x 2.9x 5.5x 5.9x 2.2x -- --
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................... $ 51,112 $48,935 $ 56,792 $144,138 $159,994 $131,353 $136,381
Total debt (including current maturities)....... 17,800 14,650 11,875 84,998 95,640 82,041 79,431
Stockholders' equity............................ 18,781 21,177 27,997 36,064 43,014 32,789 40,649
</TABLE>
- ---------------
(a) EBITDA represents operating income plus depreciation, and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow or operating income (as measured
by GAAP) or as a measure of liquidity, it is included herein to provide
additional information with respect to the ability of ERO to meet its future
debt service, capital expenditures and working capital requirements.
(b) Depreciation and amortization included herein excludes the amortization of
deferred financing costs that is included in interest expense.
(c) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes and fixed charges. Fixed charges
consist of the total of (i) interest, whether expensed or capitalized; (ii)
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized; and (iii) that portion of
rental expense considered to represent interest cost (assumed to be
one-third). Due to the seasonal nature of ERO's business, the ratio of
earnings to fixed charges for the three months ended March 31, 1996 and
March 31, 1997 are not accurate representations of full-year results.
46
<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ERO
GENERAL
ERO is a leading designer, manufacturer, importer and marketer of licensed
and branded children's leisure products through four principal business units:
- Amav, which ERO acquired in October 1995, is a fully integrated
manufacturer of children's products, including arts and crafts kits, game
tables such as table tennis, table-top hockey and soccer, pool and
shuffleboard, and certain other children's bulk play products such as
play kitchens and battery-operated ride-on vehicles.
- ERO Industries produces the Slumber Shoppe line of products, which
includes slumber products such as indoor sleeping bags and play tents
featuring popular licensed characters such as Mickey's Stuff for Kids,
Barbie(TM), Pooh, and Batman and Robin(TM), and a water sports line of
products including flotation jackets, masks, fins, goggles and snorkels
directed at the children's market through ERO's license portfolio and at
the children's and adults' markets under the Coral brand name.
- Priss Prints produces licensed room decorations for young children,
consisting principally of stick-on and peel-off wall decorations.
- Impact sells a broad line of school supplies featuring popular licensed
characters, including back packs, book bags, lunch kits and stationery
products such as portfolios, binders, study kits, pencils and theme
books.
RESULTS OF OPERATIONS
The following discussion generally relates to the historical consolidated
results of operations and financial condition of ERO and should be read in
conjunction with the Consolidated Financial Statements of ERO included elsewhere
herein.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
INCREASE
1996 1997 (DECREASE)
------ ------ -----------
<S> <C> <C> <C>
Net sales............................... $18.9 $19.9 5.3%
Gross profit margin..................... 29.8% 30.7% 3.0%
Selling, general and administrative
expense (as a percentage of sales).... 40.0% 38.9% (2.8)%
Interest expense........................ $ 1.8 $ 2.0 11.1%
</TABLE>
ERO's first quarter results reflect the seasonal nature of its business.
The majority of the ERO's sales occur in the third and fourth quarters, while a
substantial portion of its expenses remain relatively consistent throughout the
year.
Net sales for the first quarter of 1997 increased 5.3% to $19.9 million as
compared to the first quarter of last year. The first quarter sales growth can
be attributed to ERO's Slumber Shoppe and Priss Prints businesses whose emphasis
on classic licenses resulted in gaining year-round placement at certain
retailers.
The gross profit margin for the quarter ended March 31, 1997 increased 3.0%
compared to the prior year due to improved pricing on its licensed products when
compared to a relatively weak performance in licensed products in the first
quarter of 1996.
47
<PAGE> 50
Selling, general and administrative expense as a percentage of sales
decreased 2.8% as ERO was able to control fixed cost spending in a period of
increased revenues.
Interest expense increased by 11.1% compared to the prior year due to
higher interest rates and an increase in working capital requirements.
1996 COMPARED TO 1995
Sales increased to $157.9 million, or 22.7%, in 1996 due primarily to
Amav's first full year of operations. Amav, which was acquired October 1, 1995,
contributed $66.1 million in 1996 compared to $24.6 million in 1995, a $41.5
million increase. Partially offsetting Amav's contribution, sales in ERO's
Impact business fell far short of 1995 levels due to the timing of 1996's major
licensing events. The success of Impact's back-to-school products relies heavily
on major summer licensing events. In 1996, the major licensing events occurred
in the fourth quarter, which is after the back-to-school selling season.
Amav's sales of $66.1 million represent a $16.1 million, or 32.2%, increase
over 1995 full year sales of $50.0 million. Amav's sales growth is attributable
to several factors including increased production capacity, working capital
availability, growth of the arts and crafts market, the introduction of new
products and increased account penetration.
Gross profit margins for 1996 increased by 2.1% compared to 1995 due
primarily to a shift in the sales mix to ERO's businesses with higher margins,
Amav and Priss Prints.
Selling, general and administrative expenses as a percentage of sales
decreased by 4.7% primarily due to a decrease in royalty expense as a percentage
of sales resulting from a shift in the sales mix to non-licensed products. This
decrease was partially offset by the increase in amortization expense resulting
from the Amav acquisition.
Interest expense increased significantly from the prior year due to the
acquisition debt and higher working capital requirements.
ERO's effective tax rate for 1996 was 36% compared to 40% in 1995 due to an
increase in the percentage of income derived from ERO's foreign subsidiaries,
which carry lower statutory tax rates than its U.S. subsidiaries.
1995 COMPARED TO 1994
Sales increased to $128.7 million, or 1.6%, in 1995 due primarily to the
acquisition of Amav. Amav, which was acquired October 1, 1995, contributed $24.6
million to sales in 1995. Offsetting Amav's positive impact on sales, ERO's
sales of licensed products were significantly below the record levels achieved
during 1994 due to the lack of a strong license. During 1994, ERO's strongest
license, Mighty Morphin Power Rangers(TM), generated approximately 29% of total
sales. There was no such license in 1995.
Amav's full year sales in 1995 were $50.0 million as compared to $24.8
million in 1994, a 102% increase. Amav's sales improvement from the prior year
resulted from a number of factors including increased capacity due to its new
facility in Montreal, Quebec, increased account penetration and the introduction
of several new products.
During 1995, ERO discontinued the majority of products within the sports
bags and coolers product group. The products within this group, which did not
carry an exclusive license, offered ERO no competitive advantages and did not
fit into ERO's strategy of providing children's leisure products.
Gross profit margins were relatively consistent with the prior year. The
shift in sales mix to ERO's businesses with higher margins, Amav and Priss
Prints, was slightly offset by the discontinuation of products in the sports
bags and coolers product group, as discussed above, and the liquidation of
certain slow-moving inventory.
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Selling, general and administrative expenses as a percentage of sales
decreased by 4.1% primarily due to a decrease in royalty expense as a percentage
of sales resulting from a shift in the sales mix to Amav's non-licensed
products. This decrease was partially offset by the effect on ERO's fixed cost
structures of the decrease in licensed product sales.
Interest expense was relatively consistent with the prior year as ERO's new
$110.0 million credit facility, used to finance the Amav acquisition, was not in
effect until December 1995.
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BUSINESS
GENERAL
The Company (consisting of the combined businesses of Hedstrom and ERO) is
a leading North American manufacturer and marketer of well-established
children's leisure and activity products. The Company's diversified product
lines are in such "evergreen" product categories as outdoor gym sets, wood gym
kits and slides, spring horses, playballs, arts and crafts kits, game tables,
and licensed indoor sleeping bags, play tents and wall decorations. The Company
considers such product categories to be "evergreen" in nature because each is
characterized by proven longevity, demonstrated market demand and consistent
sales over time. For example, the Company believes products such as outdoor gym
sets and playballs have been marketed and sold in the United States for over 30
years.
The Company believes that in the U.S. markets for nine of its ten principal
product categories, it enjoys the competitive advantage of being the market
share leader, the low-cost producer or both. For the twelve-month period ended
December 31, 1996, approximately half of the Company's pro forma net sales were
derived from product categories for which the Company believes it has a market
share of approximately 75% or greater. The Company's products are sold primarily
through national retailers, mass merchants, home improvement centers, sporting
goods stores, drug store chains and supermarkets. For the twelve-month period
ended December 31, 1996, the Company's pro forma net sales and EBITDA (as
defined) were $283.3 million and $44.5 million, respectively. The Company's
outdoor gym set product line accounted for approximately 20% of the Company's
pro forma net sales for the twelve-month period ended December 31, 1996. No
other product line accounted for more than 10% of the Company's pro forma net
sales for the twelve-month period ended December 31, 1996.
Hedstrom's operations historically have been conducted through two
principal divisions. The Bedford Division principally manufactures and markets
in the United States outdoor gym sets, wood gym kits and slides, spring horses
and gym accessories. The Ashland Division principally manufactures and markets
in the United States a wide variety of children's playballs and ball pit
products. In addition, Hedstrom sells products manufactured by both the Bedford
Division and the Ashland Division outside of the United States through its
International Division. Hedstrom utilizes excess capacity at both the Bedford
Division and the Ashland Division to supply components to a variety of OEMs of
industrial and consumer products.
ERO's operations historically have been conducted through four principal
business units:
- Amav, which ERO acquired in October 1995, is a fully integrated
manufacturer of children's products, including arts and crafts kits, game
tables such as table tennis, table-top hockey and soccer, pool and
shuffleboard, and certain other children's bulk play products such as
play kitchens and battery-operated ride-on vehicles.
- ERO Industries produces the Slumber Shoppe line of products, which
includes slumber products such as indoor sleeping bags and play tents
featuring popular licensed characters such as Mickey's Stuff for Kids,
Barbie(TM), Pooh, and Batman and Robin(TM), and a water sports line of
products including flotation jackets, masks, fins, goggles and snorkels
directed at the children's market through ERO's license portfolio and at
the children's and adults' markets under the Coral brand name.
- Priss Prints produces licensed room decorations for young children,
consisting principally of stick-on and peel-off wall decorations.
- Impact sells a broad line of school supplies featuring popular licensed
characters, including back packs, book bags, lunch kits and stationery
products such as portfolios, binders, study kits, pencils and theme
books.
PRODUCTS
BEDFORD DIVISION
Outdoor Gym Sets. The Bedford Division produces a broad selection of
painted metal gym sets and composite metal and plastic gym sets. Each of the
Company's outdoor gym sets consists of a heavy-duty metal
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frame which supports several hanging, swinging rides such as contoured swing
seats, glide rides and trapezes. In addition, the Company's outdoor gym sets
often incorporate a plastic slide and climbing tower. The Company sells its
outdoor gym sets as complete, ready-to-assemble kits. The Company's outdoor gym
set line consists of 19 styles available in a variety of colors that sell at
retail prices between $80 and $600. The Company estimates that its share of the
total U.S. market for painted metal gym set units and composite metal and
plastic gym set units is approximately 75%.
Wood Gym Kits and Slides. The Bedford Division produces wood gym kits sold
through home improvement centers and building supply stores. Wood gym kits
consist of certain components necessary to construct a wood gym set, such as
nuts, bolts and framing brackets, and are typically sold together with accessory
products including swings, climbing towers and plastic slides. The Company does
not sell the lumber, nails or the tools required to construct the wood gym kits.
The retailers that carry the Company's wood gym kits, primarily home improvement
centers, benefit from the sale of such items, particularly the lumber. The
Company currently offers wood gym kits with differing designs and layouts,
ranging from simple swing set designs to more elaborate designs in the shape of
pirate ships and trains. The Company's wood gym kits generally sell for retail
prices between $69.99 and $339.99, and the Company's slides generally sell for
retail prices between $79.99 and $269.99. The Company estimates that its share
of the total U.S. market for wood gym kits is approximately 25%, second only to
Swing-N-Slide Corporation.
Spring Horses. The Bedford Division designs and manufactures 11 different
styles of spring horses for use by children ages two to six. The Company
manufactures the body of the horse, paints it to a specific style and packages
it with a metal frame manufactured by the Company. The Bedford Division has
manufactured spring horses for over ten years, and management estimates that the
Company has approximately a 75% share of the U.S. market for this product
category.
Gym Accessories, OEM and Other. The Bedford Division designs, manufactures,
sources and sells a broad line of accessories that complement its outdoor gym
sets and wood gym kits. Accessories include swing seats, climbing ropes, ladders
and nets. Many of the Company's outdoor gym sets offer the customer the ability
to customize the gym set with various accessories sold both in connection with
the initial purchase of an outdoor gym set and as upgrades or replacement parts
for the Company's large base of installed units. The Company currently offers
over 65 individual accessory items. In addition, the Company has undertaken
efforts to identify new products that the Bedford Division can manufacture
during the May through November period when its manufacturing capacity
historically has been underutilized. One such product is "Turbo Hoops," a home
version of the popular basketball game found in taverns and other commercial
establishments. The Company intends to begin producing Turbo Hoops during the
second half of 1997. In addition, the Company is seeking opportunities to
utilize seasonal excess capacity at the Bedford Division to manufacture products
for OEMs. The Company's sales to OEM customers will better enable it to
cost-effectively maintain a core of full-time, highly skilled workers and a high
level of plant utilization year-round, resulting in a consistent source of
revenue and profitability for the Bedford Division.
ASHLAND DIVISION
The Ashland Division produces a wide variety of children's playballs
ranging in size from 4" to 36" in diameter, including both premium playballs and
non-premium playballs. Management estimates the Company's share of the total
U.S. playball market is approximately 85%.
Premium Playballs. The Company's premium playballs generally include
stylized printing on 360 degrees or 180 degrees of the ball or contain fun
novelty items inside the ball. The premium playballs that are decorated with
stylized printing feature either popular characters from the Company's extensive
license portfolio or the Company's proprietary playball patterns. The Company's
proprietary playball patterns include holograms, sparkles and other geometric
patterns. In addition to playballs with stylized printing, the Company recently
introduced a line of "goofballs" that contain items inside the ball such as
plastic spiders, worms and beads. The Company's premium playballs generally sell
at retail prices between $1.99 and $8.99.
Non-Premium Playballs. The Company's non-premium playballs include (i)
decorated playballs with stripes or other simple patterns, (ii) undecorated
playballs and (iii) athletic-style playballs such as footballs, basketballs,
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baseballs, volleyballs and soccer balls. Non-premium playballs are available in
a wide range of colors and sizes. This product line experienced significant
growth over the last two years from the introduction of an 18" diameter
playball, a new size in the playball category. The Company's non-premium
playballs generally sell at retail prices between $1.99 and $24.99.
Ball Pits. In fiscal 1995, the Company developed and introduced home and
backyard versions of the popular ball pits used by children in commercial
locations such as McDonald's. The Company sells its ball pit product as a
complete, ready-to-assemble set including an inflatable tent-like enclosure and
250 to 400 ball pit balls. Management estimates that the Company's share of the
U.S. ball pit market exceeds 75%. The Company sources the enclosures from
several overseas manufacturers and packages the enclosures with ball pit balls
manufactured at the Ashland Division. Management believes that one of the
Company's competitive advantages in this product category is its ability to
manufacture high-quality ball pit balls using a patented process for which the
Company has an exclusive licensing agreement. Hedstrom currently offers four
ball pit models.
OEM and Other. The Ashland Division complements its core playball and ball
pit businesses and smooths seasonal production requirements by manufacturing a
variety of custom-fabricated plastic products for toy, sporting goods, hospital
supply, decorating and lighting companies. Sales to OEM customers enable the
Ashland Division to cost-effectively maintain a core of full-time, highly
skilled workers and result in a high level of plant utilization year-round while
providing a consistent source of revenue and profitability.
AMAV
Amav manufactures and markets children's leisure and activity products
including arts and crafts kits, game tables, and certain other children's bulk
play products. Amav's entire product line consists of approximately 400 items,
approximately 70% of which are in the arts and crafts kits category.
Arts and crafts products include a broad variety of children's activity
kits, chests and boxes that include stickers, doll outfits, mazes, paints,
balloons, stamps, stationery, sun catchers, woodworking kits, magic sets,
puzzles, sand art, egg art and art materials. These products generally are
targeted at children between three and eight years of age.
Game tables include a wide variety of popular table games such as table
tennis, table-top hockey and soccer, pool and shuffleboard that are often
integrated into a single game table. For example, Amav's 3-in-1 game table
includes table tennis, hockey and pool whereas Amav's 6-in-1 game table includes
those games plus foosball and both arcade and floor basketball. The largest game
table Amav manufactures is an 18-in-1 game table. In addition, Amav also
manufactures certain other children's bulk play products such as play kitchens
and battery-operated ride-on vehicles, which Amav recently introduced.
ERO INDUSTRIES
ERO Industries' product offerings consist of its Slumber Shoppe line of
products and its water sports line of products.
The Slumber Shoppe line of products includes indoor sleeping bags, carrying
cases, play tents and selected children's furniture, all of which feature
popular licensed characters and are targeted at children between the ages of two
and ten. The core product within this line is the slumber bag, a lightweight
indoor sleeping bag used for slumber parties, sleepovers and children's nap
times. Carrying cases (called slumber mates) are large enough to fit a slumber
bag and pajamas, toothbrushes and other items a child may need to spend the
night at a friend's house. Play tents (called slumber tents) are designed to be
used indoors, and give children a private area that can be used as a clubhouse,
fort or special play area. ERO Industries also sells foam and bean bag chairs
featuring licensed characters.
The water sports line of products includes a full range of personal
flotation devices (such as flotation vests) and swim and pool products
(including masks, fins, snorkels and goggles). These products are directed at
the children's market using the Company's license portfolio, and at the
children's and adults' markets under the Coral brand name.
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PRISS PRINTS
Through the 1993 acquisition of Priss Prints, ERO entered the children's
room decor industry with its licensed character wall decorations. Priss Prints
sells self-adhesive wall decorations for children's rooms that can be removed
without any damage to the wall or paint. Such wall decorations consist of
licensed characters and other decorations. For 1997, the Company's room
decoration licenses include Batman and Robin(TM), Looney Tunes(TM), and 101
Dalmatians, Pooh and other of Disney's classic characters. Potential new product
offerings include licensed character borders, introduced by Priss Prints for
1997, door decorations, night-lights and switchplates.
IMPACT
ERO established its Back-to-School product line in 1994 through the
combination of ERO's then-existing Back-to-School product line and the acquired
product lines of Impact International, Inc. and Impact Designs, Ltd.
(collectively, "Impact"). Impact now offers a broad line of licensed school
supplies, including carry bags (such as backpacks, school bags, lunch kits,
luggage, fanny packs and locker bags) and stationery products (such as theme
books, portfolios, binders, pencils and study kits). This product line
capitalizes on the Company's licensing and graphics strengths and offers
opportunities for innovative products featuring unique designs and other special
effects.
CUSTOMERS
The Company maintains an extensive customer base that includes the nation's
leading mass merchants, toy retailers, home improvement centers, department
stores, catalog showrooms, sporting goods stores and warehouse clubs. The
Company's products are sold in every state in the United States as well as
Canada, the United Kingdom and several other foreign countries.
The Company's pro forma net sales to its four largest customers (Toys "R"
Us, Wal-Mart, Kmart and Target) during the twelve-month period ended December
31, 1996 would have aggregated approximately 50% of the Company's pro forma net
sales for such period. Each of the four largest customers individually would
have accounted for over 9% of the Company's pro forma net sales during such
period. Although the Company has well-established relationships with its key
customers, the Company does not have long-term contracts with any of them.
SALES AND MARKETING
HEDSTROM
Hedstrom's sales force is comprised of one Sales Manager of Major Accounts
who deals directly with its top four customers -- Toys "R" Us, Wal-Mart, Kmart
and Service Merchandise -- and two National Sales Managers who work with outside
vendor representatives to cover Hedstrom's other customers. These outside vendor
representatives include approximately 22 manufacturers representative
organizations with over 100 sales representatives to service Hedstrom's mass
merchant and home center customers.
Hedstrom's marketing activities include customer service, product
development and advertising and promotions. Hedstrom has six customer service
representatives in the Bedford Division and four in the Ashland Division who
serve retail customers by tracking and confirming orders and answering general
inquiries. Hedstrom's consumer relations department is staffed with trained
professionals who, through an "800" number, assist end-users in assembling
products and purchasing spare parts. Hedstrom's product development staff
consists of twenty engineering and design professionals. The product development
process involves extensive product engineering, model making and sample testing.
Hedstrom historically has advertised its products in cooperation with its
retail customers, principally through print media such as newspaper circulars
and free-standing inserts sponsored by its customers. In fiscal 1996, Hedstrom
initiated, on a trial basis, its own multi-media advertising program designed to
increase consumer awareness of the Hedstrom brand over time. The total cost for
this advertising program was approximately $1.5 million. After careful review,
management determined that this trial advertising campaign would not provide an
acceptable return on investment and elected to discontinue it. Therefore, such
costs will not be incurred in 1997.
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ERO
ERO's sales and marketing organization includes a small group of direct
salespeople and independent sales representatives. ERO markets its products
primarily through numerous trade shows and limited co-operative advertising. ERO
does not currently conduct direct advertising.
ERO has in-house creative services providing marketing support for each of
its business units. While ERO uses several outside, free-lance creative
resources, its in-house facilities have display design and packaging
capabilities. The creative services departments work closely with the marketing
groups of the licensors as well as retailers to enhance consumer appeal through
the display and packaging of products.
COMPETITION
The Company generally operates in a highly-competitive environment.
Competition in the markets for the Company's products is based primarily on
cost, characters licensed (for licensed character products), product design and
quality, reputation, customer service, new product innovation and creative
marketing and distribution approaches. Competitive factors in the market for
character licenses include royalty levels, breadth of product lines, timely
royalty reporting and payment, artistic applications and compliance with
licensors' guidelines.
Bedford Division. The Company believes that its sales of outdoor gym sets
for the twelve months ended July 31, 1996, represented approximately 75% of the
total U.S. market for outdoor painted metal gym sets and composite metal and
plastic gym sets. The Company's principal competitor in this product line is
RDM, Inc., formerly known as Roadmaster Corporation. Certain custom gym set
manufacturers also compete in this market. The Company believes that it holds
the second largest share of the total U.S. wood gym kit market behind Swing-
N-Slide Corporation.
Ashland Division. Based on the Company's sales of playballs for the twelve
months ended July 31, 1996, management estimates that the Company accounts for
approximately 85% of sales in the total U.S. market for children's playballs.
The Company's largest competitor in this product line is National Latex
Corporation.
Amav. In the arts and activities product market, the Company competes with
Hallmark Corporation's Binney & Smith unit (under the Crayola(TM) brand name),
and a number of smaller arts and crafts suppliers such as Rose Art, Craft House,
Ohio Art and Quincrafts Corporation. In the game table and children's bulk
activity products market, the Company competes with Fisher Price (a subsidiary
of Mattel), Little Tikes (a subsidiary of Rubbermaid), Monneret and Step 2. In
this category, start-up costs are a barrier to entry with substantial tooling
costs and equipment requirements.
ERO Industries. The Company's main competitors with respect to its Slumber
Shoppe product line are Bibb and Coleman, which produces non-licensed slumber
bags, and Fisher Price which produces non-licensed slumber tents. With respect
to its water sports product line, its competitors include Sterns, Kent and Aqua
Leisure.
Priss Prints. The Company competes primarily against Borden, Infantino,
Dolly and 3M in the overall room decor industry.
Impact. The Company competes against companies such as Mead, Imaginings 3
and Plymouth in the stationery products market. With respect to its carry bag
product line, the Company competes against companies such as Pyramid Hand Bags
and Imaginings 3.
MANUFACTURING AND SUPPLY; RAW MATERIALS
BEDFORD DIVISION
Production Process. The Bedford Division's production, warehousing and
distribution facilities are located in a 472,000 square foot facility in
Bedford, Pennsylvania. The manufacturing process for the Company's outdoor gym
sets and accessories consists of eight integrated operations: steel
tube-forming, metal stamping, secondary fabrication, painting, plastic forming,
plastic coating, assembly and packaging. The steel tube-forming operations
consist of three high-speed tube mills which form metal strips into tubing of
various wall thickness (0.07 inches to 1.03 inches), diameters (0.50 to 2.50
inches) and lengths (19 inches to 20 feet). These steel tubes are used
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primarily for the main structural supports of the Company's gym sets. The metal
stamping operations consist of mechanical presses that utilize multi-station
dies to stamp, form or draw materials from coil metal stock. The materials from
the steel tube-forming and metal stamping operations are sent to the secondary
fabrication operations, which consist of mechanical presses, bending machines,
welding stations and custom fabrication equipment. After the secondary
fabrication operation, the products are painted in one of four electrostatic
spray paint systems. The three plastic forming machines (22 pound dual-head blow
molders) produce plastic slides and other large plastic parts from HDPE resin
(high density polyethylene). The plastic coating (extruding) process covers the
swing chain and cable for the gym sets with a soft coating of PVC (polyvinyl
chloride) in various colors. Next, the products are sent to one of three final
pack lines which consist of conveyor belts manned by employees at pre-arranged
stations placing parts in packing cartons. The three pack lines can produce up
to 8,000 gym sets per day depending on the type of outdoor gym sets in
production. A hardware bag containing components assembled on the automatic
bagging line, is also placed in the packing carton. The packing cartons are then
placed on large pallets, six to twelve per pallet, depending on size, and
wrapped in thin stretchable plastic and loaded onto trucks or stored in the
warehouse to await the arrival of the trucks.
Capacity. Management believes that the Bedford Division has adequate
capacity to supply anticipated future production requirements at times of peak
demand. The division has the capability to outsource or increase capacity in all
of its processes should backlog develop in the future.
Quality Assurance. The Bedford Division maintains an extensive quality
assurance program beginning with the development of plans for effective control
of manufacturing processes, supplier surveys to assure manufacturing capability
and a formal product release system to assure that product goals are achieved.
Quality assurance personnel verify that manufacturing employees are correctly
performing quality inspections including auditing incoming raw materials,
manufacturing processes and finished products. All manufacturing employees are
trained and provided with the tools necessary to determine whether manufactured
parts meet specifications. Employees systematically assemble one unit from each
production lot to verify that form and fit conform to safety standards.
Raw Materials. The primary raw materials used by the Bedford Division
include sheet and band steel and plastic resin. Most of the division's steel raw
materials (representing approximately 31% of the Bedford Division's total raw
materials purchased) are currently sourced from a single supplier. Management
believes that alternative sources of supply are readily available for
substantially all of the raw materials used by the Bedford Division.
Components Purchases. The Company periodically evaluates the economics of
producing internally certain plastic components used in the production and
assembly of its outdoor gym sets versus purchasing such components externally.
In 1996, the Company invested approximately $3.0 million in new plastic
blow-molding equipment to manufacture many of the plastic slides that it had
previously purchased from third-party vendors. Management believes that
producing these slides internally is currently providing annual cost savings of
approximately $1.5 million as compared to fiscal 1996 levels.
ASHLAND DIVISION
Facilities. The Ashland Division's production facilities are located in two
facilities in Ashland, Ohio. The main plant is 273,000 square feet and houses
most of the division's production capacity including a 115,200 square foot
warehouse and distribution center. A second 95,400 square foot leased facility
is used primarily to serve the division's OEM customer base and, to a lesser
degree, as a source of increased playball capacity. The second plant also houses
the division's administrative offices and showrooms. The Ashland Division also
has two satellite facilities strategically located in Carrollton, Texas and
Dothan, Alabama. These facilities are used primarily to manufacture undecorated
playballs for the local regions surrounding the plants and to inflate premium
and non-premium playballs that are shipped from Ashland.
Production Process. The Ashland Division manufactures its products
utilizing two basic manufacturing processes: (i) rotational molding for
polyvinyl playballs and polyethylene plastic OEM products and (ii) blow molding
for plastic ball pit balls. After the initial manufacturing process, the Ashland
Division employs a variety of value-added operations such as innovative
printing, decorating and packaging, utilizing, among other things, the Company's
state-of-the-art 360 degrees playball printing systems. The Company believes it
is the only manufacturer
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in the United States utilizing such systems. All playballs are inflated at
Ashland during production to ensure that they meet the Company's quality
standards, then deflated for storage or shipping. The Company ships deflated
playballs to customers with inflation capabilities. Playballs being delivered to
customers without inflation capabilities are re-inflated and boxed at one of the
Ashland Division's satellite playball plants at the time orders are shipped to
such customers. The Company believes its satellite playball plants provide it
with a competitive advantage by minimizing the distance that inflated balls must
be shipped, thereby reducing shipping costs.
Capacity. Management believes that the Ashland Division has adequate
in-house capacity to supply future increased production requirements at times of
peak demand and has ample space within its existing facilities to further expand
capacity.
Ball Pit License. The Company has entered into a year-to-year licensing
agreement with Euro-Matic, Ltd. ("Euro-Matic"), a United Kingdom-based company
that holds the patent for the ball pit balls that the Company produces. Using
machinery and molds supplied by Euro-Matic, the Company manufactures ball pit
balls for sale by Euro-Matic to the "institutional market," including
McDonald's, Discovery Zone, hospitals, schools, and similar institutions and
businesses for which the Company receives a fee per ball. In addition,
Euro-Matic provides the Company with molds that the Company uses with its own
machinery to produce ball pit balls that the Company packages with its ball bit
products for sale to the retail market.
Quality Assurance. The Ashland Division maintains a rigorous quality
control process. The division has three quality assurance personnel who are
trained in the methods of statistical process control and continuous
improvement. The quality assurance team selectively audits work-in-process and
finished goods and works closely with customers to define achievable product
standards.
Raw Materials. The Ashland Division manufactures its products from
commodity raw materials such as plastic resins, pigments and other chemicals
that generally are available from numerous sources. The Company has not entered
into any supply contracts with any of the Ashland Division's vendors. Management
believes that alternate sources of supply are readily available for all of the
raw materials used by the Ashland Division.
ERO
The Company manufactures all of its arts and crafts kits and children's
bulk activity products in its Montreal, Quebec manufacturing facility. The
Company owns or leases numerous injection molding machines. The Company also
owns two large printing presses and four smaller label/sticker printers. The
Company manufactures all of its plastic components, mixes its own paint, prints
all labels, cartons, coloring books, stickers and instruction sheets and
manufactures crayons. All of the Company's products are manufactured with
non-toxic materials to comply with industry standards for children's products
and applicable environmental laws.
The Company produces or assembles slumber bags, personal flotation devices,
juvenile furniture and children's wall decoration products at the Company's
Hazlehurst, Georgia facility. To reduce lead times and inventory levels with
respect to these product lines, the Company utilizes just-in-time manufacturing
and sourcing systems. The Company purchases its play tents, slumber mates, swim,
aqua fitness, back-to-school and wall decoration products from manufacturers
located in the United States, Taiwan, Hong Kong and the People's Republic of
China.
The Company's largest suppliers for its domestic operations provide printed
fabric for the slumber bags, liners for the slumber bags, vinyl prints for room
decorations, polyester fiber to fill the slumber bags and zippers and buckles.
The Company works closely with its suppliers in order to consolidate the
purchasing function and to foster teamwork between the Company and its
suppliers. For the aforementioned products, the Company maintains alternative
sources of supply.
TECHNOLOGY AND LICENSING
The Company holds a variety of patents, patent applications, trademarks and
licenses. While the Company considers such patents, trademarks and licenses to
be valuable assets, it does not believe that its competitive position is
dependent on patent or trademark protection or that its operations are dependent
on any individual patent trademark or license or group of related patents,
trademarks and licenses.
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An important element in the Company's marketing strategy is the ability to
differentiate its products from those of its competitors and stimulate sales by
using popular licensed characters and well-known brand names on its products.
Accordingly, the Company emphasizes the acquisition and maintenance of a broad
portfolio of character licenses. Rather than pursuing a few licenses with
speculative appeal, the Company maintains multiple licenses in several
categories, including both classic (e.g., Mickey's Stuff for Kids, Barbie(TM),
Pooh and 101 Dalmatians) and contemporary characters (e.g., Disney's Hercules,
Jurassic Park: The Lost World(TM) and Batman and Robin(TM)). The Company's
license agreements typically run for two years and require payments of
approximately 10-12% of licensed product revenues. The renewal terms of certain
license agreements are based upon the attainment of specified sales levels,
whereas others are based on informal understandings or arrangements. License
agreements typically are subject to termination by the licensor upon failure of
the licensee to meet various performance standards. Under the terms of certain
of its license agreements, the Company is required to pay minimum guaranteed
fees to the licensor over the life of the agreement. The guaranteed license fees
payable by the Company have been insignificant due to the Company's having
exceeded its minimum royalty requirements. After giving pro forma effect to the
Transactions, approximately 28% of the Company's pro forma net sales for the
twelve months ended December 31, 1996 would have been derived from sales of
licensed products. Approximately 67% of such net sales would have been
attributable to licenses covering ten licensed characters and approximately 44%
of such net sales would have been derived from licenses with Disney Enterprises,
Inc. and its affiliates.
BACKLOG
The Company monitors the inventory level of each of its key customers,
which allows the Company to anticipate customer orders and fill such orders
within a matter of days. As a result of such monitoring and the Company's
just-in-time manufacturing of several of its principal products, the Company
does not generate significant backlog.
PLANTS AND PRINCIPAL PROPERTIES
Management believes that the Company's facilities are in good condition and
that it has sufficient capacity to meet its current and projected manufacturing
and distribution needs. The Company's principal executive offices are located at
585 Slawin Court, Mount Prospect, Illinois 60056.
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The following table summarizes certain information regarding the Company's
principal operating facilities.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION FOOTAGE DESCRIPTION OF USE EXPIRATION(A)
-------- ----------- ------------------ -------------
<S> <C> <C> <C>
OWNED FACILITIES
Saint Laurent, Quebec................. 800,000 Amav Sales, Administration, N/A
Manufacturing and
Distribution
Bedford, Pennsylvania................. 472,000 Bedford Division N/A
Manufacturing, Warehouse
and Administrative
Ashland, Ohio......................... 273,000 Ashland Division N/A
Manufacturing, Warehouse
and Administrative
Hazlehurst, Georgia................... 230,000 ERO Industries and Impact N/A
Manufacturing and
Distribution
Plattsburgh, New York................. 80,000 Amav Manufacturing and N/A
Distribution
LEASED FACILITIES
Ashland, Ohio......................... 95,400 Ashland Division 2011
Manufacturing
Mount Prospect, Illinois.............. 38,000 Executive Corporate Offices 1999
Carrollton, Texas..................... 34,000 Ashland Division Warehouse 2006
and Manufacturing
Hazlehurst, Georgia................... 27,000 Priss Prints Distribution 1998
Dothan, Alabama....................... 25,100 Ashland Division Warehouse 2003
and Manufacturing
Kitchener, Ontario, Canada............ 19,300 Ashland Division Warehouse 2011
and Manufacturing
Coraopolis, Pennsylvania.............. 6,400 Corporate Offices 2000
Dallas, Texas......................... 4,000 Priss Prints Sales and 2000
Marketing
New York, New York.................... 3,900 New York Showroom 2004
Boca Raton, Florida................... 3,500 Impact Sales and Marketing 1998
Northampton, United Kingdom........... 400 Administrative Monthly
</TABLE>
- ---------------
(a) Assumes exercise of all options to renew.
LEGAL PROCEEDINGS
The Company is from time to time involved in lawsuits arising in the
ordinary course of business. The Company maintains product liability insurance
and management does not believe that the outcome of any such lawsuits will have
a material adverse effect on the Company's financial condition. Although
historically the Company has not been required to pay any material liability
claims, there can be no assurance that the Company will not incur claims which
are in excess of its insurance.
SEASONALITY
Historically, the Company's sales have been highly seasonal, with
Hedstrom's peak selling season occurring during the first two calendar quarters
of the year and ERO's peak selling season occurring during the third and fourth
calendar quarters of the year. However, management believes the Acquisition will
result in the Company's sales being relatively balanced throughout the year. Pro
forma net sales for the Company for each calendar
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<PAGE> 61
quarter during the twelve months ended December 31, 1996 were 24.6%, 26.5%,
22.8% and 26.1%, respectively, of total pro forma net sales for such
twelve-month period.
ENVIRONMENTAL
Certain of the Company's operations, including the use of solvents, paints
and other materials that contain chemicals that are considered hazardous under
various environmental laws, are subject to federal, state, local and foreign
environmental laws and regulations, which govern, among other things, the
discharge of pollutants into the air and water, as well as the handling and
disposal of solid and hazardous wastes. Permits are required for certain of the
Company's operations, and these permits are subject to modification, renewal and
revocation by issuing authorities. Governmental authorities have the power to
enforce compliance with applicable laws and regulations, and violations may
result in fines, injunctions, including the cessation of operations, or both.
Management believes that the Company's operations currently comply in all
material respects with applicable environmental laws and regulations.
Under the Clean Air Act Amendments of 1990 (the "CAA"), the Environmental
Protection Agency has been directed, among other things, to develop standards
and permit procedures with respect to certain air pollutants. Because many of
the implementing regulations have not yet been promulgated, the Company cannot
make a final assessment of the impact of the CAA. Based upon its preliminary
review of the CAA, management currently believes that compliance with the CAA
and other environmental laws and regulations will not have a material adverse
effect on the Company.
GOVERNMENT REGULATIONS
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act. These laws
empower the Consumer Product Safety Commission (the "CPSC") to protect consumers
from hazardous products and other articles. The CPSC has the authority to
exclude from the market products which are found to be unsafe or hazardous and
can require a manufacturer to recall such products under certain circumstances.
Similar laws exist in some states and cities in the United States and in Canada
and Europe. While the Company believes that it is, and will continue to be, in
compliance in all material respects with applicable laws, rules and regulations,
there can be no assurance that the Company's products will not be found to
violate such laws, rules and regulations, or that more restrictive laws, rules
or regulations will not be adopted in the future which could make compliance
more difficult or expensive or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 2,125 people.
Approximately 9.5% of the Company's employees are unionized, all of whom are
employed in the Ashland Division. These employees are represented by the Rubber
Workers Union, which is affiliated with the United States Steel Workers Union.
In the past five years, the Company has experienced only one work stoppage,
which occurred in October 1995 and lasted only two days. The Company believes
that it has a good relationship with its employees.
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<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AND HEDSTROM
The following table sets forth the age and the position of the directors
and executive officers of each of Holdings and Hedstrom.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John R. Muse............... 46 Chairman of the Board of Directors of Holdings and Hedstrom
Alan B. Menkes............. 38 Director of Holdings and Hedstrom
Robert H. Elman............ 58 Director of Holdings and Hedstrom
Arnold E. Ditri............ 60 Director of Holdings and Hedstrom; Chief Executive Officer and
President of Holdings and Hedstrom
David F. Crowley........... 47 Chief Financial Officer of Holdings and Hedstrom
Alastair H. McKelvie....... 65 Executive Vice President -- Operations of Hedstrom
John D. Dellos............. 58 Executive Vice President -- Manufacturing of Hedstrom
Alfred C. Carosi, Jr....... 49 Executive Vice President -- Sales and Marketing of Hedstrom
</TABLE>
John R. Muse co-founded Hicks, Muse, Tate & Furst Incorporated in 1989 and
has recently been named Chief Operating Officer. Prior to the formation of Hicks
Muse, Mr. Muse headed the investment/merchant banking activities of Prudential
Securities for the southwestern region of the United States from 1984 to 1989.
Prior to joining Prudential Securities, Mr. Muse served as senior vice president
and a director of Schneider, Bernet & Hickman, Inc. in Dallas from 1979 to 1983
and was responsible for the company's investment banking activities. Prior to
Schneider, Bernet, he was employed by Bateman, Eichler, Hill Richards in Los
Angeles. Mr. Muse is Chairman of Atrium Companies, Inc., Hedstrom Corporation,
Hat Brands, Inc. and serves as a director of The Morningstar Group, Inc., Crain
Holdings Corp., Ghirardelli Chocolate Company, Olympus Real Estate Corporation,
Arnold Palmer Golf Management Co. and Sunrise Television Corp.
Alan B. Menkes has been a director of Holdings and Hedstrom since October
1995. Mr. Menkes is a Managing Director and Principal of Hicks Muse, having
served as such since April 1996. Prior thereto, Mr. Menkes served as a Vice
President of Hicks Muse. Before joining Hicks Muse in 1992, Mr. Menkes was
employed by The Carlyle Group, a Washington D.C.-based private investment firm,
most recently as a Senior Vice President. Mr. Menkes also serves as a director
of International Home Foods, Inc.
Robert H. Elman has been a director of Holdings and Hedstrom since October
1995. Mr. Elman is Chairman and Chief Executive of DESA International, Inc.
("DESA International"), a manufacturer of indoor and outdoor heating products
and specialty tools. Mr. Elman has served in that capacity since March 1985 when
DESA International was formed as part of the leveraged buy out of AMCA
International, Inc.'s Consumer Products Division. Prior to 1985, he served as
Senior Group Vice President of AMCA International with responsibilities for the
Consumer, Automotive Products, Aerospace, and Food Packaging Divisions. Mr.
Elman joined AMCA International in 1975 when it acquired DESA Industries, a
company he assisted in forming in 1969. Prior to forming DESA Industries, Mr.
Elman was employed with ITT and Singer in various management positions in the
United States and Europe.
Arnold E. Ditri was Chairman of the Board of Hedstrom from December 1991
until October 1995 and has been a director of Holdings and Hedstrom since
October 1995. He has been President and Chief Executive Officer of Hedstrom
since March 1993 and of Holdings since October 1995. Mr. Ditri served as
President of Ditri Associates, Inc. from 1981 until 1994. Ditri Associates, with
a number of financial partners, specialized in acquiring and building
under-achieving companies. From 1984 through 1988, Ditri Associates built Eagle
Industries, Inc. in partnership with Great American Management, Inc. of Chicago.
From 1961 to 1981, Mr. Ditri was a management consultant with Booz Allen &
Hamilton and Touche Ross & Co. He was a partner in Touche Ross from 1967 to
1981.
David F. Crowley has been Chief Financial Officer of Hedstrom since 1994
and of Holdings since October 1995. Prior to joining Hedstrom, Mr. Crowley
served as Chief Financial Officer and/or Vice President of
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<PAGE> 63
Finance for various companies owned and operated by Ditri Associates. Prior to
joining Ditri Associates, from 1986 to 1990, Mr. Crowley was Treasurer of the
Ring Screw Works Company in Detroit, Michigan. From 1974 to 1985, he was
employed by Price Waterhouse where he was a Retail and Banking Industry
Specialist and served in London, England for two years managing strategic
planning and technical projects for the firm.
Alastair H. McKelvie has been Executive Vice President of Operations with
Hedstrom since 1991. Mr. McKelvie has over 40 years of experience chiefly in
manufacturing and general management positions covering a wide range of
products, processes, and geographic locations. From 1989 to 1991, Mr. McKelvie
served as Executive Vice President for various companies owned and operated by
Ditri Associates. Prior to 1989, he served as Executive Vice President of Eagle
Industries. From 1965 to 1982, Mr. McKelvie held a number of line and staff
positions in the Singer Company including Vice President of Manufacturing in its
International Group and General Manager of its two most profitable operating
divisions.
John D. Dellos has been Executive Vice President of Operations with
Hedstrom since 1994 and has over 36 years of operations experience. Previous to
joining Hedstrom, Mr. Dellos was Senior Vice President of Manufacturing of
P.P.M. Cranes, Inc. in Conway, South Carolina from 1990 to 1993. Prior to that,
Mr. Dellos was employed as General Manager of Manufacturing from 1986 to 1989 by
Komatsu America Manufacturing Company located in Chattanooga, Tennessee. Before
joining Komatsu, Mr. Dellos served in several capacities for a division of
Dresser Industries in Galion, Ohio from 1974 to 1985. From 1959 to 1973, Mr.
Dellos worked for Deere and Company in various positions.
Alfred A. Carosi, Jr. has been Executive Vice President of Sales and
Marketing with Hedstrom since December 1996. In this position he is also
responsible for corporate product development. Half of Mr. Carosi's 20 plus
years in sales and marketing have been in major consumer packaged goods
companies such as Procter & Gamble, Anheuser-Busch and Sara Lee Corporation. The
balance of his background is in the toy, game and entertainment industries. He
has been Vice President of Children's & Family Programming at NBC and has held
positions of increasing responsibility at Hasbro, Inc. During his 11 years at
Hasbro, Mr. Carosi was Senior Vice President of Marketing and Marketing Services
for the Playskool, Hasbro and Parker Brothers divisions.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the fiscal year ended July 31, 1996 (the
last full fiscal year of Hedstrom), the compensation awarded to or earned by the
President and Chief Executive Officer of Hedstrom and each other executive
officer of Hedstrom whose total annual salary and bonus for the fiscal year
ended July 31, 1996 was in excess of $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS(#) ($)(1)
--------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Arnold E. Ditri................................... 333,938 -- 543,544 15,422
President and Chief Executive Officer
David F. Crowley.................................. 120,941 4,463 271,777 1,515
Chief Financial Officer
John D. Dellos.................................... 124,435 7,456 271,777 6,014
Executive Vice President -- Manufacturing
</TABLE>
- ---------------
(1) All Other Compensation for the fiscal year ended July 31, 1996 includes the
following: (i) contributions made by Hedstrom on behalf of the following
individuals to Hedstrom's 401(K) Savings Plan: Mr. Ditri -- $11,435; Mr.
Crowley -- $1,254; and Mr. Dellos -- $5,276; and (ii) premiums paid by
Hedstrom for term life insurance policies in the following amounts: Mr.
Ditri -- $3,987; Mr. Crowley -- $261; and Mr. Dellos -- $738.
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<PAGE> 64
The following table summarizes option grants made during the fiscal year
ended July 31, 1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EXERCISE OR TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- -------------- ------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arnold E. Ditri............. 543,544 25.0% $1.00 10/27/05 314,832 865,659
David F. Crowley............ 271,777 12.5% $1.00 10/27/05 170,919 433,143
John D. Dellos.............. 271,777 12.5% $1.00 10/27/05 170,919 433,143
</TABLE>
- ---------------
(1) The options to purchase Holdings Common Stock were granted under the
Hedstrom Holdings, Inc. 1995 Stock Option Plan (the "1995 Option Plan") and
become exercisable in three equal annual installments commencing on the
first anniversary of the date of grant.
(2) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compound rates
of appreciation of Holdings Common Stock over the term of the options. These
amounts represent certain assumed rates of appreciation only, assuming a
fair market value on the date of grant of $1.00 per share. Because Holdings
Common Stock is privately-held, Hedstrom assumed a per share fair market
value on the date of grant of the foregoing options equal to $1.00 per share
based on the per share amount paid by Hicks Muse in connection with the
acquisition of Holdings and Hedstrom in October 1995. Actual gains on the
exercise of options are dependent on the future performance of Holdings
Common Stock. There can be no assurance that the potential values reflected
in this table will be achieved. All amounts have been rounded to the nearest
whole dollar amount.
The following table summarizes the value of options to acquire Holdings
Common Stock held by the Named Executive Officers as of July 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JULY 31, 1996 (#) FISCAL YEAR END ($)(2)
------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
Arnold E. Ditri..................................... 0/543,544 0/0
David F. Crowley.................................... 0/271,777 0/0
John D. Dellos...................................... 0/271,777 0/0
</TABLE>
- ---------------
(1) No options were exercised by a Named Executive Officer in fiscal 1996.
(2) Assumes a fair market value of $1.00 per share. Because Holdings Common
Stock is privately-held, for purposes of the calculation of the value of
unexercised options as of July 31, 1996, Hedstrom has assumed a per share
fair market value for Holdings Common Stock equal to the per share value
paid by Hicks Muse in connection with the acquisition of Holdings and
Hedstrom in October 1995.
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<PAGE> 65
EMPLOYMENT AGREEMENTS
Arnold E. Ditri Employment Agreement. Mr. Ditri entered into an employment
agreement with Holdings and Hedstrom on October 27, 1995. Pursuant to such
employment agreement, Mr. Ditri will serve as the President and Chief Executive
Officer of Holdings and Hedstrom through October 31, 1998, which term shall be
extended for successive terms of one year each unless terminated by either party
at least 90 days prior to the end of the initial term or any annual extension.
Mr. Ditri is required to devote substantially all of his business efforts to
Holdings, Hedstrom and their subsidiaries.
The compensation provided to Mr. Ditri under his employment agreement
includes an annual base salary of $340,000 and such benefits as are customarily
accorded to senior executive employees of Holdings and Hedstrom who are
similarly situated. In addition, Mr. Ditri is entitled to an annual cash bonus
equal to not less than 50% of his base salary if Holdings and Hedstrom achieve
the targets set forth in the Hedstrom Corporation Incentive Plan.
Mr. Ditri's employment agreement also provides that if Holdings and
Hedstrom terminate Mr. Ditri's employment without Cause (as defined therein) or
if Mr. Ditri terminates his employment for Good Reason (as defined therein), Mr.
Ditri shall be entitled to receive his base salary for one year after such
termination or for the remaining term of the employment agreement, whichever is
greater; provided, however, that if Mr. Ditri is employed by (A) an entity other
than a Competitive Business (as defined therein), then all compensation earned
by Mr. Ditri will reduce the amounts required to be paid by the Holdings and
Hedstrom as described in this sentence, or (B) any Competitive Business, then
Holdings and Hedstrom shall have no obligation to pay the amounts described in
this sentence. In the event Mr. Ditri's employment is terminated due to Mr.
Ditri's death, his base salary shall continue for six months and any bonus
payment shall be prorated to reflect the portion of the then current year for
which Mr. Ditri performed services. In the event of Mr. Ditri's disability, Mr.
Ditri shall be entitled to receive his base salary (less disability insurance
proceeds pursuant to any benefit plan of the Holdings or Hedstrom) for the
Disability Period (as defined therein).
David F. Crowley Severance Arrangement. While Mr. Crowley does not have a
formal employment agreement, Holdings and Hedstrom have agreed that Mr. Crowley
will be entitled to receive his base salary for a period of 12 months following
any termination of his employment, other than for cause, on or prior to November
15, 1997.
COMPENSATION OF DIRECTORS
With the exception of Robert H. Elman, the directors of Holdings and
Hedstrom did not receive compensation from either Holdings or Hedstrom for
services rendered in that capacity during the fiscal year ended July 31, 1996.
Mr. Elman receives $500 for each telephonic meeting and $1,000 for each meeting
attended in person. During the fiscal year ended July 31, 1996, Mr. Elman
received a total of $3,000 pursuant to such arrangements. Directors of Holdings
and Hedstrom are entitled to reimbursement of their reasonable out-of-pocket
expenses in connection with their travel to and attendance at meetings of the
board of directors or committees thereof.
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<PAGE> 66
STOCK OWNERSHIP AND CERTAIN TRANSACTIONS
STOCK OWNERSHIP
All of the issued and outstanding capital stock of Hedstrom is owned by
Holdings. The following table sets forth certain information regarding the
beneficial ownership of the outstanding Holdings Common Stock by each person who
is known by Holdings to beneficially own more than 5% of the Holdings Common
Stock and by the directors of Holdings and the Named Executive Officers,
individually, and by the directors and executive officers of Holdings as a
group.
<TABLE>
<CAPTION>
SHARES OF HOLDINGS
COMMON STOCK
BENEFICIALLY OWNED
---------------------
PERCENT
NUMBER OF OF
SHARES CLASS
---------- -------
<S> <C> <C>
5% STOCKHOLDERS
HM Parties(1)............................................. 56,030,600 82.8%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
OFFICERS AND DIRECTORS
John R. Muse (1)(2)....................................... 55,466,699 82.0%
Alan B. Menkes (1)(3)..................................... 55,385,370 81.9%
Robert H. Elman........................................... 1,625,000 4.5%
Arnold E. Ditri (4)....................................... 4,087,481 11.3%
David E. Crowley (5)...................................... 122,171 *
John N. Dellos (6)........................................ 169,539 *
Alastair H. McKelvie (7).................................. 1,884,292 5.2%
All executive officers and directors as a group (8
persons)............................................... 61,766,552 92.3%
</TABLE>
- ---------------
* Represents less than 1%
(1) Includes (i) 23,829,000 shares owned of record by HM Fund II, a limited
partnership of which the sole general partner is HM2/GP Partners, L.P., a
limited partnership of which the sole general partner is Hicks, Muse GP
Partners, L.P., a limited partnership of which the sole general partner is
Hicks, Muse, Tate & Furst Fund II Incorporated, a corporation affiliated
with Hicks Muse; (ii) 31,520,000 shares of Non-Voting Common Stock owned of
record by HM Fund II which are convertible into shares of Holdings Common
Stock, on a one-for-one basis, at the option of HM Fund II, (iii) 479,400
shares owned of record by Thomas O. Hicks; and (iv) 202,200 shares owned of
record by four children's trusts of which Mr. Hicks serves as trustee. Mr.
Hicks is a controlling stockholder of Hicks Muse and serves as Chairman of
the Board, President, Chief Executive Officer, Chief Operating Officer and
Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the
beneficial owner of Holdings Common Stock held by HM Fund II. John R. Muse,
Charles W. Tate, Jack D. Furst, Lawrence D. Stuart, Jr., Alan B. Menkes, and
Michael J. Levitt are officers, directors and minority stockholders of Hicks
Muse and as such may be deemed to share with Mr. Hicks the power to vote or
dispose of Holdings Common Stock held by HM Fund II. Each of Messrs. Hicks,
Muse, Tate, Furst, Stuart, Menkes and Levitt disclaims the existence of a
group and disclaims beneficial ownership of Holdings Common Stock not
respectively owned of record by him.
(2) Includes 117,699 shares owned of record by Mr. Muse.
(3) Includes 36,370 shares owned of record by Mr. Menkes.
(4) Includes (i) 3,106,300 shares owned of record by Mr. Ditri, (ii) 800,000
shares owned of record by certain members of Mr. Ditri's family, and (iii)
181,181 shares subject to options that are exercisable within 60 days. Mr.
Ditri disclaims beneficial ownership of shares not owned of record by him.
(5) Includes (i) 31,579 shares owned of record by Mr. Crowley and (ii) 90,592
shares subject to options that are exercisable within 60 days.
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<PAGE> 67
(6) Includes (i) 78,947 shares owned of record by Mr. Dellos and (ii) 90,592
shares subject to options that are exercisable within 60 days.
(7) Includes (i) 1,793,700 shares owned of record by Mr. McKelvie and (ii)
90,592 shares subject to options that are exercisable within 60 days.
CERTAIN TRANSACTIONS
Monitoring and Oversight Agreement
On October 27, 1995, Holdings and Hedstrom entered into a ten-year
agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co.
Partners, L.P. ("Hicks Muse Partners"), pursuant to which they pay Hicks Muse
Partners an annual fee of $175,000 for oversight and monitoring services to
Holdings and Hedstrom. The annual fee is adjustable at the end of each fiscal
year to an amount equal to 0.1% of the consolidated net sales of Hedstrom during
such fiscal year, but in no event less than $175,000. Messrs. Muse and Menkes,
directors of Holdings and Hedstrom, are each principals of Hicks Muse Partners.
In addition, Holdings and Hedstrom have agreed to indemnify Hicks Muse Partners,
its affiliates and their respective directors, officers and controlling persons,
if any, and, agents and employees of Hicks Muse Partners or any of its
affiliates from and against all claims, liabilities, losses, damages, and
expenses, including legal fees, arising out of or in connection with the
services rendered by Hicks Muse Partners in connection with the Monitoring and
Oversight Agreement.
The Monitoring and Oversight Agreement makes available the resources of
Hicks Muse Partners concerning a variety of financial and operational matters.
The services that have been and will continue to be provided by Hicks Muse
Partners could not otherwise be obtained by Holdings and Hedstrom without the
addition of personnel or the engagement of outside professional advisors. In
management's opinion, the fees provided for under this agreement reasonably
reflect the benefits received and to be received by Holdings and Hedstrom.
Financial Advisory Agreement
On October 27, 1995, Holdings and Hedstrom entered into a ten-year
agreement (the "Financial Advisory Agreement") with HM2/Management Partners,
L.P. ("HM2"), pursuant to which they paid HM2 a cash financial advisory fee of
approximately $1.175 million as compensation for its services as financial
advisor in connection with the acquisition of Holdings and Hedstrom by Hicks
Muse. HM2 also will be entitled to receive a fee equal to 1.5% of the
transaction value (as defined) for each add-on transaction (as defined) in which
Hedstrom is involved. The term "transaction value" means the total value of any
add-on transaction (excluding any fees payable pursuant to the Financial
Advisory Agreement in connection with such add-on transaction) including the
amount of any indebtedness, preferred stock or similar items assumed (or
remaining outstanding). The term "add-on transaction" means any future proposal
for a tender offer, acquisition, sale, merger, exchange offer, recapitalization,
restructuring, or other similar transaction directly or indirectly involving
Holdings, Hedstrom, or any of their respective subsidiaries, and any other
person or entity. In connection with the Acquisition, Holdings and Hedstrom paid
HM2 a cash financial advisory fee under the Financial Advisory Agreement of
approximately $3 million as compensation for its services as financial advisor
in connection with the Acquisition.
Messrs. Muse and Menkes, directors of Holdings and Hedstrom, are each
principals of HM2. In addition, Holdings and Hedstrom have agreed to indemnify
HM2, its affiliates and their respective directors, officers and controlling
persons, if any, and agents and employees of HM2 from and against all claims,
liabilities, losses, damages, and expenses, including legal fees, arising out of
or in connection with the services rendered by HM2 in connection with the
Financial Advisory Agreement. The Financial Advisory Agreement makes available
the resources of HM2 concerning a variety of financial matters. The services
that have been and will continue to be provided by HM2 could not otherwise be
obtained by Holdings and Hedstrom without the addition of personnel or the
engagement of outside professional advisors. In management's opinion, the fees
provided for under this agreement reasonably reflect the benefits received and
to be received by Holdings and Hedstrom.
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<PAGE> 68
Stockholders Agreement
The investors who purchased or received Holdings Common Stock in connection
with or subsequent to the acquisition of Holdings and Hedstrom by Hicks Muse and
its affiliates have entered into a stockholders agreement (the "Stockholders
Agreement"). The Stockholders Agreement grants preemptive rights and certain
piggy-back registration rights to the parties thereto and contains provisions
requiring the parties thereto to sell their shares of Holdings Common Stock in
connection with certain sales of Holdings Common Stock by HM Fund II
("drag-along rights') and grants the parties thereto other than HM Fund II the
right to include a portion of their shares of Holdings Common Stock in certain
sales in which HM Fund II does not exercise its drag-along rights ("tag-along
rights"). The Stockholders Agreement terminates on its tenth anniversary date,
although the preemptive rights, drag-along rights and tag-along rights contained
therein will terminate earlier upon the consummation of a registered
underwritten public offering of Holdings Common Stock by Holdings.
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<PAGE> 69
DESCRIPTION OF THE SENIOR CREDIT FACILITIES
In connection with the Financings, Holdings and Hedstrom entered into a
Credit Agreement (the "Credit Agreement") with Credit Suisse First Boston
Corporation ("CSFB") and the other lenders party thereto to provide the Senior
Credit Facilities. The description of the Senior Credit Facilities set forth
below does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Credit Agreement, including the definitions
therein of certain terms, and the other underlying agreements of the Senior
Credit Facilities.
The Senior Credit Facilities consist of (a) the six-year Tranche A Term
Loan in the principal amount of $75 million; (b) the eight-year Tranche B Term
Loan in the principal amount of $35 million; and (c) the Revolving Credit
Facility providing for revolving loans to Hedstrom and the issuance of letters
of credit for the account of Hedstrom in an aggregate principal and stated
amount at any time not to exceed $70 million. Borrowings under the Revolving
Credit Facility are available based upon a borrowing base not to exceed 85% of
eligible accounts receivable and 50% of eligible inventory.
The full amount of each Term Loan was drawn on the date on which the
Tenders Offer was consummated (the "Closing Date"). Amounts repaid or prepaid in
respect of the Term Loans may not be reborrowed. Loans under the Revolving
Credit Facility were available on the Closing Date and will continue to be
available until the date that is six years after such Closing Date (the
"Revolving Credit Termination Date"). Letters of credit under the Revolving
Credit Facility are available at any time subject to the limitations contained
in the following sentence. No letter of credit will be permitted to have an
expiration date after the earlier of (a) one year from the date of its issuance
and (b) five business days before the Revolving Credit Termination Date. Letters
of credit will be renewable for one-year periods, provided that no letter of
credit shall extend beyond the time specified in clause (b) of the previous
sentence.
The Tranche A Term Loan amortizes over six years commencing December 31,
1997 in quarterly installments. The Tranche B Term Loan amortizes over eight
years commencing December 31, 1997 in quarterly installments.
Hedstrom is required to make mandatory prepayments of loans, and revolving
credit commitments will be mandatorily reduced, in amounts, at times and subject
to certain exceptions, (a) in respect of 75% of consolidated excess cash flow of
Hedstrom starting with fiscal year 1998 and (b) in respect of 100% of the net
proceeds of certain dispositions of material assets or the stock of subsidiaries
or the issuance of capital stock or the incurrence of certain indebtedness by
Hedstrom or any of its subsidiaries. Hedstrom is entitled, at its option, to
prepay loans, and permanently reduce revolving credit commitments, in whole or
in part, at any time in certain minimum amounts. All such prepayments shall be
applied first to the Tranche A Term Loans and the Tranche B Term Loans ratably
(and to the installments thereof ratably in accordance with the then remaining
number of installments) and second, to reduce the commitments under the
Revolving Credit Facility.
The obligations of Hedstrom under the Senior Credit Facilities are
unconditionally and irrevocably guaranteed by Holdings and each of Hedstrom's
direct or indirect domestic subsidiaries (collectively, the "Senior Credit
Facilities Guarantors"). In addition, the Senior Credit Facilities are secured
by first priority or equivalent security interests in (i) all the capital stock
of, or other equity interests in, Hedstrom and each direct or indirect domestic
subsidiary of Hedstrom and 65% of the capital stock of, or other equity
interests in, each direct foreign subsidiary of Hedstrom, or any of its domestic
subsidiaries and (ii) all tangible and intangible assets (including, without
limitation, intellectual property and owned real property) of Hedstrom and the
Senior Credit Facilities Guarantors and the proceeds thereof (subject to certain
excepts and qualifications).
At Hedstrom's option, the interest rates per annum applicable to the Senior
Credit Facilities may be either (i) the Eurocurrency Rate (as defined in the
Credit Agreement) plus (x) 2.5% in the case of the Tranche A Term Loan and the
Revolving Credit Facility or (y) 3.0% in the case of the Tranche B Term Loan or
(ii) the Alternate Base Rate (as defined in the Credit Agreement) plus (x) 1.5%
in the case of the Tranche A Term Loan and the Revolving Credit Facility or (y)
2.0% in the case of the Tranche B Term Loan. The Alternate Base Rate is the
highest of (a) CSFB's Prime Rate (as defined in the Credit Agreement) and (b)
the federal funds effective rate from time to time plus 0.5%. The applicable
margin in respect of the Tranche A Term Loan and the Revolving
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Credit Facility will be adjusted from time to time by amounts to be agreed upon
based on the achievement of certain performance targets to be determined.
Hedstrom must pay a commission on the face amount of all outstanding
letters of credit at a per annum rate equal to the Applicable Margin then in
effect with respect to Eurocurrency Loans (as defined in the Credit Agreement)
under the Revolving Credit Facility. Hedstrom will also pay a per annum
commitment fee equal to 0.50% on the undrawn portion of the commitments in
respect of the Revolving Credit Facility.
The Credit Agreement contains covenants that require Hedstrom to maintain
its properties and those of its subsidiaries, together with insurance thereon;
to provide certain information to the administrative agent, including financial
statements, notices and reports and permit inspections of the books and records
of Hedstrom and its subsidiaries; to comply with applicable laws, including
environmental laws and ERISA; and to pay taxes and contractual obligations.
The Credit Agreement also contains a number of significant covenants that,
among other things, restrict the ability of Hedstrom to dispose of assets, incur
additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, make investments or
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in certain transactions with affiliates, amend the Indentures, refinance
the New Notes and otherwise restrict corporate activities. In addition, under
the Credit Agreement, Hedstrom is required to comply with specified minimum
interest coverage and maximum leverage ratios.
The Credit Agreement contains customary events of default, including
failure to pay principal on either of the Term Loans when due or any interest or
other amount that becomes due within 5 days after the due date thereof, any
representation or warranty made or deemed made is incorrect in any material
respect on or as of the date made or deemed made, the default in the performance
of negative covenants or a default in the performance of certain other covenants
or agreements for a period of thirty days, default in other indebtedness or
guarantee obligations, certain insolvency events, certain ERISA events, actual
or asserted invalidity of any loan documents and a change in control of
Hedstrom.
THE EXCHANGE OFFERS
PURPOSE AND EFFECT
The Old Notes were sold by the Issuers on June 12, 1997, in a private
placement. In connection with that placement, the Issuers entered into the
Registration Rights Agreement, which requires that the Issuers file a
registration statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that registration statement, offer to the holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount (or principal amount at maturity) of New Notes, which will be
issued without a restrictive legend and may be reoffered and resold by the
holder without registration under the Securities Act. The Registration Rights
Agreement further provides that the Issuers must use their best efforts to cause
the Registration Statement with respect to the Exchange Offers to be declared
effective on or before November 10, 1997. Except as provided below, upon the
completion of the Exchange Offers, the Issuers' obligations with respect to the
registration of the Old Notes and the New Notes will terminate. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and although the Issuers believe
that the summary herein of certain provisions thereof describes all material
elements of the Registration Rights Agreement, such summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference
thereto. As a result of the filing and the effectiveness of the Registration
Statement prior to November 10, 1997, certain additional interest ("Additional
Interest") provided for in the Registration Rights Agreement will not become
payable by the Issuers. Following the completion of the Exchange Offers (except
as set forth in the paragraph immediately below), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the Old Notes could be adversely affected upon
completion of the Exchange Offer.
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In order to participate in an Exchange Offer, a holder must represent to
the applicable Issuer, among other things, that (i) the New Notes acquired
pursuant to such Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder of the Old Notes, (ii) neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes within the meaning of the Securities Act, (iii)
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 promulgated under the Securities Act, of Hedstrom, Holdings or any
Subsidiary Guarantor, or if it is an affiliate, such holder or such other person
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such holder or other person is
not a broker-dealer, neither the holder nor any such other person is engaged in
or intends to engage in the distribution of such New Notes, and (v) if such
holder or other person is a broker-dealer, that it will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities and that it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes.
Pursuant to the Registration Rights Agreement, each Issuer is required to
file a "shelf" registration statement for a continuous offering pursuant to Rule
415 under the Securities Act in respect of its Old Notes (and use its reasonable
best efforts to cause such shelf registration statement to be declared effective
by the Commission and keep it continuously effective, supplemented and amended
for prescribed periods) if (i) such Issuer is not permitted to effect its
Exchange Offer because of any change in law or in applicable interpretations
thereof by the staff of the Commission, (ii) such Exchange Offer is not
consummated within 180 days of the date of issuance of the Old Notes, (iii) any
Initial Purchaser so requests with respect to Old Notes not eligible to be
exchanged for New Notes in such Exchange Offer and held by it following
consummation of such Exchange Offer, or (iv) any holder of Old Notes (other than
an Exchanging Dealer) is not eligible to participate in such Exchange Offer or,
in the case of any holder of Old Notes (other than an Exchanging Dealer) that
participates in such Exchange Offer, such holder does not receive freely
tradeable New Notes upon consummation of such Exchange Offer. In the event that
either Issuer is obligated to file a "shelf" registration statement, it may be
required to keep such "shelf" registration statement effective for at least two
years. Other than as set forth in this paragraph, no holder will have the right
to participate in the "shelf" registration statement nor otherwise to require
that an Issuer register such holder's Old Notes under the Securities Act. See
"-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to Hedstrom, Holdings or any of the
Subsidiary Guarantors, the Issuers believe that, with the exceptions set forth
below, New Notes issued pursuant to the Exchange Offers in exchange for Old
Notes may be offered for resale, sold and otherwise transferred by any person
receiving such New Notes, whether or not such person is the holder (other than
any such holder or such other person which is an "affiliate" of Hedstrom,
Holdings or any of the Subsidiary Guarantors within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Notes are acquired in the ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution of the New Notes, and (iii) neither the
holder nor such other person has an arrangement or understanding with any person
to participate in the distribution of the New Notes. Any holder who tenders in
an Exchange Offer for the purpose of participating in a distribution of New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where the Old Notes were acquired by that broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offers (except as set forth in the
third paragraph under "-- Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of
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the market for a holder's Old Notes could be adversely affected upon completion
of the Exchange Offers if the holder does not participate in the Exchange
Offers.
TERMS OF THE SENIOR SUBORDINATED NOTES EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Senior Subordinated Notes Letter of Transmittal, Hedstrom will accept
any and all Old Senior Subordinated Notes validly tendered and not withdrawn
prior to the Expiration Date. Hedstrom will issue $1,000 principal amount of New
Senior Subordinated Notes in exchange for each $1,000 principal amount of
outstanding Old Senior Subordinated Notes accepted in the Senior Subordinated
Notes Exchange Offer. Holders may tender some or all of their Old Senior
Subordinated Notes pursuant to the Senior Subordinated Notes Exchange Offer.
However, Old Senior Subordinated Notes may be tendered only in integral
multiples of $1,000 in principal amount.
The form and terms of the New Senior Subordinated Notes will be
substantially the same as the form, and terms of the Old Senior Subordinated
Notes except that (i) interest on the New Senior Subordinated Notes will accrue
from the date of issuance of the Old Senior Subordinated Notes and (ii) the New
Senior Subordinated Notes have been registered under the Securities Act and will
not bear legends restricting their transfer. The New Senior Subordinated Notes
will evidence the same debt as the Old Senior Subordinated Notes and will be
issued pursuant to, and entitled to the benefits of, the Senior Subordinated
Notes Indenture.
As of June 30, 1997, Old Senior Subordinated Notes representing
$110,000,000 aggregate principal amount were outstanding. This Prospectus,
together with the Senior Subordinated Notes Letter of Transmittal, is being sent
to such registered Holder and to others believed to have beneficial interests in
the Old Senior Subordinated Notes. Holders of Old Senior Subordinated Notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or the Senior Subordinated Notes Indenture in
connection with the Senior Subordinated Notes Exchange Offer. Hedstrom intends
to conduct the Senior Subordinated Notes Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder.
Hedstrom shall be deemed to have accepted validly tendered Old Senior
Subordinated Notes when, as, and if Hedstrom has given oral or written notice
thereof to the Senior Subordinated Notes Exchange Agent. The Senior Subordinated
Notes Exchange Agent will act as agent for the tendering holders for the purpose
of receiving the New Senior Subordinated Notes from Hedstrom. If any tendered
Old Senior Subordinated Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Senior Subordinated Notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Senior Subordinated Notes in the Senior Subordinated
Notes Exchange Offer will not be required to pay brokerage commissions or fees
or, subject to the instructions in the Senior Subordinated Notes Letter of
Transmittal, transfer taxes with respect to the exchange of Old Senior
Subordinated Notes pursuant to the Senior Subordinated Notes Exchange Offer.
Hedstrom will pay all charges and expenses, other than certain applicable taxes,
in connection with the Senior Subordinated Notes Exchange Offer. See "The
Exchange Offers -- Fees and Expenses."
TERMS OF THE DISCOUNT NOTES EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Discount Notes Letter of Transmittal, Holdings will accept any and
all Old Discount Notes validly tendered and not withdrawn prior to the
Expiration Date. Holdings will issue $1,000 principal amount at maturity of New
Discount Notes in exchange for each $1,000 principal amount at maturity of
outstanding Old Discount Notes accepted in the Discount Notes Exchange Offer.
Holders may tender some or all of their Old Discount Notes pursuant to the
Discount Notes Exchange Offer. However, Old Discount Notes may be tendered only
in integral multiples of $1,000 in principal amount at maturity.
The form and terms of the New Discount Notes will be substantially the same
as the form and terms of the Old Discount Notes except that (i) the Accreted
Value of the New Discount Notes will be calculated from the date
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of issuance of the Old Discount Notes and (ii) the New Discount Notes have been
registered under the Securities Act and will not bear legends restricting their
transfer. The New Discount Notes will evidence the same debt as the Old Discount
Notes and will be issued pursuant to, and entitled to the benefits of, the
Discount Notes Indenture.
As of June 30, 1997, Old Discount Notes representing $44,612,000 aggregate
principal amount at maturity were outstanding. This Prospectus, together with
the Discount Notes Letter of Transmittal, is being sent to such registered
Holder and to others believed to have beneficial interests in the Old Discount
Notes. Holders of Old Discount Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Discount Notes Indenture in connection with the Discount Notes Exchange Offer.
Holdings intends to conduct the Discount Notes Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder.
Holdings shall be deemed to have accepted validly tendered Old Discount
Notes when, as, and if Holdings has given oral or written notice thereof to the
Discount Notes Exchange Agent. The Discount Notes Exchange Agent will act as
agent for the tendering holders for the purpose of receiving the New Discount
Notes from Holdings. If any tendered Old Discount Notes are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Old Discount
Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Discount Notes in the Discount Notes Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Discount Notes Letter of Transmittal, transfer taxes with
respect to the exchange of Old Discount Notes pursuant to the Discount Notes
Exchange Offer. Holdings will pay all charges and expenses, other than certain
applicable taxes, in connection with the Discount Notes Exchange Offer. See "The
Exchange Offers -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean, with respect to either Exchange
Offer, 5:00 p.m., New York City time, on , 1997, unless an Issuer,
in its sole discretion, extends the Exchange Offer applicable to its Old Notes,
in which case the term "Expiration Date" shall mean the latest date and time to
which such Exchange Offer is extended. In order to extend its Exchange Offer,
the applicable Issuer will notify the Exchange Agent for such Exchange Offer and
each registered holder of such Issuer's Old Notes of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Each Issuer reserves the right,
in its sole discretion, (i) to delay accepting any Old Notes, to extend its
Exchange Offer or, if any of the conditions set forth under "The Exchange
Offers -- Certain Conditions to Exchange Offers" shall not have been satisfied,
to terminate such Exchange Offer, by giving oral or written notice of such
delay, extension or termination to the Senior Subordinated Notes Exchange Agent
or the Discount Notes Exchange Agent, as the case may be, or (ii) to amend the
terms of its Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in an Exchange Offer.
Except as set forth under "The Exchange Offers -- Book Entry Transfer," to
tender in an Exchange Offer a holder must complete, sign and date the Letter of
Transmittal applicable to such Exchange Offer, or a copy thereof, have the
signatures thereon guaranteed if required by such Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or copy to the Exchange
Agent for such Exchange Offer prior to the Expiration Date for such Exchange
Offer. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent for such Exchange Offer along with the Letter of
Transmittal applicable to such Exchange Offer, or (ii) a timely confirmation of
a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if that
procedure is available, into the account of the Exchange Agent for such Exchange
Offer at the DTC (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by such Exchange Agent
prior to the Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively, a
Letter of Transmittal and other required documents must be received by the
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appropriate Exchange Agent at its address set forth under "The Exchange
Offers -- Exchange Agents" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the applicable Issuer in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal applicable to such Issuer's Exchange Offer.
THE METHOD OF DELIVERY OF OLD NOTES, A LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO AN EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO AN EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing a Letter of Transmittal and delivering the owner's Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case maybe, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on such Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantee must be by any eligible guarantor institution that is
a member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, the Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as that registered holder's name appears on the Old Notes.
If a Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
relevant Issuer of their authority to so act must be submitted with such Letter
of Transmittal unless waived by the relevant Issuer.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. Each Issuer reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the acceptance of which would, in the
opinion of counsel for such Issuer, be unlawful. Each Issuer also reserves the
right to waive any defects, irregularities, or conditions of tender as to
particular Old Notes. An Issuer's interpretation of the terms and conditions of
its Exchange Offer (including the instructions in a Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Issuer of such Old Notes shall determine. Although each Issuer
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Issuers, the Exchange Agents, nor any other person
shall incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by an Exchange Agent that are
not properly tendered and as to
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which the defects or irregularities have not been cured or waived will be
returned by such Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal accompanying such Old Notes, as soon as
practicable following the Expiration Date.
In addition, each Issuer reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offers -- Conditions to the
Exchange Offer," to terminate its Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of such Issuer's Exchange Offer.
By tendering, each holder will represent that, among other things, (i) the
New Notes acquired pursuant to such Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder of the Old Notes, (ii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes within the meaning of the
Securities Act, (iii) neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
Hedstrom, Holdings or any Subsidiary Guarantor, or if it is an affiliate, such
holder or such other person will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such holder or other person is not a broker-dealer, neither the holder nor any
such other person is engaged in or intends to engage in the distribution of such
New Notes, and (v) if such holder or other person is a broker-dealer, that it
will receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities and
that it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to an Exchange Offer will be made only after timely receipt by
the Exchange Agent for such Exchange Offer of certificates for such Old Notes or
a timely Book-Entry Confirmation of such Old Notes into such Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the Letter of Transmittal for such
Exchange Offer) and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer for such Old Notes or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering Holder
thereof (or, in the case of Old Notes tendered by book-entry transfer into an
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of the
Exchange Offer for such Old Notes.
BOOK-ENTRY TRANSFER
The Exchange Agents will make requests to establish accounts with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offers within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
appropriate Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, a Letter of Transmittal or copy
thereof, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following paragraph,
be transmitted to and received by the appropriate Exchange Agent at its address
set forth under "The Exchange Offers -- Exchange Agents" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept an Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal.
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DTC is obligated to communicate those electronic instructions to the Exchange
Agents. To tender Old Notes through ATOP, the electronic instructions sent to
DTC and transmitted by DTC to an Exchange Agent must contain the participant
acknowledgement of its receipt of and agreement to be bound by the Letter of
Transmittal for such Old Notes.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the appropriate Exchange
Agent before the Expiration Date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if (i) the
tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, such Exchange Agent received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Issuer
of the Old Notes tendered (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of such Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the applicable Letter of Transmittal will be deposited by
the Eligible Institution with the appropriate Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the applicable Letter of Transmittal, are received by such Exchange
Agent within three NYSE trading days after the date of execution of the Notice
of Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the appropriate Exchange Agent at its address set forth in this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee of such Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the holder who tendered such Old Notes.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by the Issuer of the Old Notes
subject to such notice, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer relating to such Old
Notes. Any Old Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender, or
termination of the Exchange Offer relating to such Old Notes. Properly withdrawn
Old Notes may be retendered by following one of the procedures under "The
Exchange Offers -- Procedures for Tendering" at any time on or prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offers, an Issuer shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend such Issuer's Exchange Offer if at any
time before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, such Issuer determines that its Exchange Offer
violates applicable law, any applicable
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interpretation of the staff of the Commission or any order of any governmental
agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. The failure by an Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, an Issuer will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the indenture relating to such Issuer's Old Notes under the
Trust Indenture Act of 1939, as amended (the "TIA"). In any such event each
Issuer is required to use every reasonable effort to obtain the withdrawal of
any stop order at the earliest possible time.
EXCHANGE AGENTS
SENIOR SUBORDINATED NOTES EXCHANGE AGENT
All executed Senior Subordinated Notes Letters of Transmittal should be
directed to the Senior Subordinated Notes Exchange Agent. IBJ Schroder Bank &
Trust Company has been appointed the Senior Subordinated Notes Exchange Agent.
Questions, requests for assistance and requests for additional copies of this
Prospectus or of the Senior Subordinated Notes Letter of Transmittal should be
directed to the Senior Subordinated Notes Exchange Agent addressed as follows:
To: IBJ SCHRODER BANK & TRUST COMPANY,
<TABLE>
<C> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
IBJ Schroder Bank & Trust (212) 858-2611 IBJ Schroder Bank & Trust
Company Company
P.O. Box 84 To Confirm, One State Street
Bowling Green Station Facsimile Transmissions Call: New York, New York 10004
New York, New York 10274-0084 (212) 858-2103 Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One,
Department (SC-1)
</TABLE>
DISCOUNT NOTES EXCHANGE AGENT
All executed Discount Notes Letters of Transmittal should be directed to
the Discount Notes Exchange Agent. The United States Trust Company of New York
has been appointed as the Discount Notes Exchange Agent. Questions, requests for
assistance and requests for additional copies of the Prospectus or the Discount
Notes Letter of Transmittal should be directed to the Discount Notes Exchange
Agent addressed as follows:
To: THE UNITED STATES TRUST COMPANY OF NEW YORK,
<TABLE>
<C> <C> <C>
By Overnight Courier: By Hand: By Registered Or Certified
United States Trust Company United States Trust Company Mail:
of New York of New York United States Trust Company
770 Broadway, 13th Floor 111 Broadway of New York
New York, New York 10003 Lower Level P.O. Box 844
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
Telephone: (800) 548-6565 New York, New York 10006 Cooper Station
Facsimile: (212) 420-6152 New York, New York 10276-0844
Telephone: (800) 548-6565
Facsimile: (212) 420-6152
</TABLE>
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FEES AND EXPENSES
The Issuers will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offers. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Issuers.
The estimated cash expenses to be incurred in connection with the Exchange
Offers will be paid by the Issuers and are estimated in the aggregate to be
$ , which includes fees and expenses of the Trustees for the Old Notes,
accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection except that holders who instruct an Issuer
to register New Notes in the name of, or request that Old Notes not tendered or
not accepted in an Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFERS
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of New Notes. The
description does not consider the effect of any applicable foreign, state, local
or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to an Exchange Offer
should not constitute a significant modification of the terms of the Old Notes
and, therefore, such exchange should not constitute an exchange for U.S. federal
income tax purposes. Accordingly, such exchange should have no federal income
tax consequences to holders of Old Notes, and holders should have the same tax
basis, holding period and adjusted issue price with respect to the New Notes as
such holders had with respect to the Old Notes.
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<PAGE> 80
DESCRIPTION OF THE NEW SENIOR SUBORDINATED NOTES
GENERAL
The New Senior Subordinated Notes will be issued under the Indenture, dated
as of June 1, 1997 (the "Senior Subordinated Notes Indenture"), among Hedstrom,
Holdings, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as
Trustee (the "Senior Subordinated Notes Trustee"), pursuant to which the Old
Senior Subordinated Notes were issued. Upon the issuance of the New Senior
Subordinated Notes, the Senior Subordinated Notes Indenture will be subject to
and governed by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following summary of certain provisions of the Senior
Subordinated Notes Indenture and the New Senior Subordinated Notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Senior Subordinated Notes Indenture
(including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act) and the Senior Subordinated Notes, copies of
which are available as set forth under "Available Information."
The New Senior Subordinated Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and any integral multiple of
$1,000. No service charge will be made for any registration of transfer or
exchange of New Senior Subordinated Notes, but Hedstrom may require payment of a
sum sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Notes will be unsecured, senior subordinated
obligations of Hedstrom, limited to $110 million aggregate principal amount, and
will mature on June 1, 2007. Each New Senior Subordinated Note will bear
interest at the rate of 10% per annum from June 12, 1997, or from the most
recent date to which interest has been paid or provided for, payable
semiannually on June 1 and December 1 of each year, commencing December 1, 1997
to holders of record at the close of business on the May 15 or November 15
immediately preceding the interest payment date.
The interest rate on the Old Senior Subordinated Notes is subject to
increase in certain circumstances if Hedstrom does not file a registration
statement relating to the Senior Subordinated Notes Exchange Offer or if the
Senior Subordinated Notes Exchange Offer is not consummated on a timely basis or
if certain other conditions are not satisfied.
OPTIONAL REDEMPTION
Except as set forth below, the New Senior Subordinated Notes will not be
redeemable at the option of Hedstrom prior to June 1, 2002. On and after such
date, the New Senior Subordinated Notes will be redeemable, at Hedstrom's
option, in whole or in part, at any time upon not less than 30 nor more than 60
days prior notice mailed by first-class mail to each holder's registered
address, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
if redeemed during the 12-month period commencing on June 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 105.000
2003........................................................ 103.333
2004........................................................ 101.667
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to June 1, 2000,
Hedstrom may redeem in the aggregate up to $44,000,000 principal amount of
Senior Subordinated Notes with the proceeds of one or more Equity Offerings so
long as there is a Public Market at the time of such redemption (provided that
if the Equity Offering is an offering by Holdings, a portion of the net cash
proceeds thereof equal to the amount required to redeem any such Senior
Subordinated Notes is contributed to the equity capital of Hedstrom), at a
redemption price
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<PAGE> 81
(expressed as a percentage of principal amount) of 110%, plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive accrued and unpaid interest due on
the relevant interest payment date in respect of the Senior Subordinated Notes);
provided, however, that at least $66,000,000 aggregate principal amount of the
Senior Subordinated Notes remains outstanding after each such redemption.
At any time on or prior to June 1, 2002, the New Senior Subordinated Notes
may also be redeemed as a whole at the option of Hedstrom upon the occurrence of
a Change of Control, upon not less than 30 nor more than 60 days prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each holder's registered address, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued and unpaid interest, if any, to, the date
of redemption (the "Redemption Date") (subject to the right of holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
"Applicable Premium" means, with respect to a New Senior Subordinated Note
at any Redemption Date, the greater of (i) 1.0% of the principal amount of such
New Senior Subordinated Note and (ii) the excess of (A) the present value at
such time of (1) the redemption price of such New Senior Subordinated Note at
June 1, 2002 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such New Senior
Subordinated Note through June 1, 2002, computed using a discount rate equal to
the Treasury Rate plus 100 basis points, over (B) the principal amount of such
New Senior Subordinated Note.
"Change of Control" means:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of Hedstrom and its Subsidiaries to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or
not otherwise in compliance with the provisions of the Senior Subordinated
Notes Indenture), other than to Hicks Muse, Arnold E. Ditri or any of their
respective Affiliates, officers and directors (the "Permitted Holders"); or
(ii) a majority of the Board of Directors of Holdings or Hedstrom
shall consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the Permitted
Holders) of the power, directly or indirectly, to vote or direct the voting
of securities having more than 50% of the ordinary voting power for the
election of directors of Hedstrom.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to June 1, 2002; provided, however, that if the
period from the Redemption Date to June 1, 2002 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the Redemption Date to June 1, 2002 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
In the case of any partial redemption, selection of the Senior Subordinated
Notes for redemption will be made by the Senior Subordinated Notes Trustee on a
pro rata basis, by lot or by such other method as the Senior Subordinated Notes
Trustee in its sole discretion shall deem to be fair and appropriate, although
no Senior Subordinated Note of $1,000 in original principal amount or less will
be redeemed in part. If any Senior Subordinated Note is to be redeemed in part
only, the notice of redemption relating to such Senior Subordinated Note shall
state the portion of the principal amount thereof to be redeemed. A new Senior
Subordinated Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the holder thereof upon cancellation of the
original Senior Subordinated Note.
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GUARANTIES
The obligations of Hedstrom pursuant to the New Senior Subordinated Notes,
including the repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, jointly and severally, on (i) a senior unsecured
basis by Holdings and (ii) a senior subordinated basis by each of the Subsidiary
Guarantors (collectively, the "Guarantors"). Holdings is a holding company that
will derive all its operating income and cash flow from its subsidiaries,
including primarily Hedstrom, the common stock of which will be pledged to
secure Holdings' guarantee of all indebtedness of Hedstrom outstanding under the
Credit Agreement. The obligations of each Subsidiary Guarantor are limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor (including, without limitation,
any guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guaranty or pursuant to its contribution obligations under the
Senior Subordinated Notes Indenture, result in the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
Each Guarantor may consolidate with or merge into or sell its assets to
Hedstrom or another Subsidiary Guarantor without limitation. Each Guarantor may
consolidate with or merge into or sell all or substantially all its assets to a
Person other than Hedstrom or another Subsidiary Guarantor (whether or not
affiliated with such Guarantor). Upon the sale or disposition (by merger or
otherwise) of a Subsidiary Guarantor (or all or substantially all of its assets)
to a Person (whether or not an Affiliate of such Subsidiary Guarantor) which is
not a Subsidiary of Hedstrom, which sale or disposition is otherwise in
compliance with the Senior Subordinated Notes Indenture (including the covenant
described under "Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock"), such Subsidiary Guarantor shall be deemed released from all
its obligations under the Senior Subordinated Notes Indenture and its Subsidiary
Guaranty and such Subsidiary Guaranty shall terminate; provided, however, that
any such termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under the Credit Agreement and all of its Guarantees of,
and under all of its pledges of assets or other security interests which secure,
any other Indebtedness of Hedstrom shall also terminate upon such release, sale
or transfer.
The provisions under the Senior Subordinated Notes Indenture relating to
the Guaranties may be waived or modified with the written consent of the holders
of a majority in principal amount of the Senior Subordinated Notes then
outstanding.
RANKING AND SUBORDINATION
New Senior Subordinated Notes and Subsidiary Guaranties
The payment of the principal of, premium (if any), and interest on the New
Senior Subordinated Notes and the payment of any Subsidiary Guaranty is
subordinated in right of payment, as set forth in the Senior Subordinated Notes
Indenture, to the payment when due of all Senior Indebtedness of Hedstrom or all
Subsidiary Guarantor Senior Indebtedness of the relevant Subsidiary Guarantor,
as the case may be. However, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under "Defeasance"
below is not subordinate to any Senior Indebtedness or subject to the
restrictions described herein. As of June 30, 1997, (i) the outstanding Senior
Indebtedness of Hedstrom was $117.7 million (exclusive of unused commitments)
and (ii) the outstanding Subsidiary Guarantor Senior Indebtedness of the
Subsidiary Guarantors was approximately $112.7 million, virtually all of it
represented by guarantees of Senior Indebtedness of Hedstrom under the Credit
Agreement. Although the Senior Subordinated Notes Indenture contains limitations
on the amount of additional Indebtedness that Hedstrom may Incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "Certain
Covenants -- Limitation on Indebtedness" below.
As used herein, "Senior Indebtedness" of Hedstrom is defined, whether
outstanding on the Issue Date or thereafter Incurred, as the Bank Indebtedness
and all other Indebtedness of Hedstrom, including interest and fees thereon,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that the obligations in respect of such
Indebtedness are not superior in right of payment to the Senior
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<PAGE> 83
Subordinated Notes; provided, however, that Senior Indebtedness will not include
(1) any obligation of Hedstrom to any Subsidiary, (2) any liability for Federal,
state, foreign, local or other taxes owed or owing by Hedstrom, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities) or (4) any Indebtedness, Guarantee or obligation of Hedstrom that
is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of Hedstrom, including any Senior
Subordinated Indebtedness and any Subordinated Obligations.
A portion of the operations of Hedstrom are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Hedstrom,
including holders of the New Senior Subordinated Notes, even if such obligations
do not constitute Senior Indebtedness. The New Senior Subordinated Notes and
each Subsidiary Guaranty, therefore, will be effectively subordinated to
creditors (including trade creditors) and preferred stockholders (if any) of the
subsidiaries of Hedstrom (other than the Subsidiary Guarantors). At June 30,
1997, the total liabilities of Hedstrom's subsidiaries (other than the
Subsidiary Guarantors) were approximately $16.9 million, including trade
payables. Although the Senior Subordinated Notes Indenture limits the Incurrence
of Indebtedness of certain of Hedstrom's subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the Senior
Subordinated Notes Indenture does not impose any limitation on the Incurrence by
such subsidiaries of liabilities that are not considered Indebtedness under the
Senior Subordinated Notes Indenture. See "-- Certain Covenants -- Limitation on
Indebtedness."
Only Indebtedness of Hedstrom or a Subsidiary Guarantor that is Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be,
will rank senior to the New Senior Subordinated Notes and the relevant
Subsidiary Guaranty in accordance with the provisions of the Senior Subordinated
Notes Indenture. The New Senior Subordinated Notes and each Subsidiary Guaranty
will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of Hedstrom and Subsidiary Guarantor Senior Subordinated
Indebtedness of the relevant Subsidiary Guarantor, as the case may be. Hedstrom
has agreed in the Senior Subordinated Notes Indenture that it will not Incur,
directly or indirectly, any Indebtedness that is subordinate or junior in
ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to Senior Subordinated Indebtedness. In addition, no Subsidiary Guarantor may
Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking
in any respect to any Subsidiary Guarantor Senior Indebtedness of such
Subsidiary Guarantor unless such Indebtedness is Subsidiary Guarantor Senior
Subordinated Indebtedness of such Subsidiary Guarantor or is contractually
subordinated in right of payment to Subsidiary Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor. Unsecured Indebtedness is not deemed
to be subordinate or junior to Secured Indebtedness merely because it is
unsecured.
Hedstrom may not pay principal of, premium (if any), or interest on, the
New Senior Subordinated Notes or make any deposit pursuant to the provisions
described under "Defeasance" below and may not otherwise purchase or retire any
New Senior Subordinated Notes (collectively, "pay the New Senior Subordinated
Notes") if (i) any Senior Indebtedness is not paid when due or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Senior Indebtedness has been paid in full. However, Hedstrom
may pay the New Senior Subordinated Notes without regard to the foregoing if
Hedstrom and the Trustee receive written notice approving such payment from the
Representative of the Senior Indebtedness with respect to which either of the
events set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, Hedstrom may not pay the New Senior Subordinated Notes
(except in (i) Capital Stock (other than Disqualified Stock) issued by Hedstrom
to pay interest on the New Senior Subordinated Notes or issued in exchange for
the New Senior Subordinated Notes, (ii) in securities substantially identical to
the New Senior Subordinated Notes issued by
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<PAGE> 84
Hedstrom in payment of interest thereon or (iii) in securities issued by
Hedstrom which are subordinated to Senior Indebtedness at least to the same
extent as the New Senior Subordinated Notes and having an Average Life at least
equal to the remaining Average Life of the New Senior Subordinated Notes) for a
period (a "Payment Blockage Period") commencing upon the receipt by the Senior
Subordinated Notes Trustee (with a copy to Hedstrom) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Senior Subordinated
Notes Trustee and Hedstrom from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness, Hedstrom may resume payments on the New Senior
Subordinated Notes after the end of such Payment Blockage Period. Not more than
one Blockage Notice may be given in any consecutive 360-day period, irrespective
of the number of defaults with respect to Designated Senior Indebtedness during
such period.
Upon any payment or distribution of the assets of Hedstrom upon a total or
partial liquidation or dissolution or reorganization or bankruptcy of or similar
proceeding relating to Hedstrom or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the holders of the New Senior Subordinated Notes are
entitled to receive any payment, and until the Senior Indebtedness is paid in
full, any payment or distribution to which holders of the New Senior
Subordinated Notes would be entitled but for the subordination provisions of the
Senior Subordinated Notes Indenture will be made to holders of the Senior
Indebtedness as their interests may appear. If a distribution is made to holders
of the New Senior Subordinated Notes that, due to the subordination provisions,
should not have been made to them, such holders are required to hold it in trust
for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the New Senior Subordinated Notes is accelerated because of
an Event of Default, Hedstrom or the Senior Subordinated Notes Trustee shall
promptly notify the holders of the Designated Senior Indebtedness or the
Representative of such holders of the acceleration. Hedstrom may not pay the New
Senior Subordinated Notes until five Business Days after such holders or the
Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the New Senior Subordinated Notes only if
the subordination provisions of the Senior Subordinated Notes Indenture
otherwise permit payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of holders of the New
Senior Subordinated Notes to receive payment by a Subsidiary Guarantor pursuant
to its Subsidiary Guaranty will be subordinated in right of payment to the
rights of holders of Subsidiary Guarantor Senior Indebtedness of such Subsidiary
Guarantor. The terms of the subordination provisions described above with
respect to Hedstrom's obligations under the New Senior Subordinated Notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of such subordination provisions contained in the Senior
Subordinated Notes Indenture, in the event of insolvency, creditors of Hedstrom
or a Subsidiary Guarantor who are holders of Senior Indebtedness of Hedstrom or
of Subsidiary Guarantor Senior Indebtedness of a Subsidiary Guarantor, as the
case may be, may recover more, ratably, than the holders of the New Senior
Subordinated Notes, and creditors of Hedstrom who are not holders of Senior
Indebtedness or of Senior Subordinated Indebtedness (including the New Senior
Subordinated Notes) may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
The provisions under the Senior Subordinated Notes Indenture relating to
the subordination of the New Senior Subordinated Notes may be waived or modified
with the written consent of the holders of a majority in principal amount of the
Senior Subordinated Notes then outstanding.
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Holdings Guaranty
The Indebtedness evidenced by the Holdings Guaranty will be senior
obligations of Holdings, will rank pari passu in right of payment with all
Holdings Senior Indebtedness, including the Discount Notes and Holdings'
guarantee under the Credit Agreement, and will be senior in right of payment to
all Holdings Subordinated Obligations. As of June 30, 1997, there was
approximately $244.3 million of Holdings Senior Indebtedness (all of which was
represented by the Old Discount Notes, the Holdings Guaranty and Holdings'
Guarantee of the Credit Agreement), and $2.5 million of Holdings Subordinated
Obligations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require Hedstrom to repurchase all or any part of such holder's New Senior
Subordinated Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive accrued and unpaid interest due on the relevant interest payment
date in respect of outstanding New Senior Subordinated Notes).
Within 30 days following any Change of Control, unless Hedstrom has mailed
a redemption notice with respect to all the outstanding New Senior Subordinated
Notes in connection with such Change of Control, Hedstrom shall mail a notice to
each holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that such holder has the right to require Hedstrom to purchase such
holder's New Senior Subordinated Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on a record date to
receive accrued and unpaid interest on the relevant interest payment date in
respect of outstanding New Senior Subordinated Notes); (2) the repurchase date
(which shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed); and (3) the procedures determined by Hedstrom,
consistent with the Senior Subordinated Notes Indenture, that a holder must
follow in order to have its New Senior Subordinated Notes purchased.
Hedstrom will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Senior Subordinated Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Senior Subordinated Notes Indenture,
Hedstrom will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in the Senior
Subordinated Notes Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of Hedstrom
and its Subsidiaries. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the Senior Subordinated Notes
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is the
choice of law under the Senior Subordinated Notes Indenture) and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the property or assets of
a Person and, therefore, it may be unclear as to whether a Change of Control has
occurred and whether Hedstrom is required to make an offer to repurchase the New
Senior Subordinated Notes as described above.
The Change of Control purchase feature is a result of negotiations between
Hedstrom and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Hedstrom would decide to do so in the future. Subject to the limitations
discussed below, Hedstrom could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Senior Subordinated Notes Indenture,
but that could increase the amount of indebtedness outstanding at such time or
otherwise affect Hedstrom's capital structure or credit ratings. Restrictions on
the ability of Hedstrom to Incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Senior Subordinated Notes then outstanding.
Except for the limitations contained in such covenants, however, the Senior
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Subordinated Notes Indenture will not contain any covenants or provisions that
may afford holders of the New Senior Subordinated Notes protection in the event
of a highly leveraged transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of Hedstrom and its Subsidiaries may also contain prohibitions of
certain events that would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require Hedstrom to repurchase the Senior
Subordinated Notes could cause a default under such Senior Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on Hedstrom. Finally, Hedstrom's ability to pay cash to the holders
upon a repurchase may be limited by Hedstrom's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. Even if sufficient funds were
otherwise available, the terms of the Bank Indebtedness will prohibit Hedstrom's
prepayment of New Senior Subordinated Notes prior to their scheduled maturity.
Consequently, if Hedstrom is not able to prepay the Bank Indebtedness and any
other Senior Indebtedness containing similar restrictions or obtain requisite
consents, as described above, Hedstrom will be unable to fulfill its repurchase
obligations if holders of New Senior Subordinated Notes exercise their
repurchase rights following a Change of Control, thereby resulting in a default
under the Senior Subordinated Notes Indenture.
The provisions under the Senior Subordinated Notes Indenture relating to
Hedstrom's obligation to make an offer to repurchase the New Senior Subordinated
Notes as a result of a Change of Control may be waived or modified with the
written consent of the holders of a majority in principal amount of the Senior
Subordinated Notes then outstanding.
CERTAIN COVENANTS
The Senior Subordinated Notes Indenture contains certain covenants
including, among others, the following:
Limitation on Indebtedness.
(a) Hedstrom shall not and shall not permit any of its Restricted
Subsidiaries to, Incur, directly or indirectly, any Indebtedness; provided,
however, that Hedstrom and any of its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio would be
greater than 2.00 to 1.00, if such Indebtedness is Incurred on or prior to
December 31, 1999 or 2.25 to 1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Hedstrom and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to (A) the Credit Agreement (including, without limitation,
any renewal, extension, refunding, restructuring, replacement or refinancing
thereof referred to in clause (ii) of the definition thereof) or (B) any other
agreements or indentures governing Senior Indebtedness; provided, however, that
the aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i) does not exceed $180 million at any time outstanding, less the
aggregate principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of a repayment of revolving credit
Indebtedness, the commitment to advance the loans repaid has been terminated);
(ii) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case Incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property used in a Related Business or Incurred to Refinance any
such purchase price or cost of construction or improvement, in each case
Incurred no later than 365 days after the date of such acquisition or the date
of completion of such construction or improvement; provided, however, that the
principal amount of any Indebtedness Incurred pursuant to this clause (ii) shall
not exceed $15 million at any time outstanding; (iii) Permitted Indebtedness;
and (iv) Indebtedness (other than Indebtedness described in clauses (i) - (iii))
in a principal amount which, when taken together with the principal amount of
all other Indebtedness Incurred pursuant to this clause (iv) and then
outstanding, will not exceed $15 million (it being understood that any
Indebtedness Incurred under this clause (iv) shall cease to be deemed Incurred
or outstanding for purposes of this clause (iv) (but shall be deemed to be
Incurred for purposes of paragraph (a)) from and after the first date on which
Hedstrom or its Restricted
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Subsidiaries could have Incurred such Indebtedness under the foregoing paragraph
(a) without reliance upon this clause (iv)).
(c) Notwithstanding the foregoing, neither Hedstrom nor any Restricted
Subsidiary shall Incur any Indebtedness under paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations of Hedstrom unless such Indebtedness shall be subordinated to the
New Senior Subordinated Notes to at least the same extent as such Subordinated
Obligations. No Subsidiary Guarantor shall Incur any Indebtedness under
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
Refinance any Subsidiary Guarantor Subordinated Obligation of such Subsidiary
Guarantor unless such Indebtedness shall be subordinated to the obligations of
such Subsidiary Guarantor under the Subsidiary Guaranty to at least the same
extent as such Subsidiary Guarantor Subordinated Obligation.
(d) In addition, Hedstrom shall not Incur any Secured Indebtedness which is
not Senior Indebtedness unless contemporaneously therewith effective provision
is made to secure the New Senior Subordinated Notes equally and ratably with
such Secured Indebtedness for so long as such Secured Indebtedness is secured by
a Lien. No Subsidiary Guarantor shall Incur any Secured Indebtedness which is
not Subsidiary Guarantor Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure such Subsidiary Guarantor's obligations
under the Subsidiary Guaranty equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
(e) Hedstrom will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an Incurrence of Indebtedness by Hedstrom or a Restricted Subsidiary.
(f) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, Hedstrom, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
Limitation on Layering. Hedstrom shall not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such
Indebtedness is contractually subordinate or junior in ranking in any respect to
any Guarantor Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Subsidiary Guarantor Senior Subordinated Indebtedness of such
Subsidiary Guarantor or is contractually subordinated in right of payment to
Subsidiary Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor.
Limitation on Restricted Payments. (a) Hedstrom shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving Hedstrom or any of its Restricted Subsidiaries) except
(A) dividends or distributions payable solely in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock, and (B) dividends or distributions payable solely to Hedstrom or
a Restricted Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of
Hedstrom held by any Person other than a Restricted Subsidiary of Hedstrom or
any Capital Stock of a Restricted Subsidiary held by any Affiliate of Hedstrom,
other than another Restricted Subsidiary (in either case, other than in exchange
for its Capital Stock (other than Disqualified Stock)), (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to in clauses (i)
through (iv) as a "Restricted Payment"), if at the
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time Hedstrom or such Restricted Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); or
(2) Hedstrom is not able to Incur an additional $1.00 of Indebtedness pursuant
to paragraph (a) under "-- Limitation on Indebtedness"; or (3) the aggregate
amount of such Restricted Payment and all other Restricted Payments declared or
made subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the Issue Date to the end of the most recent fiscal quarter ending
prior to the date of such Restricted Payment as to which financial results are
available (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit); (B) the aggregate net proceeds received by Hedstrom from
the issue or sale of its Capital Stock (other than Disqualified Stock) or other
capital contributions subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of
Hedstrom or an employee stock ownership plan or similar trust); provided,
however, that the value of any non-cash net proceeds shall be as determined by
the Board of Directors in good faith, except that in the event the value of any
non-cash net proceeds shall be $10 million or more, the value shall be as
determined in writing by an independent investment banking firm of nationally
recognized standing; (C) the aggregate Net Cash Proceeds received by Hedstrom
from the issue or sale of its Capital Stock (other than Disqualified Stock) to
an employee stock ownership plan or similar trust subsequent to the Issue Date;
provided, however, that if such plan or trust Incurs any Indebtedness to or
Guaranteed by Hedstrom or any of its Restricted Subsidiaries to finance the
acquisition of such Capital Stock, such aggregate amount shall be limited to
such Net Cash Proceeds less such Indebtedness Incurred to or Guaranteed by
Hedstrom or any of its Restricted Subsidiaries and any increase in the
Consolidated Net Worth of Hedstrom resulting from principal repayments made by
such plan or trust with respect to Indebtedness Incurred by it to finance the
purchase of such Capital Stock; (D) the amount by which Indebtedness of Hedstrom
is reduced on Hedstrom's balance sheet upon the conversion or exchange (other
than by a Restricted Subsidiary of Hedstrom) subsequent to the Issue Date of any
Indebtedness of Hedstrom for Capital Stock of Hedstrom (less the amount of any
cash, or other property, distributed by Hedstrom upon such conversion or
exchange); (E) the amount equal to the net reduction in Investments (other than
Permitted Investments) made by Hedstrom or any of its Restricted Subsidiaries in
any Person resulting from (i) repurchases or redemptions of such Investments by
such Person, proceeds realized upon the sale of such Investment to an
unaffiliated purchaser, and repayments of loans or advances or other transfers
of assets by such Person to Hedstrom or any Restricted Subsidiary of Hedstrom or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by Hedstrom or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included under
this clause (E) to the extent it is already included in Consolidated Net Income;
(F) the aggregate Net Cash Proceeds received by a Person in consideration for
the issuance of such Person's Capital Stock (other than Disqualified Stock)
which are held by such Person at the time such Person is merged with and into
Hedstrom in accordance with the "Merger and Consolidation" covenant subsequent
to the Issue Date; provided, however, that concurrently with or immediately
following such merger Hedstrom uses an amount equal to such Net Cash Proceeds to
redeem or repurchase Hedstrom's Capital Stock; and (G) $5 million.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of Hedstrom made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of Hedstrom (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary or an employee stock ownership plan or
similar trust); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph
(a); (ii) any purchase or redemption of Subordinated Obligations of Hedstrom
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of Hedstrom; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under "Limitation on
Sales of Assets and Subsidiary Stock" below; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend would have complied
with this provision;
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provided, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments; (v) payments of dividends on Hedstrom's
common stock after an initial public offering of common stock of Hedstrom in an
annual amount not to exceed 6% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received by Hedstrom from shares of common stock sold for the account
of Hedstrom (and not for the account of any stockholder) in such initial public
offering or 6% of the amount contributed to Hedstrom by Holdings from the
proceeds of an initial public offering of common stock of Holdings; (vi)
payments by Hedstrom to repurchase Capital Stock or other securities of Holdings
or Hedstrom from members of management of Holdings or Hedstrom in an aggregate
amount not to exceed $5 million; (vii) payments to enable Holdings or Hedstrom
to redeem or repurchase stock purchase or similar rights granted by Holdings or
Hedstrom with respect to its Capital Stock in an aggregate amount not to exceed
$1 million; (viii) payments, not to exceed $200,000 in the aggregate, to enable
Holdings or Hedstrom to make cash payments to holders of its Capital Stock in
lieu of the issuance of fractional shares of its Capital Stock; (ix) payments
made pursuant to any merger, consolidation or sale of assets effected in
accordance with the "Merger and Consolidation" covenant; provided, however, that
no such payment may be made pursuant to this clause (ix) unless, after giving
effect to such transaction (and the incurrence of any Indebtedness in connection
therewith and the use of the proceeds thereof), Hedstrom would be able to Incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Indebtedness" covenant such that, after
Incurring that $1.00 of additional Indebtedness, the Consolidated Coverage Ratio
would be greater than 3.50: 1.00; (x) purchase or redemption by Hedstrom or a
Restricted Subsidiary of Capital Stock of ERO, Inc. contemplated by the Merger
Agreement; (xi) payments by Hedstrom to fund (A) out of pocket expenses of
Holdings for administrative, legal and accounting services provided by third
parties, or to pay franchise fees and similar costs in an amount not to exceed
$1 million per annum and (B) taxes of Holdings attributable to Hedstrom and its
Subsidiaries; provided however, that such payments shall be excluded in the
calculation of the amount of Restricted Payments; and (xii) the declaration or
payment of any dividend on shares of Hedstrom's common stock so long as (A)
Hedstrom would be permitted immediately after giving pro forma effect to such
declaration or payment to incur an additional $1.00 of Indebtedness pursuant to
clause (a) under "Limitations on Indebtedness," (B) such declaration or payment
is made immediately prior to a date on which cash interest is required to be
paid on the Discount Notes and (C) the full amount of such payment is applied by
Holdings on such date as payment of such cash interest on the Discount Notes;
provided, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments; provided, however, that in the case of
clauses (v), (vi), (vii), (viii) and (ix) no Default or Event of Default shall
have occurred or be continuing at the time of such payment or as a result
thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Hedstrom shall not, and shall not permit any of its Restricted Subsidiaries to,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligation owed to Hedstrom, (ii) make any loans or
advances to Hedstrom or (iii) transfer any of its property or assets to
Hedstrom; except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date, including the Credit Agreement; (b)
any encumbrance or restriction with respect to such a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred or Preferred
Stock issued and outstanding by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by Hedstrom and
outstanding on such date (other than Indebtedness Incurred or Preferred Stock
issued as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary of Hedstrom or was acquired by Hedstrom); (c) any encumbrance or
restriction with respect to such a Restricted Subsidiary pursuant to an
agreement evidencing Indebtedness Incurred without violation of the Senior
Subordinated Notes Indenture or effecting a refinancing of Indebtedness issued
pursuant to an agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses (a) or (b) or
this clause (c); provided, however, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment, taken as a whole, are no less favorable to the holders
of the New Senior Subordinated Notes in any material respect, as determined in
good faith by the senior management of Hedstrom or Board of Directors of
Hedstrom, than encumbrances and restrictions with respect to
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such Restricted Subsidiary contained in agreements in effect at, or entered into
on, the Issue Date; (d) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of Hedstrom or any Restricted Subsidiary not otherwise prohibited by
the Senior Subordinated Notes Indenture, (C) that is included in a licensing
agreement to the extent such restrictions limit the transfer of the property
subject to such licensing agreement or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate, detract
from the value of property or assets of Hedstrom or any of its Subsidiaries in
any manner material to Hedstrom or any such Restricted Subsidiary as determined
in good faith by the senior management of Hedstrom; (e) in the case of clause
(iii) above, restrictions contained in security agreements, mortgages or similar
documents securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements; (f) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (g) any encumbrance or
restriction imposed solely upon a Foreign Subsidiary; provided, however, that,
immediately after giving effect to such encumbrance or restriction, Hedstrom
would be able to Incur at least $1.00 of Indebtedness pursuant to clause (a) of
the covenant described under "-- Limitation on Indebtedness;" and (h)
encumbrances or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) Hedstrom shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Asset Disposition unless (i) Hedstrom or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in good faith by Hedstrom's senior
management or the Board of Directors (including as to the value of all noncash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by Hedstrom or such
Restricted Subsidiary is in the form of cash or cash equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by Hedstrom (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent Hedstrom or any Restricted Subsidiary elects (or is
required by the terms of any Senior Indebtedness), to prepay, repay or purchase
(x) Senior Indebtedness or (y) Indebtedness (other than any Disqualified Stock)
of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to
Hedstrom) within 180 days from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash; (B) second, within one year from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), at Hedstrom's
election either (x) to the investment in or acquisition of Additional Assets or
(y) to prepay, repay or purchase (1) Senior Indebtedness or (2) Indebtedness
(other than any Disqualified Stock) of a Wholly-Owned Subsidiary (in each case
other than Indebtedness owed to Hedstrom); and (C) third, within 45 days after
the later of the application of Net Available Cash in accordance with clauses
(A) and (B) and the date that is one year from the receipt of such Net Available
Cash, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer to purchase Senior
Subordinated Notes (and other Senior Subordinated Indebtedness designated by
Hedstrom), pro rata tendered at 100% of the principal amount thereof (or 100% of
the accreted value of such other Senior Subordinated Indebtedness, if such
Senior Subordinated Indebtedness was issued at a discount) plus accrued and
unpaid interest, if any, thereon to the date of purchase. The balance of such
Net Available Cash after application in accordance with clauses (A), (B) and (C)
may be used by Hedstrom in any manner not otherwise prohibited under the Senior
Subordinated Notes Indenture. Notwithstanding anything contained herein to the
contrary, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (B) or (C) above, Hedstrom or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, Hedstrom and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant at any time exceeds $5 million.
Hedstrom shall not be required to make an offer for Senior Subordinated Notes
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (A) and (B)) is less than $10
million for any particular Asset Disposition (which lesser amounts shall be
carried
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forward for purposes of determining whether an offer is required with respect to
the Net Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash
or cash equivalents: (x) the assumption by the transferee of Senior Indebtedness
of Hedstrom or Indebtedness of any Restricted Subsidiary of Hedstrom and the
release of Hedstrom or such Restricted Subsidiary from all liability on such
Senior Indebtedness or Indebtedness in connection with such Asset Disposition
(in which case Hedstrom shall, without further action, be deemed to have applied
such assumed Indebtedness in accordance with clause (A) of the preceding
paragraph) and (y) securities received by Hedstrom or any Restricted Subsidiary
of Hedstrom from the transferee that are promptly converted by Hedstrom or such
Restricted Subsidiary into cash.
Notwithstanding the foregoing, Hedstrom and its Restricted Subsidiaries
will be permitted to consummate an Asset Swap if (i) immediately after giving
effect to such Asset Swap, no Default or Event of Default shall have occurred or
be continuing, (ii) in the event such Asset Swap involves an aggregate amount in
excess of $5 million, the terms of such Asset Swap have been approved by a
majority of the members of the Board of Directors of Hedstrom, and (iii) in the
event such Asset Swap involves an aggregate amount in excess of $20 million,
Hedstrom has received a written opinion from an independent investment banking
firm of nationally recognized standing that such Asset Swap is fair to Hedstrom
or such Restricted Subsidiary, as the case may be, from a financial point of
view.
(b) In the event of an Asset Disposition that requires the purchase of
Senior Subordinated Notes pursuant to clause (a)(iii)(C), Hedstrom will be
required to purchase Senior Subordinated Notes (and any other Senior
Subordinated Indebtedness tendered for by Hedstrom) tendered pursuant to an
offer by Hedstrom for the Senior Subordinated Notes (and any other Senior
Subordinated Indebtedness) at a purchase price of 100% of their principal amount
plus accrued and unpaid interest, if any, to the purchase date in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Senior Subordinated Notes Indenture. If the aggregate purchase
price of the Senior Subordinated Notes (and any other Senior Subordinated
Indebtedness) tendered pursuant to the offer is less than the Net Available Cash
allotted to the purchase thereof, Hedstrom may use the remaining Net Available
Cash for any purpose not prohibited by the Senior Subordinated Notes Indenture
and any remaining Net Available Cash will not be subject to any future offer.
(c) Hedstrom will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Senior Subordinated Notes
pursuant to the Senior Subordinated Notes Indenture. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, Hedstrom will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Senior Subordinated Notes Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) Hedstrom will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Hedstrom other than a Wholly-Owned Subsidiary (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to Hedstrom or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction or series of
related transactions, in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million, the terms of such transaction or series of
related transactions, have been approved by a majority of the members of the
Board of Directors of Hedstrom and by a majority of the disinterested members of
such Board, if any (and such majority or majorities as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i) above);
and (iii) in the event such Affiliate Transaction involves an aggregate amount
in excess of $15 million, Hedstrom has received a written opinion from an
independent investment banking firm of nationally recognized standing that such
Affiliate Transaction is fair to Hedstrom or such Restricted Subsidiary, as the
case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment
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arrangements, stock options and stock ownership plans approved by the Board of
Directors of Hedstrom, (iii) loans or advances to employees in the ordinary
course of business of Hedstrom or any of its Restricted Subsidiaries, (iv) any
transaction between Wholly-Owned Subsidiaries, (v) indemnification agreements
with, and the payment of fees and indemnities to, directors, officers and
employees of Hedstrom and its Restricted Subsidiaries, in each case in the
ordinary course of business, (vi) transactions pursuant to agreements as in
existence on the Issue Date, (vii) any employment, noncompetition or
confidentiality agreements entered into by Hedstrom or any of its Restricted
Subsidiaries with its employees in the ordinary course of business, (viii)
payments made in connection with the Transactions, including fees to Hicks Muse,
(ix) the issuance of Capital Stock of Hedstrom (other than Disqualified Stock)
and (x) any obligations of Hedstrom pursuant to the Monitoring and Oversight
Agreement and the Financial Advisory Agreement.
Limitation on Capital Stock of Restricted Subsidiaries. Hedstrom will not,
nor will it permit any Restricted Subsidiary to, sell or otherwise dispose of
any Capital Stock (other than Preferred Stock) of a Restricted Subsidiary to any
Person (other than to Hedstrom or a Wholly-Owned Subsidiary of Hedstrom) or
permit any Person (other than Hedstrom or a Wholly-Owned Subsidiary of Hedstrom)
to own any Capital Stock (other than Preferred Stock) of a Restricted Subsidiary
of Hedstrom, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of Hedstrom; provided, however, that
this provision shall not prohibit (x) Hedstrom or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Senior
Subordinated Notes Indenture.
SEC Reports. Hedstrom will file with the Senior Subordinated Notes Trustee
and provide to the holders of the New Senior Subordinated Notes, within 15 days
after it files them with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
Hedstrom or Holdings files with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Pursuant to the Senior Subordinated Notes Indenture,
Hedstrom and Holdings have agreed that they shall file with the Commission all
annual reports and such other documents, information and reports required by
Section 13 or 15(d) of the Exchange Act notwithstanding that Hedstrom and
Holdings may not be subject to the reporting requirements of the Exchange Act.
Merger and Consolidation. Hedstrom shall not consolidate with or merge with
or into, or convey, transfer or lease, in one transaction or a series of related
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a corporation, partnership, trust or limited liability company organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not Hedstrom) shall
expressly assume, by supplemental indenture, executed and delivered to the
Senior Subordinated Notes Trustee, in form satisfactory to the Senior
Subordinated Notes Trustee, all the obligations of Hedstrom under the Senior
Subordinated Notes and the Senior Subordinated Notes Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been Incurred by the
Successor Company or such Subsidiary at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur at least an additional $1.00 of Indebtedness pursuant to
paragraph (a) of "-- Limitation on Indebtedness"; and (iv) Hedstrom shall have
delivered to the Senior Subordinated Notes Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Senior Subordinated
Notes Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Hedstrom under the Senior Subordinated Notes
Indenture, but, in the case of a lease of all or substantially all its assets,
Hedstrom will not be released from the obligation to pay the principal of and
interest on the Senior Subordinated Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of Hedstrom may consolidate with, merge into or transfer all or part
of its properties and assets to Hedstrom and (2) Hedstrom may
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merge with an Affiliate incorporated solely for the purpose of reincorporating
Hedstrom in another jurisdiction to realize tax or other benefits.
Future Guarantors. Hedstrom shall cause each domestic Restricted Subsidiary
(including each domestic Restricted Subsidiary created or acquired following the
Issue Date) to Guarantee the New Senior Subordinated Notes pursuant to a
Subsidiary Guaranty on the terms and conditions set forth in the Senior
Subordinated Notes Indenture.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Senior
Subordinated Notes Indenture: (i) a default in any payment of interest on any
Senior Subordinated Note when due, continued for 30 days, whether or not such
payment is prohibited by the provisions described under "Ranking and
Subordination" above, (ii) a default in the payment of principal of any Senior
Subordinated Note when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "Ranking and
Subordination" above, (iii) the failure by Hedstrom to comply with its
obligations under "Certain Covenants -- Merger and Consolidation" above, (iv)
the failure by Hedstrom to comply for 30 days after notice with any of its
obligations under the covenant described under "Change of Control" above or
under the covenants described under "Certain Covenants" above (in each case,
other than a failure to purchase Senior Subordinated Notes which shall
constitute an Event of Default under clause (ii) above), other than "Merger and
Consolidation", (v) the failure by Hedstrom to comply for 60 days after notice
with its other agreements contained in the Senior Subordinated Notes Indenture,
(vi) Indebtedness of Hedstrom or any Restricted Subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $10 million and such default shall not have been
cured or such acceleration rescinded after a 10 day period (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of Hedstrom, Holdings or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of money
in excess of $10 million (to the extent not covered by insurance) is rendered
against Hedstrom or a Significant Subsidiary and such judgment or decree shall
remain undischarged or unstayed for a period of 60 days after such judgment
becomes final and non-appealable (the "judgment default provision") or (ix) the
Holdings Guaranty or any Subsidiary Guaranty by a Significant Subsidiary ceases
to be in full force and effect (except as contemplated by the terms of the
Senior Subordinated Notes Indenture) or Holdings or any Subsidiary Guarantor
that is a Significant Subsidiary denies or disaffirms its obligations under the
Senior Subordinated Notes Indenture or the Holdings Guaranty or its Subsidiary
Guaranty, respectively, and such Default continues for 10 days. However, a
default under clauses (iv) and (v) will not constitute an Event of Default until
the Senior Subordinated Notes Trustee or the holders of 25% in principal amount
of the outstanding Senior Subordinated Notes notify Hedstrom of the default and
Hedstrom does not cure such default within the time specified in clauses (iv)
and (v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Senior Subordinated
Notes Trustee or the holders of at least 25% in principal amount of the
outstanding Senior Subordinated Notes by notice to Hedstrom may declare the
principal of and accrued and unpaid interest, if any, on all the Senior
Subordinated Notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of Hedstrom, Holdings or any Significant Subsidiary occurs and is
continuing, the principal of and accrued and unpaid interest on all the Senior
Subordinated Notes will become and be immediately due and payable without any
declaration or other act on the part of the Senior Subordinated Notes Trustee or
any holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Senior Subordinated Notes may rescind any such
acceleration with respect to the Senior Subordinated Notes and its consequences.
Subject to the provisions of the Senior Subordinated Notes Indenture
relating to the duties of the Senior Subordinated Notes Trustee, if an Event of
Default occurs and is continuing, the Senior Subordinated Notes Trustee will be
under no obligation to exercise any of the rights or powers under the Senior
Subordinated Notes Indenture at the request or direction of any of the holders
unless such holders have offered to the Senior Subordinated Notes Trustee
reasonable indemnity or security against any loss, liability or expense. Except
to
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enforce the right to receive payment of principal, premium (if any) or interest
when due, no holder may pursue any remedy with respect to the Senior
Subordinated Notes Indenture or the Senior Subordinated Notes unless (i) such
holder has previously given the Senior Subordinated Notes Trustee notice that an
Event of Default is continuing, (ii) holders of at least 25% in principal amount
of the outstanding Senior Subordinated Notes have requested the Senior
Subordinated Notes Trustee to pursue the remedy, (iii) such holders have offered
the Senior Subordinated Notes Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Senior Subordinated Notes Trustee has
not complied with such request within 60 days after the receipt of the request
and the offer of security or indemnity and (v) the holders of a majority in
principal amount of the outstanding Senior Subordinated Notes have not given the
Senior Subordinated Notes Trustee a direction that, in the opinion of the Senior
Subordinated Notes Trustee, is inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Senior Subordinated Notes are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Senior Subordinated Notes Trustee or of exercising any trust or
power conferred on the Senior Subordinated Notes Trustee. The Senior
Subordinated Notes Trustee, however, may refuse to follow any direction that
conflicts with law or the Senior Subordinated Notes Indenture or that the Senior
Subordinated Notes Trustee determines is unduly prejudicial to the rights of any
other holder or that would involve the Senior Subordinated Notes Trustee in
personal liability. Prior to taking any action under the Senior Subordinated
Notes Indenture, the Senior Subordinated Notes Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Senior Subordinated Notes Indenture provides that if a Default occurs
and is continuing and is known to the Senior Subordinated Notes Trustee, the
Senior Subordinated Notes Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Senior Subordinated Note,
the Senior Subordinated Notes Trustee may withhold notice if and so long as its
board of directors, a committee of its board of directors or a committee of its
Trust officers in good faith determines that withholding notice is in the
interests of the holders of Senior Subordinated Notes. In addition, Hedstrom is
required to deliver to the Senior Subordinated Notes Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. Hedstrom
also is required to deliver to the Senior Subordinated Notes Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Senior Subordinated Notes Indenture may
be amended with the consent of the holders of a majority in principal amount of
the Senior Subordinated Notes then outstanding (including consents obtained in
connection with a tender offer or exchange for the Senior Subordinated Notes)
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the Senior
Subordinated Notes then outstanding. However, without the consent of each holder
of an outstanding Senior Subordinated Note affected, no amendment may, among
other things, (i) reduce the amount of Senior Subordinated Notes whose holders
must consent to an amendment, (ii) reduce the stated rate of or extend the
stated time for payment of interest on any Senior Subordinated Note, (iii)
reduce the principal of or extend the Stated Maturity of any Senior Subordinated
Note, (iv) reduce the premium payable upon the redemption or repurchase of any
Senior Subordinated Note or change the time at which any Senior Subordinated
Note may be redeemed as described under "Optional Redemption" above, (v) make
any Senior Subordinated Note payable in money other than that stated in the
Senior Subordinated Note, (vi) impair the right of any holder to receive payment
of principal of and interest on such holder's Senior Subordinated Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Senior Subordinated Notes or (vii)
make any change in the amendment provisions which require each holder's consent
or in the waiver provisions.
Without the consent of any holder, Hedstrom and the Trustee may amend the
Senior Subordinated Notes Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of Hedstrom
under the Senior Subordinated Notes Indenture, to provide for uncertificated
Senior Subordinated Notes in addition to or in place
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of certificated Senior Subordinated Notes (provided that the uncertificated
Senior Subordinated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Senior
Subordinated Notes are described in Section 163(f) (2) (B) of the Code), to add
further Guarantees with respect to the Senior Subordinated Notes, to secure the
Senior Subordinated Notes, to add to the covenants of Hedstrom for the benefit
of the holders or to surrender any right or power conferred upon Hedstrom, to
make any change that does not adversely affect the rights of any holder or to
comply with any requirement of the Commission in connection with the
qualification of the Senior Subordinated Notes Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination provisions
of the Senior Subordinated Notes Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the holders is not necessary under the Senior Subordinated
Notes Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Senior Subordinated Notes Indenture becomes
effective, Hedstrom is required to mail to the holders a notice briefly
describing such amendment. However, the failure to give such notice to all the
holders, or any defect therein, will not impair or affect the validity of the
amendment.
DEFEASANCE
Hedstrom at any time may terminate all its obligations under the Senior
Subordinated Notes and the Senior Subordinated Notes Indenture ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Senior Subordinated Notes, to replace mutilated, destroyed, lost or stolen
Senior Subordinated Notes and to maintain a registrar and paying agent in
respect of the Senior Subordinated Notes. Hedstrom at any time may terminate its
obligations under "-- Change of Control," and under substantially all of its
covenants in the Senior Subordinated Notes Indenture, including the covenants
described under "-- Certain Covenants" (other than "-- Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries and the judgment
default provision described under "-- Events of Default" above and the
limitations contained in clauses (iii) and (iv) under "-- Certain
Covenants -- Merger and Consolidation" above ("covenant defeasance").
Hedstrom may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Hedstrom exercises its legal
defeasance option, payment of the Senior Subordinated Notes may not be
accelerated because of an Event of Default with respect thereto. If Hedstrom
exercises its covenant defeasance option, payment of the Senior Subordinated
Notes may not be accelerated because of an Event of Default specified in clause
(iv), (vi), (vii) (with respect only to Significant Subsidiaries), (viii) or
(ix) under "Events of Default" above or because of the failure of Hedstrom to
comply with clause (iii) or (iv) under "-- Certain Covenants -- Merger and
Consolidation" above. If Hedstrom exercises its legal defeasance option or its
covenant defeasance option, each Guarantor will be released from all its
obligations with respect to its Guaranty.
In order to exercise either defeasance option, Hedstrom must irrevocably
deposit in trust (the "defeasance trust") with the Senior Subordinated Notes
Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Senior Subordinated Notes to maturity or
any redemption date specified by Hedstrom, as the case may be, and must comply
with certain other conditions, including delivery to the Senior Subordinated
Notes Trustee of an Opinion of Counsel to the effect that holders of the Senior
Subordinated Notes will not recognize income, gain or loss for U.S. Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to U.S. Federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service (the
"Service") or other change in applicable U.S. Federal income tax law).
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CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Senior Subordinated Notes Trustee
under the Senior Subordinated Notes Indenture and has been appointed by Hedstrom
as Registrar and Paying Agent with regard to the Senior Subordinated Notes.
The Holders of a majority in principal amount of the outstanding Senior
Subordinated Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Senior
Subordinated Notes Trustee, subject to certain exceptions. The Senior
Subordinated Notes Indenture provides that if an Event of Default occurs (and is
not cured), the Senior Subordinated Notes Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Senior Subordinated Notes
Trustee will be under no obligation to exercise any of its rights or powers
under the Senior Subordinated Notes Indenture at the request of any holder of
Senior Subordinated Notes, unless such holder shall have offered to the Senior
Subordinated Notes Trustee security and indemnity satisfactory to it against any
loss, liability or expense and then only to the extent required by the terms of
the Senior Subordinated Notes Indenture.
GOVERNING LAW
The Senior Subordinated Notes Indenture provides that it and the Senior
Subordinated Notes will be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Hedstrom or a Restricted Subsidiary of Hedstrom; (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of Hedstrom; or (iv) Permitted Investments of the
type and in the amounts described in clause (viii) of the definition thereof;
provided, however, that, in the case of clauses (ii) and (iii), such Restricted
Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Hedstrom or any of its Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to Hedstrom or by Hedstrom or
a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business, (iii) a disposition of obsolete or
worn out equipment or equipment that is no longer useful in the conduct of the
business of Hedstrom and its Restricted Subsidiaries and that is disposed of in
each case in the ordinary course of business, (iv) dispositions of property for
net proceeds which, when taken collectively with the net proceeds of any other
such dispositions under this clause (iv) that were consummated since the
beginning of the calendar year in which such disposition is consummated, do not
exceed 1.5% of the consolidated book value of Hedstrom's assets as of the most
recent date prior to such disposition for which a consolidated balance sheet of
Hedstrom has been regularly prepared, and (v) transactions permitted under
"Certain Covenants -- Merger and Consolidation" above.
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"Asset Swap" means the execution of a definitive agreement, subject only to
customary closing conditions that Hedstrom in good faith believes will be
satisfied, for a substantially concurrent purchase and sale, or exchange, of
Productive Assets between Hedstrom or any of its Restricted Subsidiaries and
another Person or group of affiliated Persons; provided, however, that any
amendment to or waiver of any closing condition that individually or in the
aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Senior Subordinated Notes, compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter Incurred, payable by Hedstrom under or in respect of
the Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Hedstrom whether or not a claim for
post filing interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"Board of Directors" means, as the context requires, the Board of Directors
of Holdings or Hedstrom or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted as a capitalized lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus, without duplication, the following to the extent deducted
in calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Senior
Subordinated Notes) and less, to the extent added in calculating Consolidated
Net Income, (x) exchange or translation gains on foreign currencies and (y)
non-cash items (excluding such non-cash items to the extent they represent an
accrual for cash receipts reasonably expected to be received prior to the Stated
Maturity of the Senior Subordinated Notes), in each case for such period.
Notwithstanding the foregoing, the income tax expense, the depreciation expense
and amortization expense of a Subsidiary of Hedstrom shall be included in
Consolidated Cash Flow only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the
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date of such determination and as to which financial statements are available to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if Hedstrom or any of its Restricted Subsidiaries has Incurred
any Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by senior
management of Hedstrom and assuming a constant level of sales) shall be deemed
outstanding for purposes of this calculation) and (B) the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period any Indebtedness
of Hedstrom or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period and as if Hedstrom or such Restricted Subsidiary
had not earned the interest income actually earned during such period in respect
of cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (3) if since the beginning of such period
Hedstrom or any of its Restricted Subsidiaries shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
Interest Expense for such period shall be (i) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of Hedstrom or
any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to Hedstrom and its continuing Restricted Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary of Hedstrom is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent Hedstrom and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale) and
(ii) increased by interest income attributable to the assets which are the
subject of such Asset Disposition for such period, (4) if since the beginning of
such period Hedstrom or any of its Restricted Subsidiaries (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary of
Hedstrom (or any Person which becomes a Restricted Subsidiary of Hedstrom) or an
acquisition of assets, including any Investment in a Restricted Subsidiary of
Hedstrom or any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of a product line or operating unit of a business.
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness and the use of the proceeds therefrom) as if such Investment or
acquisition occurred on the first day of such period and (5) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary of Hedstrom or was merged with or into Hedstrom or any Restricted
Subsidiary of Hedstrom since the beginning of such period) shall have made any
Asset Disposition, Investment or acquisition of assets that would have required
an adjustment pursuant to clause (3) or (4) above if made by Hedstrom or a
Restricted Subsidiary of Hedstrom during such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting officer of Hedstrom. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12
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months). Notwithstanding anything herein to the contrary, if at the time the
calculation of the Consolidated Coverage Ratio is to be made, Hedstrom does not
have available consolidated financial statements reflecting the ownership by
Hedstrom of ERO for a period of at least four full fiscal quarters, all
calculations required by the Consolidated Coverage Ratio shall be prepared on a
pro forma basis, as though such acquisition and the related transactions (to the
extent not otherwise reflected in the consolidated financial statements of
Hedstrom) had occurred on the first day of the four-fiscal-quarter period for
which such calculation is being made.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Hedstrom and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount, (iii) capitalized interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by Hedstrom or any such Restricted Subsidiary under any
Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than Hedstrom) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Restricted Subsidiaries and
Disqualified Stock of Hedstrom held by Persons other than Hedstrom or a
Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and debt discount
solely to the extent relating to the issuance and sale of Indebtedness together
with any other security as part of an investment unit and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of Hedstrom, that was not a Wholly-Owned Subsidiary,
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
Hedstrom and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person acquired by Hedstrom or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of Hedstrom if
such Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Hedstrom (other than restrictions in
effect on the Issue Date with respect to a Restricted Subsidiary of Hedstrom and
other than restrictions that are created or exist in compliance with the
"-- Limitation on Restrictions on Distributions from Restricted Subsidiaries"
covenant), (iii) any gain or loss realized upon the sale or other disposition of
any assets of Hedstrom or its consolidated Restricted Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which are not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person, (iv) any
extraordinary gain or loss, (v) the cumulative effect of a change in accounting
principles, (vi) restructuring charges or writeoffs recorded within the one year
period following the Issue Date in an aggregate amount not to exceed $5 million
including any reversals of any such charges, (vii) the net income of any Person,
other than a Restricted Subsidiary, except to the extent of the lesser of (A)
dividends or distributions paid to Hedstrom or any of its Restricted
Subsidiaries by such Person and (B) the net income of such Person (but in no
event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of Hedstrom or any of its Restricted Subsidiaries in such Person and
(viii) any non-cash expenses attributable to grants or exercises of employee
stock options. Notwithstanding the foregoing, for the purpose of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to Hedstrom or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Hedstrom and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of Hedstrom ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than
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135 days prior to the taking of such action), as (i) the par or stated value of
all outstanding Capital Stock of Hedstrom plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors on the date of the Senior
Subordinated Notes Indenture, (ii) was nominated for election or elected to the
Board of Directors with the affirmative vote of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election, or (iii) is a representative of a Permitted Holder.
"Credit Agreement" means (i) the Credit Agreement as well as all exhibits,
schedules and appendices thereto to be entered into among Hedstrom, Credit
Suisse First Boston, as Administrative Agent, and the lenders parties thereto
from time to time, as the same may be amended, supplemented or otherwise
modified from time to time and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Credit Agreement or any
other agreement).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values as to which such Person is a
party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in the
case of Hedstrom, (ii) any Guarantee by a Subsidiary Guarantor of the Bank
Indebtedness in the case of such Subsidiary Guarantor and (iii) any other Senior
Indebtedness in the case of Hedstrom or Subsidiary Guarantor Senior Indebtedness
in the case of such Subsidiary Guarantor which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $10
million and is specifically designated by Hedstrom or such Subsidiary Guarantor
in the instrument evidencing or governing such Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness as "Designated Senior Indebtedness" for purposes
of the Senior Subordinated Notes Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of Hedstrom or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Senior Subordinated Notes;
provided, however, that only the portion of Capital Stock which so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so redeemable at
the option of the holder thereof prior to such Stated Maturity shall be deemed
to be Disqualified Stock; provided further, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Senior Subordinated Notes shall
not constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "Change of
Control".
"Equity Offering" means an offering for cash by Holdings or Hedstrom of its
common stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Advisory Agreement" means the Financial Advisory Agreement
between Hicks Muse Partners and Holdings and Hedstrom as in effect on the Issue
Date.
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"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 80% of its assets (determined on
a consolidated basis in accordance with GAAP) are located in territories outside
of the United States of America and jurisdictions outside the United States of
America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Senior Subordinated Notes
Indenture, including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or the SEC or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Senior Subordinated Notes Indenture
shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and 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
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or 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 purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holdings Guaranty" means the Guarantee of the Senior Subordinated Notes by
Holdings.
"Holdings Senior Indebtedness" means, with respect to Holdings, whether
outstanding on the Issue Date or thereafter issued, any Guarantee of the Bank
Indebtedness by Holdings, all other Guarantees by Holdings of Senior
Indebtedness of Hedstrom and all Indebtedness of Holdings, including interest
and fees thereon, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
of Holdings in respect of such Indebtedness are not superior in right of payment
to the obligations of Holdings under the Holdings Guaranty; provided, however,
that Holdings Senior Indebtedness shall not include (1) any obligations of
Holdings to Hedstrom or any Subsidiary of Hedstrom, (2) any liability for
Federal, state, local or other taxes owed or owing by Holdings, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities) or (4) any Indebtedness, Guarantee or obligation of Holdings that
is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of Holdings, including any Holdings Senior
Subordinated Indebtedness and Holdings Subordinated Obligations.
"Holdings Subordinated Obligation" means, with respect to Holdings, any
indebtedness of Holdings (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the obligations
of Holdings under the Holdings Guaranty pursuant to a written agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
The term "Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third Business Day following receipt by such
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Person of a demand for reimbursement following payment on the letter of credit),
(iv) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except trade payables and accrued expenses
incurred in the ordinary course of business), which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of Hedstrom, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Senior Subordinated Notes (but excluding, in each case, any accrued
dividends) and (ix) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding principal
amount of all unconditional obligations as described above, as such amount would
be reflected on a balance sheet prepared in accordance with GAAP, and the
maximum liability of such Person, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above at such
date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement designed to protect such Person against fluctuations in interest
rates as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
the portion (proportionate to Hedstrom's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of Hedstrom at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Hedstrom shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) Hedstrom's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Hedstrom's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors and evidenced by a resolution
of such Board of Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Old Senior Subordinated Notes were
originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Merger Agreement" means the Agreement and Plan of Merger dated April 10,
1997, between Hedstrom, HC Acquisition Corp. and ERO, Inc.
"Monitoring and Oversight Agreement" means the Monitoring and Oversight
Agreement between Hicks Muse Partners and Holdings and Hedstrom as in effect on
the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets
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subject to such Asset Disposition), in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by Hedstrom
or any Restricted Subsidiary of Hedstrom after such Asset Disposition and (v)
any portion of the purchase price from an Asset Disposition placed in escrow
(whether as a reserve for adjustment of the purchase price, for satisfaction of
indemnities in respect of such Asset Disposition or otherwise in connection with
such Asset Disposition); provided, however, that upon the termination of such
escrow, Net Available Cash shall be increased by any portion of funds therein
released to Hedstrom or any Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Hedstrom nor
any Restricted Subsidiary (a) provides any guarantee or credit support of any
kind (including any undertaking, guarantee, indemnity, agreement or instrument
that would constitute Indebtedness) or (b) is directly or indirectly liable (as
a guarantor or otherwise) and (ii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of Hedstrom or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"Permitted Indebtedness" means (i) Indebtedness of Hedstrom owing to and
held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by Hedstrom or any Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to
Hedstrom or a Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof; (ii)
Indebtedness represented by (x) the Senior Subordinated Notes, (y) any
Indebtedness (other than the Indebtedness described in clauses (i), (ii) and
(iv) of paragraph (b) of the covenant described under "Limitation on
Indebtedness" and other than Indebtedness Incurred pursuant to clause (i) above
or clauses (iv), (v) or (vi) below) outstanding on the Issue Date and (z) any
Refinancing Indebtedness Incurred in respect of any Indebtedness described in
this clause (ii) or Incurred pursuant to paragraph (a) of the covenant described
under "Limitation on Indebtedness;" (iii) (A) Indebtedness of a Restricted
Subsidiary Incurred and outstanding on the date on which such Restricted
Subsidiary was acquired by Hedstrom or a Restricted Subsidiary (other than
Indebtedness Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Subsidiary or was otherwise acquired by Hedstrom or a Restricted Subsidiary);
provided, however, that at the time such Restricted Subsidiary is acquired by
Hedstrom or a Restricted Subsidiary, Hedstrom would have been able to Incur
$1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant
described under "Limitation on Indebtedness" above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (iii) and (B)
Refinancing Indebtedness Incurred by Hedstrom or a Restricted Subsidiary in
respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by Hedstrom or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of Hedstrom
or any of its Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business in
connection with or to secure statutory,
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regulatory or similar obligations, including obligations under health, safety or
environmental obligations, (C) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers of obligations (other than
Indebtedness) incurred in the ordinary course of business and (D) under Currency
Agreements and Interest Rate Agreements; provided, however, that in the case of
Currency Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements are entered into for bona fide hedging purposes of
Hedstrom or its Restricted Subsidiaries (as determined in good faith by the
Board of Directors or senior management of Hedstrom) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of Hedstrom or its Restricted Subsidiaries Incurred without
violation of the Senior Subordinated Notes Indenture or to business transactions
of Hedstrom or its Restricted Subsidiaries on customary terms entered into in
the ordinary course of business; (v) Indebtedness arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of Hedstrom or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in connection
with the disposition of any business assets or Restricted Subsidiary of Hedstrom
(other than Guarantees of Indebtedness or other obligations Incurred by any
Person acquiring all or any portion of such business assets or Restricted
Subsidiary of Hedstrom for the purpose of financing such acquisition) in a
principal amount not to exceed the gross proceeds actually received by Hedstrom
or any of its Restricted Subsidiaries in connection with such disposition;
provided, however, that the principal amount of any Indebtedness Incurred
pursuant to this clause (v), when taken together with all Indebtedness Incurred
pursuant to this clause (v) and then outstanding, shall not exceed $10 million;
(vi) Indebtedness consisting of (A) Guarantees by Hedstrom or a Restricted
Subsidiary of Indebtedness Incurred by a Wholly-Owned Subsidiary without
violation of the Senior Subordinated Notes Indenture and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by Hedstrom without
violation of the Senior Subordinated Notes Indenture (so long as such Restricted
Subsidiary could have Incurred such Indebtedness directly without violation of
the Senior Subordinated Notes Indenture); and (vii) Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within ten Business
Days of its incurrence.
"Permitted Investment" means an Investment by Hedstrom or any of its
Restricted Subsidiaries in (i) Hedstrom or a Wholly-Owned Subsidiary of
Hedstrom; provided, however, that the primary business of such Wholly-Owned
Subsidiary is a Related Business; (ii) another Person if as a result of such
Investment such other Person becomes a Wholly-Owned Subsidiary of Hedstrom or is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Hedstrom or a Wholly-Owned Subsidiary of
Hedstrom; provided, however, that in each case such Person's primary business is
a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
Hedstrom or any of its Restricted Subsidiaries, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees for purposes of purchasing
Hedstrom's common stock in an aggregate amount outstanding at any one time not
to exceed $5 million and other loans and advances to employees made in the
ordinary course of business consistent with past practices of Hedstrom or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
Hedstrom or any of its Restricted Subsidiaries or in satisfaction of judgments
or claims; (viii) a Person engaged in a Related Business or a loan or advance to
Hedstrom the proceeds of which are used solely to make an Investment in a Person
engaged in a Related Business or a Guarantee by Hedstrom of Indebtedness of any
Person in which such Investment has been made; provided, however, that no
Permitted Investments may be made pursuant to this clause (viii) to the extent
the amount thereof would, when taken together with all other Permitted
Investments made pursuant to this clause (viii), exceed $10 million in the
aggregate (plus, to the extent not previously reinvested, any return of capital
realized on Permitted Investments made pursuant to this clause (viii), or any
release or other cancellation of any Guarantee constituting such Permitted
Investment); (ix) Persons to the extent such Investment is received by Hedstrom
or any Restricted Subsidiary as non-cash consideration for asset dispositions
effected in compliance with the covenant described under "-- Limitations on
Sales of Assets and Subsidiary Stock;" (x) prepayments and other credits to
suppliers made in the ordinary course of business consistent with the past
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practices of Hedstrom and its Restricted Subsidiaries; and (xi) Investments in
connection with pledges, deposits, payments or performance bonds made or given
in the ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health, safety or
environmental obligations.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by Hedstrom and
its Restricted Subsidiaries in Hedstrom's business or any Related Business.
A "Public Market" exists at any time with respect to the common stock of
Hedstrom or Holdings if (a) the common stock of Hedstrom or Holdings is then
registered with the Securities and Exchange Commission pursuant to Section 12(b)
or 12(g) of the Exchange Act and traded either on a national securities exchange
or in the National Association of Securities Dealers Automated Quotation System
and (b) at least 15% of the total issued and outstanding common stock of
Hedstrom or Holdings has been distributed prior to such time by means of an
effective registration statement under the Securities Act, or pursuant to sales
pursuant to Rule 144 under the Securities Act.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness of Hedstrom or any Restricted Subsidiary
existing on the date of the Senior Subordinated Notes Indenture or Incurred in
compliance with the Senior Subordinated Notes Indenture (including Indebtedness
of Hedstrom that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Senior Subordinated Notes and (B) the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the lesser of (A) the Average Life of
the Senior Subordinated Notes and (B) the Average Life of the Indebtedness being
refinanced, and (iii) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to (or 101% of, in the case of a refinancing of the Senior
Subordinated Notes in connection with a Change of Control) or less than the sum
of the aggregate principal amount (or if issued with original issue discount,
the aggregate accreted value) then outstanding of the Indebtedness being
refinanced, plus applicable premium and defeasance costs and reasonable fees and
expenses paid in connection with such refinancing.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Hedstrom and its
Restricted Subsidiaries on the date of the Senior Subordinated Notes Indenture,
as reasonably determined by Hedstrom's Board of Directors.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Hedstrom other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Hedstrom or a Restricted Subsidiary
transfers such property to a Person and Hedstrom or a Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Hedstrom or a Subsidiary
Guarantor secured by a Lien.
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"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Indebtedness" means the Senior Subordinated Notes and
any other Indebtedness of Hedstrom that specifically provides that such
Indebtedness is to rank pari passu with the Senior Subordinated Notes in right
of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of Hedstrom which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Hedstrom within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of Hedstrom (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Senior Subordinated Notes pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of Hedstrom.
"Subsidiary Guarantor" means each Subsidiary (other than foreign
subsidiaries) of Hedstrom in existence on the Issue Date and each Subsidiary
(other than foreign subsidiaries and Unrestricted Subsidiaries) created or
acquired by Hedstrom after the Issue Date.
"Subsidiary Guarantor Senior Indebtedness" means, with respect to any
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
issued, any Guarantee of the Bank Indebtedness by such Subsidiary Guarantor, all
other Guarantees by such Subsidiary Guarantor of Senior Indebtedness of Hedstrom
and all Indebtedness of such Subsidiary Guarantor, including interest and fees
thereon, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that the obligations of such
Subsidiary Guarantor in respect of such Indebtedness are not superior in right
of payment to the obligations of such Subsidiary Guarantor under the Subsidiary
Guaranty; provided, however, that Subsidiary Guarantor Senior Indebtedness shall
not include (1) any obligations of such Subsidiary Guarantor to Hedstrom or any
other Subsidiary of Hedstrom, (2) any liability for Federal, state, local or
other taxes owed or owing by such Subsidiary Guarantor, (3) any accounts payable
or other liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities) or (4)
any Indebtedness, Guarantee or obligation of such Subsidiary Guarantor that is
expressly subordinate or junior in right of payment to any other Indebtedness,
Guarantee or obligation of such Subsidiary Guarantor, including any Subsidiary
Guarantor Senior Subordinated Indebtedness and Subsidiary Guarantor Subordinated
Obligations of such Subsidiary Guarantor.
"Subsidiary Guarantor Senior Subordinated Indebtedness" means, with respect
to a Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under
the Subsidiary Guaranty and any other Indebtedness of such Subsidiary Guarantor
that specifically provides that such Indebtedness is to rank pari passu in right
of payment with the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty and is not subordinated by its terms in right of payment to
any Indebtedness or other obligation of such Subsidiary Guarantor which is not
Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Subsidiary Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the obligations of such Subsidiary Guarantor under
the Subsidiary Guaranty pursuant to a written agreement.
"Subsidiary Guaranty" means the Guarantee of the Senior Subordinated Notes
by a Subsidiary Guarantor.
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"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of Hedstrom) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of Hedstrom that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Hedstrom (including any newly acquired or newly formed Subsidiary of Hedstrom)
to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Hedstrom or any Subsidiary of Hedstrom that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total consolidated assets of $10,000
or less or (B) if such Subsidiary has consolidated assets greater than $10,000,
then such designation would be permitted under "Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) Hedstrom could Incur $1.00 of additional
Indebtedness under clause (a) of "-- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors thereof.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Hedstrom, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by Hedstrom or another Wholly-Owned Subsidiary; provided,
however, that until the date that is 180 days following the Issue Date, ERO,
Inc. shall be deemed to be a Wholly-Owned Subsidiary of Hedstrom so long as
Hedstrom or a Wholly-Owned Subsidiary owns at least a percentage of the Capital
Stock of ERO, Inc. equal to the percentage of such Capital Stock acquired by HC
Acquisition Corp. in connection with its tender offer for the Capital Stock of
ERO, Inc.
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DESCRIPTION OF THE NEW DISCOUNT NOTES
GENERAL
The New Discount Notes will be issued under the Indenture, dated as of June
1, 1997 (the "Discount Notes Indenture"), among Holdings and United States Trust
Company of New York, as Trustee (the "Discount Notes Trustee"), pursuant to
which the Old Discount Notes were issued. Upon the issuance of the New Discount
Notes, the Discount Notes Indenture will be subject to and governed by the Trust
Indenture Act. The following summary of certain provisions of the Discount Notes
Indenture and the New Discount Notes does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Discount Notes Indenture (including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act) and the
Discount Notes, copies of which are available as set forth under "Available
Information."
TERMS OF NEW DISCOUNT NOTES
The New Discount Notes will be unsecured senior obligations of Holdings,
limited to $44,612,000 aggregate principal amount at maturity, and will mature
on June 1, 2009. No cash interest will accrue on the New Discount Notes prior to
June 1, 2002, although for U.S. Federal income tax purposes a significant amount
of original issue discount will be recognized by a Holder as such discount
accrues. Cash interest will accrue on the New Discount Notes at the rate of 12%
per annum from June 12, 2002, or from the most recent date to which interest has
been paid or provided for, payable semiannually on June 1 and December 1 of each
year, commencing December 1, 2002 to holders of record at the close of business
on the May 15 or November 15 immediately preceding the interest payment date.
The interest rate on the Old Discount Notes is subject to increase in
certain circumstances if Holdings does not file a registration statement
relating to the Discount Notes Exchange Offer or if the Discount Notes Exchange
Offer is not consummated on a timely basis or if certain other conditions are
not satisfied.
OPTIONAL REDEMPTION
Except as set forth below, the New Discount Notes will not be redeemable at
the option of Holdings prior to June 1, 2002. On and after such date, the New
Discount Notes will be redeemable, at Holdings' option, in whole or in part, at
any time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount at maturity),
plus accrued and unpaid interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
if redeemed during the 12-month period commencing on June 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 106.000
2003........................................................ 104.000
2004........................................................ 102.000
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to June 1, 2000,
Holdings may redeem in the aggregate up to 40% of the Accreted Value of the
Discount Notes with the proceeds of one or more Equity Offerings by Holdings so
long as there is a Public Market at the time of such redemption, at a redemption
price (expressed as a percentage of Accreted Value on the redemption date) of
112%, plus accrued and unpaid interest, if any, to the redemption date (subject
to the right of holders of record on the relevant record date to receive accrued
and unpaid interest due on the relevant interest payment date in respect of the
Discount Notes); provided, however, that at least $26,767,200 aggregate
principal amount at maturity of the Discount Notes remains outstanding after
each such redemption.
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At any time on or prior to June 1, 2002, the New Discount Notes may also be
redeemed as a whole at the option of Holdings upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days prior notice (but in no
event more than 90 days after the occurrence of such Change of Control) mailed
by first-class mail to each holder's registered address, at a redemption price
equal to 100% of the Accreted Value thereof plus the Applicable Premium as of,
and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to a New Discount Note at any
Redemption Date, the greater of (i) 1.0% of the Accreted Value of such New
Discount Note on such Redemption Date and (ii) the excess of (A) the present
value at such time of (1) the redemption price of such New Discount Note at June
1, 2002 (such redemption price being described under "Optional Redemption") plus
(2) all required interest payments, if any, due on such New Discount Note
through June 1, 2002, computed using a discount rate equal to the Treasury Rate
plus 100 basis points, over (B) the Accreted Value of such New Discount Note on
the Redemption Date.
"Change of Control" means:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of Holdings and its Subsidiaries to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or
not otherwise in compliance with the provisions of the Discount Notes
Indenture), other than to Hicks Muse, Arnold E. Ditri or any of their
Affiliates, officers and directors (the "Permitted Holders"); or
(ii) a majority of the Board of Directors of Holdings shall consist of
Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the Permitted
Holders) of the power, directly or indirectly, to vote or direct the voting
of securities having more than 50% of the ordinary voting power for the
election of directors of Holdings.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to June 1, 2002; provided, however, that if the
period from the Redemption Date to June 1, 2002 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the Redemption Date to June 1, 2002 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
In the case of any partial redemption, selection of the Discount Notes for
redemption will be made by the Discount Notes Trustee on a pro rata basis, by
lot or by such other method as the Discount Notes Trustee in its sole discretion
shall deem to be fair and appropriate, although no Discount Note of $1,000 in
principal amount at maturity or less will be redeemed in part. If any Discount
Note is to be redeemed in part only, the notice of redemption relating to such
Discount Note shall state the portion of the principal amount at maturity
thereof to be redeemed. A new Discount Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Discount Note.
RANKING
The indebtedness evidenced by the New Discount Notes will constitute
senior, unsecured obligations of Holdings, will rank pari passu in right of
payment with all existing and future unsecured Senior Indebtedness of Holdings
and will rank senior in right of payment to any future subordinated indebtedness
of Holdings. At June 30, 1997, Holdings had no Indebtedness other than the Old
Senior Subordinated Discount Notes, its
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Guarantees with respect to the Old Senior Subordinated Notes and the Senior
Credit Facilities and the 1995 Recapitalization Notes. See "Capitalization."
All of the operations of Holdings are conducted through its subsidiaries.
Claims of creditors of such subsidiaries, including trade creditors, secured
creditors and creditors holding indebtedness and guarantees issued by such
subsidiaries, and claims of preferred stockholders (if any) of such subsidiaries
generally will have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of Holdings, including holders of the
Discount Notes. The Discount Notes, therefore, will be effectively subordinated
to creditors (including trade creditors) and preferred stockholders (if any) of
subsidiaries of Holdings. At June 30, 1997, the aggregate liabilities
(consisting of Indebtedness and trade payables) of Holdings' subsidiaries would
have been approximately $282.4 million, including the Old Senior Subordinated
Notes and the Senior Credit Facilities. Although the Discount Notes Indenture
limits the incurrence of Indebtedness and preferred stock of Holdings'
Restricted Subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Discount Notes Indenture does not impose any
limitation on the incurrence by such Restricted Subsidiaries of liabilities that
are not considered Indebtedness under the Discount Notes Indenture. See
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation and
Restrictions on Distributions from Restricted Subsidiaries."
As used herein, "Senior Indebtedness" of Holdings is defined, whether
outstanding on the Issue Date or thereafter Incurred, as Indebtedness of
Holdings, including interest and fees thereon, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that the obligations in respect of such Indebtedness are subordinate
in right of payment to the Discount Notes; provided, however, that Senior
Indebtedness will not include (1) any obligation of Holdings to any Subsidiary,
(2) any liability for Federal, state, foreign, local or other taxes owed or
owing by Holdings, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities) or (4) any Indebtedness (and
any accrued and unpaid interest in respect thereof), Guarantee or obligation of
Holdings that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of Holdings including any
Subordinated Obligations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require Holdings to repurchase all or any part of such holder's New Discount
Notes at a purchase price in cash equal to 101% of the Accreted Value thereof
plus accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive accrued
and unpaid interest due on the relevant interest payment date in respect of
outstanding New Discount Notes).
Within 30 days following any Change of Control, unless Holdings has mailed
a redemption notice with respect to all the outstanding New Discount Notes in
connection with such Change of Control, Holdings shall mail a notice to each
holder with a copy to the Discount Notes Trustee stating: (1) that a Change of
Control has occurred and that such holder has the right to require Holdings to
purchase such holder's New Discount Notes at a purchase price in cash equal to
101% of the Accreted Value thereof plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of holders of record on a record date
to receive accrued and unpaid interest on the relevant interest payment date in
respect of outstanding New Discount Notes); (2) the repurchase date (which shall
be no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (3) the procedures determined by Holdings, consistent with the
Discount Notes Indenture, that a holder must follow in order to have its New
Discount Notes purchased.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Discount Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Discount Notes Indenture, Holdings
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Discount Notes
Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of Holdings
and its Subsidiaries. With respect to the disposition of
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property or assets, the phrase "all or substantially all" as used in the
Discount Notes Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under New York law
(which is the choice of law under the Discount Notes Indenture) and is subject
to judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the property or assets of
a Person, and therefore it may be unclear as to whether a Change of Control has
occurred and whether Holdings is required to make an offer to repurchase the New
Discount Notes as described above.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Holdings would decide to do so in the future. Subject to the limitations
discussed below, Holdings could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Discount Notes Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect Holdings' capital structure or credit ratings. Restrictions on the
ability of Holdings to Incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount at maturity of the Discount Notes then outstanding.
Except for the limitations contained in such covenants, however, the Discount
Notes Indenture will not contain any covenants or provisions that may afford
holders of the New Discount Notes protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future
indebtedness of Holdings and its Subsidiaries may also contain prohibitions of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require Holdings to repurchase the New Discount
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on
Holdings. Finally, Holdings' ability to pay cash to the holders upon a
repurchase may be limited by Holdings' then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. Even if sufficient funds were otherwise
available, the terms of the certain Indebtedness could prohibit Holdings'
prepayment of New Discount Notes prior to their scheduled maturity.
Consequently, if Holdings is not able to prepay such Indebtedness, Holdings will
be unable to fulfill its repurchase obligations if holders of New Discount Notes
exercise their repurchase rights following a Change of Control, thereby
resulting in a default under the Discount Notes Indenture.
The provisions under the Discount Notes Indenture relating to Holdings'
obligation to make an offer to repurchase the New Discount Notes as a result of
a Change of Control may be waived or modified with the written consent of the
holders of a majority in principal amount at maturity of the Discount Notes then
outstanding.
CERTAIN COVENANTS
The Discount Notes Indenture contains certain covenants including, among
others, the following:
Limitation on Indebtedness.
(a) Holdings shall not and shall not permit any of its Restricted
Subsidiaries to, Incur, directly or indirectly, any Indebtedness; provided,
however, that Holdings and any of its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio would
be greater than 1.75 to 1.00, if such Indebtedness is Incurred on or prior
to December 31, 1999 or 2.00 to 1.00, if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its
Restricted Subsidiaries may Incur the following Indebtedness: (i)
Indebtedness Incurred pursuant to (A) the Credit Agreement (including,
without limitation, any renewal, extension, refunding, restructuring,
replacement or refinancing thereof referred to in clause (ii) of the
definition thereof) or (B) any other agreements or indentures governing
Senior
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Indebtedness; provided, however, that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (i) does not exceed $180
million at any time outstanding, less the aggregate principal amount
thereof repaid with the net proceeds of Asset Dispositions (to the extent,
in the case of a repayment of revolving credit Indebtedness, the commitment
to advance the loans repaid has been terminated); (ii) Indebtedness
represented by Capitalized Lease Obligations, mortgage financings or
purchase money obligations, in each case Incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in a Related Business or Incurred to Refinance
any such purchase price or cost of construction or improvement, in each
case Incurred no later than 365 days after the date of such acquisition or
the date of completion of such construction or improvement; provided,
however, that the principal amount of any Indebtedness Incurred pursuant to
this clause (ii) shall not exceed $15 million at any time outstanding;
(iii) Permitted Indebtedness; and (iv) Indebtedness (other than
Indebtedness described in clauses (i) - (iii)) in a principal amount which,
when taken together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (iv) and then outstanding, will not exceed
$15 million (it being understood that any Indebtedness Incurred under this
clause (iv) shall cease to be deemed Incurred or outstanding for purposes
of this clause (iv) (but shall be deemed to be Incurred for purposes of
paragraph (a)) from and after the first date on which Holdings or its
Restricted Subsidiaries could have Incurred such Indebtedness under the
foregoing paragraph (a) without reliance upon this clause (iv)).
(c) Notwithstanding the foregoing, neither Holdings nor any Restricted
Subsidiary shall Incur any Indebtedness under paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of Holdings unless such Indebtedness shall be
subordinated to the New Discount Notes to at least the same extent as such
Subordinated Obligations.
(d) Holdings will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt; provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt, such event shall be
deemed to constitute an Incurrence of Indebtedness by Holdings or a
Restricted Subsidiary.
(e) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, Holdings, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the
above clauses and (ii) an item of Indebtedness may be divided and
classified in more than one of the types of Indebtedness described above.
Limitation on Restricted Payments. (a) Holdings shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving Holdings or any of its Restricted Subsidiaries) except
(A) dividends or distributions payable solely in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock, and (B) dividends or distributions payable solely to Holdings or
a Restricted Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of
Holdings held by any Person other than a Restricted Subsidiary of Holdings or
any Capital Stock of a Restricted Subsidiary held by any Affiliate of Holdings,
other than another Restricted Subsidiary (in either case, other than in exchange
for its Capital Stock (other than Disqualified Stock)), (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to in clauses (i)
through (iv) as a "Restricted Payment"), if at the time Holdings or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) Holdings is not
able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
under "-- Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments declared or made subsequent
to the Issue Date would
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exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
as to which financial results are available (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); (B) the aggregate net
proceeds received by Holdings from the issue or sale of its Capital Stock (other
than Disqualified Stock) or other capital contributions subsequent to the Issue
Date (other than net proceeds received from an issuance or sale of such Capital
Stock to a Subsidiary of Holdings or an employee stock ownership plan or similar
trust); provided, however, that the value of any non-cash net proceeds shall be
as determined by the Board of Directors in good faith, except that in the event
the value of any non-cash net proceeds shall be $10 million or more, the value
shall be as determined in writing by an independent investment banking firm of
nationally recognized standing; (C) the aggregate Net Cash Proceeds received by
Holdings from the issue or sale of its Capital Stock (other than Disqualified
Stock) to an employee stock ownership plan or similar trust subsequent to the
Issue Date; provided, however, that if such plan or trust Incurs any
Indebtedness to or Guaranteed by Holdings or any of its Restricted Subsidiaries
to finance the acquisition of such Capital Stock, such aggregate amount shall be
limited to such Net Cash Proceeds less such Indebtedness Incurred to or
Guaranteed by Holdings or any of its Restricted Subsidiaries and any increase in
the Consolidated Net Worth of Holdings resulting from principal repayments made
by such plan or trust with respect to Indebtedness Incurred by it to finance the
purchase of such Capital Stock; (D) the amount by which Indebtedness of Holdings
is reduced on Holdings' balance sheet upon the conversion or exchange (other
than by a Restricted Subsidiary of Holdings) subsequent to the Issue Date of any
Indebtedness of Holdings for Capital Stock of Holdings (less the amount of any
cash, or other property, distributed by Holdings upon such conversion or
exchange); (E) the amount equal to the net reduction in Investments (other than
Permitted Investments) made by Holdings or any of its Restricted Subsidiaries in
any Person resulting from (i) repurchases or redemptions of such Investments by
such Person, proceeds realized upon the sale of such Investment to an
unaffiliated purchaser, and repayments of loans or advances or other transfers
of assets by such Person to Holdings or any Restricted Subsidiary of Holdings or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by Holdings or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included under
this clause (E) to the extent it is already included in Consolidated Net Income;
(F) the aggregate Net Cash Proceeds received by a Person in consideration for
the issuance of such Person's Capital Stock (other than Disqualified Stock)
which are held by such Person at the time such Person is merged with and into
Holdings in accordance with the "Merger and Consolidation" covenant subsequent
to the Issue Date; provided, however, that concurrently with or immediately
following such merger Holdings uses an amount equal to such Net Cash Proceeds to
redeem or repurchase Holdings' Capital Stock; and (G) $5 million.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of Holdings made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of Holdings (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of Holdings or an employee stock ownership
plan or similar trust); provided, however, that (A) such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of
paragraph (a); (ii) any purchase or redemption of Subordinated Obligations of
Holdings made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of Holdings; provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under "-- Limitation
on Sales of Assets and Subsidiary Stock" below; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (v) payments
of dividends on Holdings' common stock after an initial public offering of
common stock of Holdings in an annual amount not to exceed 6% of the gross
proceeds (before deducting underwriting discounts and commissions and other fees
and expenses of the offering) received by Holdings from shares of common stock
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sold for the account of Holdings (and not for the account of any stockholder) in
such initial public offering; (vi) payments by Holdings to repurchase Capital
Stock or other securities of Holdings from members of management of Holdings in
an aggregate amount not to exceed $5 million; (vii) payments to enable Holdings
to redeem or repurchase stock purchase or similar rights granted by Holdings
with respect to its Capital Stock in an aggregate amount not to exceed $1
million; (viii) payments, not to exceed $200,000 in the aggregate, to enable
Holdings to make cash payments to holders of its Capital Stock in lieu of the
issuance of fractional shares of its Capital Stock; (ix) payments made pursuant
to any merger, consolidation or sale of assets effected in accordance with the
"Merger and Consolidation" covenant; provided, however, that no such payment may
be made pursuant to this clause (ix) unless, after giving effect to such
transaction (and the incurrence of any Indebtedness in connection therewith and
the use of the proceeds thereof), Holdings would be able to Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Indebtedness" covenant such that, after Incurring that $1.00
of additional Indebtedness, the Consolidated Coverage Ratio would be greater
than 3.50:1.00; and (x) purchase or redemption by Holdings or a Restricted
Subsidiary of Capital Stock of ERO, Inc. contemplated by the Merger Agreement;
provided, however, that in the case of clauses (v), (vi), (vii), (viii) and (ix)
no Default or Event of Default shall have occurred or be continuing at the time
of such payment or as a result thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Holdings shall not, and shall not permit any of its Restricted Subsidiaries to,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligation owed to Holdings, (ii) make any loans or
advances to Holdings or (iii) transfer any of its property or assets to
Holdings; except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date, including the Senior Subordinated
Notes Indenture and the Credit Agreement; (b) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness Incurred or Preferred Stock issued and outstanding by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by Holdings and outstanding on such date (other than
Indebtedness Incurred or Preferred Stock issued as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary of Holdings or was
acquired by Holdings); (c) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement evidencing Indebtedness Incurred
without violation of the Discount Notes Indenture or effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clause (a) or (b) or
this clause (c) or contained in any amendment to an agreement referred to in
clauses (a) or (b) or this clause (c); provided, however, that the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment, taken as a whole, are no less favorable
to the holders of the New Discount Notes in any material respect, as determined
in good faith by the senior management or the Board of Directors, than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in agreements in effect at, or entered into on, the Issue Date; (d) in
the case of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of Holdings or any Restricted
Subsidiary not otherwise prohibited by the Discount Notes Indenture, (C) that is
included in a licensing agreement to the extent such restrictions limit the
transfer of the property subject to such licensing agreement or (D) arising or
agreed to in the ordinary course of business and that does not, individually or
in the aggregate, detract from the value of property or assets of Holdings or
any of its Subsidiaries in any manner material to Holdings or any such
Restricted Subsidiary; (e) in the case of clause (iii) above, restrictions
contained in security agreements, mortgages or similar documents securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict
the transfer of the property subject to such security agreements; (f) any
restriction with respect to such a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (g) any encumbrance or restriction imposed solely upon
a Foreign Subsidiary; provided, however, that, immediately after giving effect
to such encumbrance or restriction, Holdings
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would be able to Incur at least $1.00 of Indebtedness pursuant to clause (a) of
the covenant described under "--Limitation on Indebtedness;" and (h)
encumbrances or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Asset Disposition unless (i) Holdings or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in good faith by Holdings' senior
management or the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by Holdings or such
Restricted Subsidiary is in the form of cash or cash equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by Holdings (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent Holdings or any Restricted Subsidiary elects (or is
required by the terms of any Senior Indebtedness), to prepay, repay or purchase
(x) Senior Indebtedness or (y) Indebtedness (other than any Disqualified Stock)
of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to
Holdings) within 180 days from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash; (B) second, within one year from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), at Holdings'
election either (x) to the investment in or acquisition of Additional Assets or
(y) to prepay, repay or purchase (1) Senior Indebtedness or (2) Indebtedness
(other than any Disqualified Stock) of a Wholly-Owned Subsidiary (in each case
other than Indebtedness owed to Holdings); and (C) third, within 45 days after
the later of the application of Net Available Cash in accordance with clauses
(A) and (B) and the date that is one year from the receipt of such Net Available
Cash, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer to purchase Discount
Notes (and other Senior Indebtedness designated by Holdings), pro rata tendered
at 100% of the Accreted Value thereof (or 100% of the principal amount of such
other Senior Indebtedness, if such Senior Indebtedness was not issued at a
discount) plus accrued and unpaid interest, if any, thereon to the date of
purchase. The balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C) may be used by Holdings in any manner not
otherwise prohibited under the Discount Notes Indenture. Notwithstanding
anything contained herein to the contrary, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A), (B) or (C) above,
Holdings or such Restricted Subsidiary shall retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, Holdings and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this covenant at any
time exceeds $5 million. Holdings shall not be required to make an offer for
Discount Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and (B))
is less than $10 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of this covenant, the following will be deemed to be cash
or cash equivalents: (x) the assumption by the transferee of Indebtedness of
Holdings or any Restricted Subsidiary of Holdings and the release of Holdings or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition (in which case Holdings shall, without further
action, be deemed to have applied such assumed Indebtedness in accordance with
clause (A) of the preceding paragraph) and (y) securities received by Holdings
or any Restricted Subsidiary of Holdings from the transferee that are promptly
converted by Holdings or such Restricted Subsidiary into cash.
Notwithstanding the foregoing, Holdings and its Restricted Subsidiaries
will be permitted to consummate an Asset Swap if (i) immediately after giving
effect to such Asset Swap, no Default or Event of Default shall have occurred or
be continuing, (ii) in the event such Asset Swap involves an aggregate amount in
excess of $5 million, the terms of such Asset Swap have been approved by a
majority of the members of the Board of Directors of Holdings, and (iii) in the
event such Asset Swap involves an aggregate amount in excess of $20 million,
Holdings has received a written opinion from an independent investment banking
firm of nationally
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recognized standing that such Asset Swap is fair to Holdings or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(b) In the event of an Asset Disposition that requires the purchase of
Discount Notes pursuant to clause (a) (iii) (C), Holdings will be required to
purchase Discount Notes (and any other Senior Indebtedness tendered for by
Holdings) tendered pursuant to an offer by Holdings for the Discount Notes (and
any other Senior Indebtedness) at a purchase price of 100% of their Accreted
Value on the date of purchase plus accrued and unpaid interest, if any, to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Discount Notes Indenture. If the
aggregate purchase price of the Discount Notes and any other Senior Indebtedness
tendered pursuant to the offer is less than the Net Available Cash allotted to
the purchase thereof, Holdings may use the remaining Net Available Cash for any
purpose not prohibited by the Discount Notes Indenture and any remaining Net
Available Cash will not be subject to any future offer to purchase.
(c) Holdings will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Discount Notes pursuant to the
Discount Notes Indenture. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, Holdings will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Discount Notes Indenture by
virtue thereof.
Limitation on Affiliate Transactions. (a) Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Holdings other than a Wholly-Owned Subsidiary (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to Holdings or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction or series of
related transactions in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million, the terms of such transaction or series of
related transactions have been approved by a majority of the members of the
Board of Directors of Holdings and by a majority of the disinterested members of
such Board, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i) above);
and (iii) in the event such Affiliate Transaction involves an aggregate amount
in excess of $15 million, Holdings has received a written opinion from an
independent investment banking firm of nationally recognized standing that such
Affiliate Transaction is fair to Holdings or such Restricted Subsidiary, as the
case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of Holdings, (iii) loans or advances to
employees in the ordinary course of business of Holdings or any of its
Restricted Subsidiaries, (iv) any transaction between Wholly-Owned Subsidiaries,
(v) indemnification agreements with, and the payment of fees and indemnities to,
directors, officers and employees of Holdings and its Restricted Subsidiaries,
in each case in the ordinary course of business, (vi) transactions pursuant to
agreements as in existence on the Issue Date, (vii) any employment,
noncompetition or confidentiality agreements entered into by Holdings or any of
its Restricted Subsidiaries with its employees in the ordinary course of
business, (viii) payments made in connection with the Transactions, including
fees to Hicks Muse, (ix) the issuance of Capital Stock of Holdings (other than
Disqualified Stock) and (x) any obligations of Holdings pursuant to the
Monitoring and Oversight Agreement and the Financial Advisory Agreement.
Limitation on Liens. Holdings will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the New
Discount Notes will be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured.
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Limitation on Sale/Leaseback Transactions. Holdings will not, and will not
permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) Holdings or such Restricted
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "-- Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the New Discount Notes pursuant to the covenant described under
"-- Limitation on Liens," (ii) the net proceeds received by Holdings or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) Holdings applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Sales of Assets
and Subsidiary Stock."
Limitation on Capital Stock of Restricted Subsidiaries. Holdings will not,
nor will it permit any Restricted Subsidiary to, sell or otherwise dispose of
any Capital Stock (other than Preferred Stock) of a Restricted Subsidiary to any
Person (other than to Holdings or a Wholly-Owned Subsidiary of Holdings) or
permit any Person (other than Holdings or a Wholly-Owned Subsidiary of Holdings)
to own any Capital Stock (other than Preferred Stock) of a Restricted Subsidiary
of Holdings, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of Holdings; provided, however, that
this provision shall not prohibit (x) Holdings or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Discount Notes
Indenture.
SEC Reports. Holdings will file with the Discount Notes Trustee and provide
to the holders of the New Discount Notes, within 15 days after it files them
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which Holdings files
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Pursuant to the Discount Notes Indenture, Holdings has agreed that it shall file
with the Commission all annual reports and such other documents, information and
reports required by Section 13 or 15(d) of the Exchange Act notwithstanding that
Holdings may not be subject to the reporting requirements of the Exchange Act.
Merger and Consolidation. Holdings shall not consolidate with or merge with
or into, or convey, transfer or lease, in one transaction or a series of related
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a corporation, partnership, trust or limited liability company organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not Holdings) shall
expressly assume, by supplemental indenture, executed and delivered to the
Discount Notes Trustee, in form satisfactory to the Discount Notes Trustee, all
the obligations of Holdings under the Discount Notes and the Discount Notes
Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor Company or
any Subsidiary of the Successor Company as a result of such transaction as
having been Incurred by the Successor Company or such Subsidiary at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "-- Limitation on Indebtedness"; and
(iv) Holdings shall have delivered to the Discount Notes Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Discount Notes Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Discount Notes Indenture,
but, in the case of a lease of all or substantially all its assets, Holdings
will not be released from the obligation to pay the principal of and interest on
the Discount Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of Holdings may consolidate with, merge into or transfer all or part
of its properties and assets to Holdings and (2) Holdings may merge with an
Affiliate incorporated solely for the purpose of reincorporating Holdings in
another jurisdiction to realize tax or other benefits.
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EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Discount
Notes Indenture: (i) a default in any payment of interest on any Discount Note
when due, continued for 30 days, (ii) a default in the payment of principal of
any Discount Note when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise, (iii) the failure by
Holdings to comply with its obligations under "Certain Covenants -- Merger and
Consolidation" above, (iv) the failure by Holdings to comply for 30 days after
notice with any of its obligations under the covenant described under "Change of
Control" above or under the covenants described under "Certain Covenants" above
(in each case, other than a failure to purchase Discount Notes which shall
constitute an Event of Default under clause (ii) above), other than "Merger and
Consolidation", (v) the failure by Holdings to comply for 60 days after notice
with its other agreements contained in the Discount Notes Indenture, (vi)
Indebtedness of Holdings or any Restricted Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million and such default shall not have been cured or
such acceleration rescinded after a 10-day period (the "cross acceleration
provision"), (vii) certain events of bankruptcy, insolvency or reorganization of
Holdings or a Significant Subsidiary (the "bankruptcy provisions") or (viii) any
judgment or decree for the payment of money in excess of $10 million (to the
extent not covered by insurance) is rendered against Holdings or a Significant
Subsidiary and such judgment or decree shall remain undischarged or unstayed for
a period of 60 days after such judgment becomes final and non-appealable (the
"judgment default provision"). However, a default under clauses (iv) and (v)
will not constitute an Event of Default until the Discount Notes Trustee or the
holders of 25% in principal amount at maturity of the outstanding Discount Notes
notify Holdings of the default and Holdings does not cure such default within
the time specified in clauses (iv) and (v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Discount Notes Trustee
or the holders of at least 25% in principal amount of the outstanding Discount
Notes by notice to Holdings may declare the Accreted Value of and accrued and
unpaid interest, if any, on all the Discount Notes to be due and payable. Upon
such a declaration, such Accreted Value and accrued and unpaid interest shall be
due and payable immediately. If an Event of Default relating to certain events
of bankruptcy, insolvency or reorganization of Holdings occurs and is
continuing, the Accreted Value of and accrued and unpaid interest on all the
Discount Notes will become and be immediately due and payable without any
declaration or other act on the part of the Discount Notes Trustee or any
holders. Under certain circumstances, the holders of a majority in principal
amount at maturity of the outstanding Discount Notes may rescind any such
acceleration with respect to the Discount Notes and its consequences.
Subject to the provisions of the Discount Notes Indenture relating to the
duties of the Discount Notes Trustee, if an Event of Default occurs and is
continuing, the Discount Notes Trustee will be under no obligation to exercise
any of the rights or powers under the Discount Notes Indenture at the request or
direction of any of the holders unless such holders have offered to the Discount
Notes Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no holder may pursue any remedy with respect to
the Discount Notes Indenture or the Discount Notes unless (i) such holder has
previously given the Discount Notes Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount at maturity of the
outstanding Discount Notes have requested the Discount Notes Trustee to pursue
the remedy, (iii) such holders have offered the Discount Notes Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Discount Notes Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the holders of a majority in principal amount at maturity of the outstanding
Discount Notes have not given the Discount Notes Trustee a direction that, in
the opinion of the Discount Notes Trustee, is inconsistent with such request
within such 60-day period. Subject to certain restrictions, the holders of a
majority in principal amount at maturity of the outstanding Discount Notes are
given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Discount Notes Trustee or of
exercising any trust or power conferred on the Discount Notes Trustee. The
Discount Notes Trustee, however, may refuse to follow any direction that
conflicts with law or the Discount Notes Indenture or that the Discount Notes
Trustee determines is unduly prejudicial to the rights of any other holder or
that would involve the
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Discount Notes Trustee in personal liability. Prior to taking any action under
the Discount Notes Indenture, the Discount Notes Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Discount Notes Indenture provides that if a Default occurs and is
continuing and is known to the Discount Notes Trustee, the Discount Notes
Trustee must mail to each holder notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of, premium
(if any) or interest on any Discount Note, the Discount Notes Trustee may
withhold notice if and so long as its board of directors, a committee of its
board of directors or a committee of its Trust officers in good faith determines
that withholding notice is in the interests of the holders of Discount Notes. In
addition, Holdings is required to deliver to the Discount Notes Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year.
Holdings also is required to deliver to the Discount Notes Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Discount Notes Indenture may be amended
with the consent of the holders of a majority in principal amount at maturity of
the Discount Notes then outstanding (including consents obtained in connection
with a tender offer or exchange for the Discount Notes) and any past default or
compliance with any provisions may be waived with the consent of the holders of
a majority in principal amount at maturity of the Discount Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of
Discount Notes whose holders must consent to an amendment, (ii) reduce the
stated rate of or extend the stated time for payment of interest on any Discount
Note, (iii) reduce the principal of or extend the Stated Maturity of any
Discount Note, (iv) reduce the premium payable upon the redemption or repurchase
of any Discount Note or change the time at which any Note may be redeemed as
described under "Optional Redemption" above, (v) make any Discount Note payable
in money other than that stated in the Discount Note, (vi) impair the right of
any holder to receive payment of principal of and interest on such holder's
Discount Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Discount Notes or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, Holdings and the Discount Notes Trustee
may amend the Discount Notes Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of Holdings
under the Discount Notes Indenture, to provide for uncertificated Discount Notes
in addition to or in place of certificated Discount Notes (provided that the
uncertificated Discount Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated Discount
Notes are described in Section 163(f) (2) (B) of the Code), to add Guarantees
with respect to the Discount Notes, to secure the Discount Notes, to add to the
covenants of Holdings for the benefit of the holders or to surrender any right
or power conferred upon Holdings, to make any change that does not adversely
affect the rights of any holder or to comply with any requirement of the
Commission in connection with the qualification of the Discount Notes Indenture
under the Trust Indenture Act.
The consent of the holders is not necessary under the Discount Notes
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Discount Notes Indenture becomes effective,
Holdings is required to mail to the holders a notice briefly describing such
amendment. However, the failure to give such notice to all the holders, or any
defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
Holdings at any time may terminate all its obligations under the Discount
Notes and the Discount Notes Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and
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obligations to register the transfer or exchange of the Discount Notes, to
replace mutilated, destroyed, lost or stolen Discount Notes and to maintain a
registrar and paying agent in respect of the Discount Notes. Holdings at any
time may terminate its obligations under "-- Change of Control" and under
substantially all of its covenants in the Discount Notes Indenture, including
the covenants described under "-- Certain Covenants" (other than "-- Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries, the judgment
default provision described under "Events of Default" above and the limitations
contained in clauses (iii) and (iv) under "-- Certain Covenants -- Merger and
Consolidation" above ("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Discount Notes may not be accelerated because
of an Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Discount Notes may not be accelerated because
of an Event of Default specified in clause (iv), (vi), (vii) (with respect only
to Significant Subsidiaries) or (viii) under "Events of Default" above or
because of the failure of Holdings to comply with clause (iii) or (iv) under
"-- Certain Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Discount Notes Trustee money
or U.S. Government Obligations for the payment of principal, premium (if any)
and interest on the Discount Notes to maturity or any redemption date specified
by Holdings, as the case may be, and must comply with certain other conditions,
including delivery to the Discount Notes Trustee of an Opinion of Counsel to the
effect that holders of the Discount Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amounts and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred (and, in the case of legal defeasance only, such
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Discount Notes Trustee under
the Discount Notes Indenture and has been appointed by Holdings as Registrar and
Paying Agent with regard to the Discount Notes.
The Holders of a majority in principal amount of the outstanding Discount
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Discount Notes Trustee,
subject to certain exceptions. The Discount Notes Indenture provides that if an
Event of Default occurs (and is not cured), the Discount Notes Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Discount
Notes Trustee will be under no obligation to exercise any of its rights or
powers under the Discount Notes Indenture at the request of any holder of
Discount Notes, unless such holder shall have offered to the Discount Notes
Trustee security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the Discount Notes
Indenture.
GOVERNING LAW
The Discount Notes Indenture provides that it and the Discount Notes will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
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CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Discount Notes:
(i) if the Specified Date occurs on one of the following dates (each,
a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL
ACCRUAL DATE ACCRETED VALUE
------------ --------------
<S> <C>
December 1, 1997....................................... $ 591.90
June 1, 1998........................................... 627.41
December 1, 1998....................................... 665.06
June 1, 1999........................................... 704.96
December 1, 1999....................................... 747.26
June 1, 2000........................................... 792.10
December 1, 2000....................................... 839.62
June 1, 2001........................................... 890.00
December 1, 2001....................................... 943.40
June 1, 2002........................................... 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
($560.387 per Unit) of a Unit and (b) an amount equal to the product of (1)
the Accreted Value for the first Semi-Annual Accrual Date less such
original issue price multiplied by (2) a fraction, the numerator of which
is the number of days elapsed from the Issue Date to the Specified Date,
using a 360-day year of 12 30-day months, and the denominator of which is
the number of days from the Issue Date to the first Semi-Annual Accrual
Date, using a 360-day year of 12 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days elapsed from the
immediately preceding Semi-Annual Accrual Date to the Specified Date, using
a 360-day year of 12 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Holdings or a Restricted Subsidiary of Holdings; (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of Holdings; or (iv) Permitted Investments of the
type and in the amounts described in clause (viii) of the definition thereof;
provided, however, that, in the case of clauses (ii) and (iii), such Restricted
Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Holdings or any of its Restricted Subsidiaries (including any
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disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to Holdings or by Holdings or
a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business, (iii) a disposition of obsolete or
worn out equipment or equipment that is no longer useful in the conduct of the
business of Holdings and its Restricted Subsidiaries and that is disposed of in
each case in the ordinary course of business, (iv) dispositions of property for
net proceeds which, when taken collectively with the net proceeds of any other
such dispositions under this clause (iv) that were consummated since the
beginning of the calendar year in which such disposition is consummated, do not
exceed 1.5% of the consolidated book value of Holdings' assets as of the most
recent date prior to such disposition for which a consolidated balance sheet of
Holdings has been regularly prepared, and (v) transactions permitted under
"Certain Covenants -- Merger and Consolidation" above.
"Asset Swap" means the execution of a definitive agreement, subject only to
customary closing conditions that Holdings in good faith believes will be
satisfied, for a substantially concurrent purchase and sale, or exchange, of
Productive Assets between Holdings or any of its Restricted Subsidiaries and
another Person or group of affiliated Persons; provided, however, that any
amendment to or waiver of any closing condition that individually or in the
aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Discount Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted as a capitalized lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus, without duplication, the following to the extent deducted
in calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Discount Notes)
and less, to the extent added in calculating Consolidated Net Income, (x)
exchange or translation gains on foreign currencies and (y) non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Discount Notes), in each case for such period. Notwithstanding the foregoing,
the income tax expense, the depreciation expense and amortization expense of a
Subsidiary of Holdings shall be included in Consolidated Cash Flow only to the
extent (and in the same proportion) that the net income of such Subsidiary was
included in calculating Consolidated Net Income.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if Holdings or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by senior
management of Holdings and assuming a constant level of sales) shall be deemed
outstanding for purposes of this calculation) and (B) the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period any Indebtedness
of Holdings or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period and as if Holdings or such Restricted Subsidiary
had not earned the interest income actually earned during such period in respect
of cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (3) if since the beginning of such period
Holdings or any of its Restricted Subsidiaries shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
Interest Expense for such period shall be (i) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of Holdings or
any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to Holdings and its continuing Restricted Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary of Holdings is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent Holdings and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale) and
(ii) increased by interest income attributable to the assets which are the
subject of such Asset Disposition for such period, (4) if since the beginning of
such period Holdings or any of its Restricted Subsidiaries (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary of
Holdings (or any Person which becomes a Restricted Subsidiary of Holdings) or an
acquisition of assets, including any Investment in a Restricted Subsidiary of
Holdings or any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of a product line or operating unit of a business.
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness and the use of the proceeds therefrom) as if such Investment or
acquisition occurred on the first day of such period and (5) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary of Holdings or was merged with or into Holdings or any Restricted
Subsidiary of Holdings since the beginning of such period) shall have made any
Asset Disposition, Investment or acquisition of assets that would have required
an adjustment pursuant to clause (3) or (4) above if made by Holdings or a
Restricted Subsidiary of Holdings during such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting officer of Holdings. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date
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of determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
Notwithstanding anything herein to the contrary, if at the time the calculation
of the Consolidated Coverage Ratio is to be made, Holdings does not have
available consolidated financial statements reflecting the ownership by Holdings
of ERO for a period of at least four full fiscal quarters, all calculations
required by the Consolidated Coverage Ratio shall be prepared on a pro forma
basis, as though such acquisition and the related transactions (to the extent
not otherwise reflected in the consolidated financial statements of Holdings)
had occurred on the first day of the four-fiscal-quarter period for which such
calculation is being made.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount, (iii) capitalized interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by Holdings or any such Restricted Subsidiary under any
Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than Holdings) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Restricted Subsidiaries and
Disqualified Stock of Holdings held by Persons other than Holdings or a
Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and debt discount
solely to the extent relating to the issuance and sale of Indebtedness together
with any other security as part of an investment unit and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of Holdings, that was not a Wholly-Owned Subsidiary,
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
Holdings and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person acquired by Holdings or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of Holdings if
such Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Holdings (other than restrictions in
effect on the Issue Date with respect to a Restricted Subsidiary of Holdings and
other than restrictions that are created or exist in compliance with the
"-- Limitation on Restrictions on Distributions from Restricted Subsidiaries"
covenant), (iii) any gain or loss realized upon the sale or other disposition of
any assets of Holdings or its consolidated Restricted Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which are not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person, (iv) any
extraordinary gain or loss, (v) the cumulative effect of a change in accounting
principles, (vi) restructuring charges or writeoffs recorded within the one year
period following the Issue Date in an aggregate amount not to exceed $5 million
including any reversals of any such charges, (vii) the net income of any Person,
other than a Restricted Subsidiary, except to the extent of the lesser of (A)
dividends or distributions paid to Holdings or any of its Restricted
Subsidiaries by such Person and (B) the net income of such Person (but in no
event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of Holdings or any of its Restricted Subsidiaries in such Person and
(viii) any non-cash expenses attributable to grants or exercises of employee
stock options. Notwithstanding the foregoing, for the purpose of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to Holdings or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a) (3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Holdings and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the
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most recent fiscal quarter of Holdings ending prior to the taking of any action
for the purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of Holdings plus (ii) paid in capital or capital surplus relating
to such Capital Stock plus (iii) any retained earnings or earned surplus less
(A) any accumulated deficit and (B) any amounts attributable to Disqualified
Stock.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors on the date of the Discount Notes
Indenture, (ii) was nominated for election or elected to the Board of Directors
with the affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or election,
or (iii) is a representative of a Permitted Holder.
"Credit Agreement" means (i) the Credit Agreement as well as all exhibits,
schedules and appendices thereto to be entered into among Hedstrom, Credit
Suisse First Boston, as Administrative Agent, and the lenders parties thereto
from time to time, as the same may be amended, supplemented or otherwise
modified from time to time and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Credit Agreement or any
other agreement).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values as to which such Person is a
party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of Holdings or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Discount Notes; provided,
however, that only the portion of Capital Stock which so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so redeemable at
the option of the holder thereof prior to such Stated Maturity shall be deemed
to be Disqualified Stock; provided further, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Discount Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "Change of
Control".
"Equity Offering" means an offering for cash by Holdings of its common
stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Advisory Agreement" means the Financial Advisory Agreement
between Hicks Muse Partners and Holdings and Hedstrom as in effect on the Issue
Date.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 80% of its assets (determined on
a consolidated basis in accordance with GAAP) are located in territories outside
of the United States of America and jurisdictions outside the United States of
America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Discount Notes Indenture,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or the
SEC or in such other statements by such
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other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Discount Notes
Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and 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
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or 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 purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
The term "Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third Business Day following receipt by such person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of Holdings, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Discount Notes (but excluding, in each case, any accrued dividends) and
(ix) to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding principal amount of all
unconditional obligations as described above, as such amount would be reflected
on a balance sheet prepared in accordance with GAAP, and the maximum liability
of such Person, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement designed to protect such Person against fluctuations in interest
rates as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by
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such Person. For purposes of the "-- Limitation on Restricted Payments"
covenant, (i) "Investment" shall include the portion (proportionate to Holdings'
equity interest in a Restricted Subsidiary to be designated as an Unrestricted
Subsidiary) of the fair market value of the net assets of such Restricted
Subsidiary of Holdings at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, Holdings shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) Holdings' "Investment" in such Subsidiary at the time of
such redesignation less (y) the portion (proportionate to Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors and
evidenced by a resolution of such Board of Directors certified in an Officers'
Certificate to the Trustee.
"Issue Date" means the date on which the Old Discount Notes were originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Merger Agreement" means the Agreement and Plan of Merger dated April 10,
1997, between Hedstrom, HC Acquisition Corp. and ERO, Inc.
"Monitoring and Oversight Agreement" means the Monitoring and Oversight
Agreement between Hicks Muse Partners and Holdings and Hedstrom as in effect on
the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition), in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to any Person owning a beneficial interest in
assets subject to sale or minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by Holdings or any Restricted Subsidiary of
Holdings after such Asset Disposition and (v) any portion of the purchase price
from an Asset Disposition placed in escrow (whether as a reserve for adjustment
of the purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to Holdings or any Restricted
Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Holdings nor
any Restricted Subsidiary (a) provides any guarantee or credit support of any
kind (including any undertaking, guarantee, indemnity, agreement or instrument
that would constitute Indebtedness) or (b) is directly or indirectly liable (as
a guarantor or otherwise) and (ii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of Holdings or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
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"Permitted Indebtedness" means (i) Indebtedness of Holdings owing to and
held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by Hedstrom or any Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to
Holdings or a Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof; (ii)
Indebtedness represented by (x) the Discount Notes and the Senior Subordinated
Notes, (y) any Indebtedness (other than the Indebtedness described in clauses
(i), (ii) and (iv) of paragraph (b) of the covenant described under "Limitation
on Indebtedness" and other than Indebtedness Incurred pursuant to clause (i)
above or clauses (iv), (v) or (vi) below) outstanding on the Issue Date and (z)
any Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (ii) or Incurred pursuant to paragraph (a) of the covenant
described under "Limitation on Indebtedness;" (iii) (A) Indebtedness of a
Restricted Subsidiary Incurred and outstanding on the date on which such
Restricted Subsidiary was acquired by Holdings or a Restricted Subsidiary (other
than Indebtedness Incurred as consideration in, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary became a
Subsidiary or was otherwise acquired by Holdings or a Restricted Subsidiary);
provided, however, that at the time such Restricted Subsidiary is acquired by
Holdings or a Restricted Subsidiary, Holdings would have been able to Incur
$1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant
described under "Limitation on Indebtedness" above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (iii) and (B)
Refinancing Indebtedness Incurred by Holdings or a Restricted Subsidiary in
respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by Holdings or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of Holdings
or any of its Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations, (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchisees or customers of obligations (other than Indebtedness) incurred in
the ordinary course of business and (D) under Currency Agreements and Interest
Rate Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements
are entered into for bona fide hedging purposes of Holdings or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors or senior
management of Holdings) and correspond in terms of notional amount, duration,
currencies and interest rates, as applicable, to Indebtedness of Holdings or its
Restricted Subsidiaries Incurred without violation of the Discount Notes
Indenture or to business transactions of Holdings or its Restricted Subsidiaries
on customary terms entered into in the ordinary course of business; (v)
Indebtedness arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of Holdings
or any of its Restricted Subsidiaries pursuant to such agreements, in each case
Incurred in connection with the disposition of any business assets or Restricted
Subsidiary of Holdings (other than Guarantees of Indebtedness or other
obligations Incurred by any Person acquiring all or any portion of such business
assets or Restricted Subsidiary of Holdings for the purpose of financing such
acquisition) in a principal amount not to exceed the gross proceeds actually
received by Holdings or any of its Restricted Subsidiaries in connection with
such disposition; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (v), when taken together with all
Indebtedness Incurred pursuant to this clause (v) and then outstanding, shall
not exceed $10 million; (vi) Indebtedness consisting of (A) Guarantees by
Holdings or a Restricted Subsidiary of Indebtedness Incurred by a Wholly-Owned
Subsidiary without violation of the Discount Notes Indenture and (B) Guarantees
by a Restricted Subsidiary of Senior Indebtedness Incurred by Holdings without
violation of the Discount Notes Indenture (so long as such Restricted Subsidiary
could have Incurred such Indebtedness directly without violation of the Discount
Notes Indenture); and (vii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business, provided that
such Indebtedness is extinguished within ten Business Days of its incurrence.
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"Permitted Investment" means an Investment by Holdings or any of its
Restricted Subsidiaries in (i) Holdings or a Wholly-Owned Subsidiary of
Holdings; provided, however, that the primary business of such Wholly-Owned
Subsidiary is a Related Business; (ii) another Person if as a result of such
Investment such other Person becomes a Wholly-Owned Subsidiary of Holdings or is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Wholly-Owned Subsidiary of
Holdings; provided, however, that in each case such Person's primary business is
a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
Holdings or any of its Restricted Subsidiaries, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees for purposes of purchasing
Holdings' common stock in an aggregate amount outstanding at any one time not to
exceed $5 million and other loans and advances to employees made in the ordinary
course of business consistent with past practices of Holdings or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to Holdings or any of
its Restricted Subsidiaries or in satisfaction of judgments or claims; (viii) a
Person engaged in a Related Business or a loan or advance to Holdings the
proceeds of which are used solely to make an Investment in a Person engaged in a
Related Business or a Guarantee by Holdings of Indebtedness of any Person in
which such Investment has been made; provided, however, that no Permitted
Investments may be made pursuant to this clause (viii) to the extent the amount
thereof would, when taken together with all other Permitted Investments made
pursuant to this clause (viii), exceed $10 million in the aggregate (plus, to
the extent not previously reinvested, any return of capital realized on
Permitted Investments made pursuant to this clause (viii), or any release or
other cancellation of any Guarantee constituting such Permitted Investment);
(ix) Persons to the extent such Investment is received by Holdings or any
Restricted Subsidiary as non-cash consideration for asset dispositions effected
in compliance with the covenant described under "-- Limitations on Sales of
Assets and Subsidiary Stock;" (x) prepayments and other credits to suppliers
made in the ordinary course of business consistent with the past practices of
Holdings and its Restricted Subsidiaries; and (xi) Investments in connection
with pledges, deposits, payments or performance bonds made or given in the
ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health, safety or
environmental obligations.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review; (c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions to,
property of such Person; provided, however, that the Lien may not extend to any
other property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred, and the Indebtedness (other than any interest thereon) secured
by the Lien may not be Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien; (g) Liens to
secure Indebtedness permitted
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under the provisions described in clause (b)(i) under "-- Certain
Covenants -- Limitation on Indebtedness"; (h) Liens existing on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at the time
such other Person becomes a Subsidiary of such Person; provided, however, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; provided
further, however, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries; (j) Liens on property at the time such
Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a Wholly-Owned Subsidiary of such Person; (1) Liens securing
Interest Rate Agreements and Currency Agreements so long as such Interest Rate
Agreements and Currency Agreements relate to Indebtedness that is, and is
permitted to be under the Discount Notes Indenture, secured by a Lien on the
same property securing such Interest Rate Agreements and Currency Agreements;
and (m) Liens to secure any Refinancing (or successive Refinancings) as a whole,
or in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (h), (i) and (j); provided, however, that (x) such new Lien shall
be limited to all or part of the same property that secured the original Lien
(plus improvements to or on such property) and (y) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (f), (h), (i) or (j) at the time the
original Lien became a Permitted Lien and (B) an amount necessary to pay any
fees and expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement. Notwithstanding the foregoing, "Permitted
Liens" will not include any Lien described in clauses (f), (i) or (j) above to
the extent such Lien applies to any Additional Assets acquired directly or
indirectly from Net Available Cash pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
For purposes of this definition, the term "Indebtedness" shall be deemed to
include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by Holdings and
its Restricted Subsidiaries in Holdings' business or any Related Business.
A "Public Market" exists at any time with respect to the common stock of
Holdings if (a) the common stock of Holdings is then registered with the
Securities and Exchange Commission pursuant to Section 12(b) or 12(g) of
Exchange Act and traded either on a national securities exchange or in the
National Association of Securities Dealers Automated Quotation System and (b) at
least 15% of the total issued and outstanding common stock of Holdings has been
distributed prior to such time by means of an effective registration statement
under the Securities Act, or pursuant to sales pursuant to Rule 144 under the
Securities Act.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness of Holdings or any Restricted Subsidiary
existing on the date of the Discount Notes Indenture or Incurred in compliance
with the Discount Notes Indenture (including Indebtedness of Holdings that
refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any
Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Discount Notes and (B) the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an
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Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the lesser of (A) the Average Life of the Discount Notes and
(B) the Average Life of the Indebtedness being refinanced, and (iii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
(or 101% of, in the case of a refinancing of the Discount Notes in connection
with a Change of Control) or less than the sum of the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value) then
outstanding of the indebtedness being refinanced, plus applicable premium and
defeasance costs and reasonable fees and expenses paid in connection with
refinancing.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Holdings and its
Restricted Subsidiaries on the date of the Discount Notes Indenture, as
reasonably determined by Holdings's Board of Directors.
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Holdings or a Subsidiary
Guarantor secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Discount Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of Holdings.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of Holdings) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
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issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary of Holdings)
to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Holdings or any Subsidiary of Holdings that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total consolidated assets of $10,000
or less or (B) if such Subsidiary has consolidated assets greater than $10,000,
then such designation would be permitted under "Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) Holdings could Incur $1.00 of additional
Indebtedness under clause (a) of "-- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors thereof.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Holdings, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by Holdings or another Wholly-Owned Subsidiary; provided,
however, that until the date that is 180 days following the Issue Date, ERO,
Inc. shall be deemed to be a Wholly-Owned Subsidiary of Holdings so long as
Holdings or a Wholly-Owned Subsidiary owns at least a percentage of the Capital
Stock of ERO, Inc. equal to the percentage of such Capital Stock acquired by HC
Acquisition Corp. in connection with its tender offer for the Capital Stock of
ERO, Inc.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO THE NEW
NOTES
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated and proposed thereunder, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly with retroactive effect. Except as specifically provided below, the
following discussion is limited to the U.S. federal income tax consequences
relevant to a holder of a New Senior Subordinated Note or a New Discount Note
who or which is (i) an individual who is a citizen or resident of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States, or any political subdivision thereof, or (iii) an estate or
trust otherwise subject to U.S. federal income taxation of its worldwide income
(each a "U.S. Holder"). For taxable years beginning after December 31, 1996, a
trust is a U.S. Holder if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. This discussion does not purport to deal with all aspects of U.S.
federal income taxation that might be relevant to particular holders in light of
their personal investment circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of holders subject to special
treatment under the U.S. federal income tax laws (for example, financial
institutions, insurance companies, dealers in securities, tax-exempt
organizations, or taxpayers holding the New Senior Subordinated Notes or the New
Discount Notes as part of a "straddle", "hedge" or "conversion transaction").
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed.
Except as otherwise indicated below, this discussion assumes that the New
Senior Subordinated Notes or the New Discount Notes are held as capital assets
(as defined in Section 1221 of the Code) by the holders thereof. The Issuers
will treat the New Senior Subordinated Notes or the New Discount as indebtedness
for U.S. federal income tax purposes, and the balance of the discussion is based
on the assumption that such treatment will be respected.
Prospective holders are urged to consult their own tax advisors regarding
the federal, state, local and other tax considerations of the acquisition,
ownership and disposition of the New Senior Subordinated Notes or the New
Discount Notes.
U.S. HOLDERS
Stated Interest on the New Senior Subordinated Notes. The stated interest
on the New Senior Subordinated Notes will be included in income by a U.S. Holder
in accordance with such U.S. Holder's usual method of accounting.
Stated Interest on the New Discount Notes. The stated interest on the New
Discount Notes will be included in the amount of OID with respect to such New
Discount Notes. A U.S. Holder will not be required to report separately as
taxable income actual payments of stated interest with respect to the New
Discount Notes.
Original Issue Discount Applicable to the New Discount Notes. For the
reasons discussed below, the Old Discount Notes were issued with OID.
Accordingly, each U.S. Holder of a New Discount Note will be required to include
in income (regardless of whether such U.S. Holder is a cash or accrual basis
taxpayer) in each taxable year, in advance of the receipt of cash payments on
such New Discount Notes, that portion of the OID, computed on a constant yield
basis, attributable to each day during such year on which the holder held the
New Discount Notes and the Old Discount Notes exchanged for such New Discount
Notes. See " -- Taxation of Original Issue Discount" below.
For U.S. federal income tax purposes, the New Discount Notes are regarded
as the same indebtedness as the Old Discount Notes. Hence, any reference herein
to the New Discount Notes includes a reference to the Old Discount Notes, and
any reference to the Old Discount Notes includes a reference to the New Discount
Notes.
The amount of OID with respect to each New Discount Note is equal to the
excess of (i) its "stated redemption price at maturity" over (ii) the "issue
price" of the Old Discount Note.
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Because the original purchasers of the Old Discount Notes also acquired
Shares, each Old Discount Note was treated for U.S. federal income tax purposes
as having been issued as part of an "investment unit" (i.e., the Units)
consisting of such Old Discount Note and the associated Shares. The "issue
price" of an Old Discount Note will be equal to the portion of the "issue price"
of the Unit allocable to such Old Discount Note based upon the relative fair
market values of such Old Discount Note and the associated Shares comprising the
Unit. Because the Units were issued for money, the "issue price" of each Unit
was the first price at which a substantial amount of the Units were sold. For
purposes of determining the issue price of the Units, sales to bond houses,
brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers (which includes the Initial
Purchasers) are ignored. Furthermore, the Treasury Regulations provide that the
issuer's allocation of the issue price of the investment unit is binding on all
holders of the investment unit, unless the holder explicitly discloses (on a
form prescribed by the Internal Revenue Service (the "Service") and attached to
the U.S. Holder's timely filed U.S. federal income tax return for the tax year
that includes the acquisition date of the investment unit) that its allocation
of the issue price of the investment unit is different from the issuer's
allocation. The allocation by Holdings is not, however, binding on the Service.
Under the Regulations, the "stated redemption price at maturity" of a New
Discount Note will equal the sum of all cash payments (including principal and
stated interest) required to be made on such New Discount Note (including
payments on the Old Discount Note exchanged for such New Discount Note) and the
excess of the aggregate of such amounts over the issue price of the Old Discount
Note exchanged for such New Discount Note would be included in the holder's
income as OID.
Taxation of Original Issue Discount. A U.S. Holder of a debt instrument
issued with OID is required to include in gross income for U.S. federal income
tax purposes an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year on which such holder holds the debt instrument.
The daily portions of OID required to be included in a U.S. Holder's gross
income in a taxable year will be determined under a constant yield method by
allocating to each day during the taxable year on which the U.S. Holder holds
the debt instrument a pro rata portion of the OID on such debt instrument which
is attributable to the "accrual period" in which such day is included. The
amount of the OID attributable to each accrual period will be the product of the
"adjusted issue price" of the New Discount Note at the beginning of such accrual
period multiplied by the "yield to maturity" of the New Discount Note (properly
adjusted for the length of the accrual period). The New Discount Note's "yield
to maturity" is that discount rate which, when used in computing the present
value of all principal and stated interest payments to be made under a New
Discount Note (including payments on the Old Discount Note exchanged for such
New Discount Note), produces an amount equal to the issue price of the Old
Discount Note exchanged for such New Discount Note. The "adjusted issue price"
of the New Discount Note at the beginning of an accrual period will generally be
the issue price of the Old Discount Note exchanged for such New Discount Note
plus the aggregate amount of OID that accrued in all prior accrual periods
(determined without regard to the rules described below concerning acquisition
premium) less any cash payments on the New Discount Note (including payments on
the Old Discount Note exchanged for such New Discount Note). An "accrual period"
may be of any length and may vary in length over the term of the debt
instrument, provided that each accrual period is not longer than one year and
each scheduled payment of principal or interest occurs either on the final day
or the first day of an accrual period.
Acquisition Premium on New Discount Notes. A U.S. Holder of a New Discount
Note who purchases such New Discount Note for an amount that is greater than its
then adjusted issue price but equal to or less than the sum of all amounts
payable on the New Discount Note after the purchase date will be considered to
have purchased such New Discount Note at an "acquisition premium." Under the
acquisition premium rules, the amount of OID which such U.S. Holder must include
in income with respect to such New Discount Note for any taxable year will be
reduced by the portion of such acquisition premium properly allocable to such
year.
Amortizable Bond Premium on New Senior Subordinated Notes. If the holder's
basis in the New Senior Subordinated Notes exceeds the amount payable at the
maturity date (or earlier call date, under certain circumstances), such excess
will be deductible by the holder of the New Senior Subordinated Notes as
amortizable bond premium over the term of the New Senior Subordinated Notes
(taking into account earlier call dates, under certain circumstances), under a
yield-to-maturity formula, if an election by the holder under Section 171 of the
Code is made or is already in effect. An election under Section 171 of the Code
is available
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only if the New Senior Subordinated Notes are held as capital assets. This
election is revocable only with the consent of the Service and applies to all
obligations owned or acquired by the holder on or after the first day of the
taxable year to which the election applies. To the extent the excess is deducted
as amortizable bond premium, the holder's adjusted tax basis in the New Senior
Subordinated Notes will be reduced. Except as may otherwise be provided in
future Treasury Regulations, the amortizable bond premium will be treated as an
offset to interest income on the New Senior Subordinated Notes rather than as a
separate deduction item. Recently proposed Treasury Regulations, which are not
yet effective, would modify the described rules under Section 171 in order to
coordinate such rules with the rules relating to original issue discount.
Market Discount on New Notes. Generally, the market discount rules
discussed below will not apply to a U.S. Holder of a New Note received in one of
the Exchange Offers for an Old Note acquired when it was originally issued.
These rules would apply, however, to an original holder whose tax basis in the
New Note is less than such New Note's "issue price" (as defined above).
Gain recognized on the disposition (including a redemption) by a U.S.
Holder of a New Note that has accrued market discount will be treated as
ordinary income, and not capital gain, to the extent of the accrued market
discount, provided that the amount of market discount exceeds a statutorily
defined de minimis amount. "Market discount" is defined as the excess, if any,
of the "revised issue price" (as defined below) in the case of the New Discount
Notes or the "stated redemption price at maturity" in the case of the New Senior
Subordinated Notes over the tax basis of the debt obligation in the hands of the
holder immediately after its acquisition. The "revised issue price" of a debt
obligation generally equals the sum of its issue price and the total amount of
OID includible in the gross income of all holders for periods before the
acquisition of the debt obligation by the current holder (without regard to any
reduction in such income resulting from any prior purchase at an acquisition
premium) and less any cash payments in respect of such debt obligation. The
"stated redemption price at maturity" of the New Senior Subordinated Notes will
equal the stated principal amount thereof.
Unless the U.S. Holder elects otherwise, the accrued market discount would
be the amount calculated by multiplying the market discount by a fraction, the
numerator of which is the number of days the obligation has been held by the
U.S. Holder and the denominator of which is the number of days after the U.S.
Holder's acquisition of the obligation up to and including its maturity date.
A U.S. Holder of a New Note acquired at a market discount also may be
required to defer the deduction of all or a portion of the interest on any
indebtedness incurred or maintained to carry the New Note until it is disposed
of in a taxable transaction. Moreover, to the extent of any accrued market
discount on such New Notes, any partial principal payment with respect to New
Notes (possibly including stated interest payments on the New Discount Notes)
will be includible as ordinary income upon receipt as will the New Note's fair
market value on certain otherwise non-taxable transfers (such as gifts).
A U.S. Holder of a New Note acquired at market discount may elect to
include the market discount in income as it accrues (on either a ratable or
constant yield to maturity basis). This election would apply to all market
discount obligations acquired by the electing U.S. Holder on or after the first
day of the first taxable year to which the election applies. The election may be
revoked only with the consent of the Service. If a holder of a New Note so
elects to include market discount in income currently, the above-discussed rules
with respect to ordinary income recognition resulting from sales and certain
other disposition transactions and to deferral of interest deductions would not
apply.
Election to Apply OID Principles. A U.S. Holder may generally, upon
election, include in income all interest (including stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market discount, and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium) that accrues on a New Note by using the constant yield method
applicable to OID obligations, subject to certain limitations and exceptions.
The election is to be made for the taxable year in which the U.S. Holder
acquired the obligation, and may not be revoked without the consent of the
Service.
Tax Basis. A U.S. Holder's initial tax basis in a New Note will be equal to
the purchase price paid by such holder for the Old Note exchanged for such New
Note or for a New Note (as the case may be). In the case of a
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New Discount Note exchanged for an Old Discount Note, a U.S. Holder's initial
tax basis would be the portion of the purchase price of the Unit allocable to
the Old Discount Note exchanged for such new Discount Note.
A U.S. Holder's tax basis in a New Discount Note will be increased by the
amount of OID that is included in such U.S. Holder's income pursuant to the
foregoing rules (taking into account acquisition premium) through the day
preceding the day of disposition (and the accruals of market discount, if any,
which the U.S. Holder elected to include in gross income on an annual basis) and
will be decreased by the amount of any cash payments received. A U.S. Holder's
tax basis in a New Senior Subordinated Note will be increased by the amount of
accrued market discount, if any, which the U.S. Holder elected to include in
gross income on an annual basis and decreased by the amortizable bond premium,
if any, which the U.S. Holder has elected to offset against interest income.
Sale or Redemption. Unless a nonrecognition provision applies, the sale,
exchange, redemption or other disposition of New Notes will be a taxable event
for U.S. federal income tax purposes. In such event, a U.S. Holder will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of any property received upon such sale, exchange,
redemption or other taxable disposition (except to the extent that amounts
received are attributable, in the case of the New Senior Subordinated Notes, to
accrued interest, which portion of the consideration would be taxed as ordinary
income if the interest was previously untaxed) and (ii) the holder's adjusted
tax basis therein. Subject to the discussion above under the caption "Market
Discount" with respect to the New Notes, such gain or loss should be capital
gain or loss and will be long-term capital gain or loss if the New Notes will
have been held by the holder for more than one year at the time of such sale,
exchange, redemption or other disposition.
Applicable High-Yield Discount Obligations. Pursuant to section 163 of the
Code and because it appears that the New Discount Notes are "applicable high
yield discount obligations" ("AHYDOs"), a portion of the OID accruing on the New
Discount Notes may be treated as a dividend generally eligible for the
dividends-received deduction in the case of corporate holders (and subject to
the limitations described above), and Holdings (A) would not be entitled to
deduct the "disqualified portion" of the OID accruing on the New Discount Notes
and (B) would be allowed to deduct the remainder of the OID only when paid in
cash. The New Discount Notes appear to be AHYDOs because their yield to maturity
equals or exceeds 11.99% (the sum of five percentage points and the applicable
federal rate (the "AFR") in effect for the calendar month in which the Old
Discount Notes were issued (which applicable federal rate was 6.99% for June
1997)).
Because the New Discount Notes appear to be AHYDOs, for purposes of the
dividends-received deduction a corporate holder would be treated as receiving
dividend income to the extent of the lesser of (i) Holdings' current and
accumulated earnings and profits, and (ii) the "disqualified portion" of the OID
of such New Discount Note. The "disqualified portion" of the OID is equal to the
lesser of (i) the amount of OID or (ii) the portion of the "total return" (i.e.,
the excess of all payments to be made with respect to a New Discount Notes over
its issue price) in excess of the AFR plus six percentage points (or 12.99%).
Backup Withholding and Information Reporting. Under the Code, U.S. Holders
of New Senior Subordinated Notes and New Discount Notes may be subject, under
certain circumstances, to information reporting and "backup withholding" at a
31% rate with respect to cash payments in respect of principal (and premium, if
any), OID, interest, dividends and the gross proceeds from dispositions thereof.
Backup withholding applies only if the U.S. Holder (i) fails to furnish its
social security or other taxpayer identification number ("TIN") within a
reasonable time after a request therefor, (ii) furnishes an incorrect TIN, (iii)
fails to report properly interest or dividends, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit (and may entitle such
holder to a refund) against such U.S. Holder's U.S. federal income tax
liability, provided that the required information is furnished to the Service.
Certain persons are exempt from backup withholding, including corporations and
financial institutions. U.S. Holders of New Senior Subordinated Notes and New
Discount Notes should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such
exemption.
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The Issuers will furnish annually to the Service and to record holders of
the New Notes (to whom it is required to furnish such information) information
relating to the amount of OID, interest and dividends, as applicable. Because
this information will be based upon the adjusted issue price of the New Discount
Notes as if the holder were an original holder, purchasers who purchase New
Discount Notes for an amount other than the adjusted issue price at the time of
purchase will be required to determine for themselves the amount of OID, if any,
that they are required to report. See also "-- Acquisition Premium on Discount
Notes" and "-- Market Discount on Notes."
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE
SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED RETROACTIVELY IN A MANNER
THAT COULD ADVERSELY AFFECT U.S. HOLDERS OF NEW NOTES. EACH HOLDER OF ANY OF THE
NEW NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Holder of a New Note that is not a U.S. Holder (a
"Non-U.S. Holder").
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of a New Note will be considered to be "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the United States.
Stated Interest and OID on New Notes. Generally any interest or OID paid to
a Non-U.S. Holder of a New Note that is not U.S. trade or business income will
not be subject to U.S. federal income tax if the interest or OID qualifies as
"portfolio interest." Generally interest and OID on the New Notes will qualify
as portfolio interest if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all voting stock of
Hedstrom (in the case of the New Senior Subordinated Notes) or Holdings (in the
case of the New Discount Notes) and (ii) such holder is not a "controlled
foreign corporation" with respect to which Hedstrom or Holdings (as the case may
be) is a "related person" within the meaning of the Code, and (iii) the
beneficial owner, under penalty of perjury, certifies that the beneficial owner
is not a United States person and such certificate provides the beneficial
owner's name and address, and (iv) the Non-U.S. Holder is not a bank receiving
interest on the extension of credit made pursuant to a loan agreement made in
the ordinary course of its trade or business.
The gross amount of payments to a Non-U.S. Holder of interest or OID that
do not qualify for the portfolio interest exception and that are not effectively
connected with the conduct of a U.S. trade or business will be subject to U.S.
federal income tax at the rate of 30%, unless a U.S. income tax treaty applies
to reduce or eliminate withholding. U.S. trade or business income will be taxed
on a net basis at regular U.S. rates rather than the 30% gross rate. In the case
of a Non-U.S. Holder that is a corporation, such United States trade or business
income may also be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the actual or deemed repatriation from the United
States of earnings and profits attributable to United States trade or business
income) at a 30% rate. The branch profits tax may not apply (or may apply at a
reduced rate) if a recipient is a qualified resident of certain countries with
which the United States has an income tax treaty. To claim the benefit of a tax
treaty or to claim exemption from withholding because the income is U.S. trade
or business income, the Non-U.S. Holder must provide a properly executed Form
1001 or 4224 (or such successor forms as the Service designate), as applicable,
prior to the payment of interest. These forms must be periodically updated.
Under proposed U.S. Treasury regulations, not currently in effect, however, a
Non-U.S. Holder of Notes who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements, which would include the requirement that the Non-U.S. Holder file
a form containing the holder's name and address or provide certain documentary
evidence issued by foreign governmental authorities as proof of residence in the
foreign country. Certain special procedures are provided in the proposed
regulations
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for payment through qualified intermediaries. Because the New Discount Notes
appear to be AHYDOs, the recharacterization of a portion of OID as dividends as
described above will not apply for purposes of U.S. withholding tax.
Sale, Exchange or Redemption of New Notes. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on the sale, exchange, redemption or other disposition of a New
Note generally will not be subject to U.S. federal income tax, unless (i) such
gain is U.S. trade or business income, (ii) subject to certain exceptions, the
Non-U.S. Holder is an individual who holds the New Note as a capital asset, is
present in the United States for 183 days or more in the taxable year of the
disposition, and either has a "tax home" (as defined for U.S. federal income tax
purposes) in the United States or an office or other fixed place of business in
the United States to which such disposition is attributable and (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates (including certain former citizens or
residents of the United States).
Federal Estate Tax. New Notes held (or treated as held) by an individual
who is not a citizen or resident of the United States (for U.S. federal estate
tax purposes) at the time of his or her death will not be included in such
individual's gross estate for U.S. federal estate tax purposes provided that (i)
the individual does not actually or constructively own 10% or more of the total
voting power of all voting stock of Hedstrom or Holdings (as the case may be)
and (ii) income on the New Notes was not effectively connected with the conduct
of a U.S. trade or business.
Information Reporting and Backup Withholding. Hedstrom and Holdings must
report annually to the Service and to each Non-U.S. Holder any interest or OID
that is subject to withholding, or that is exempt from U.S. withholding tax
pursuant to a tax treaty, or interest or OID that is exempt from U.S. tax under
the portfolio interest exception. Copies of these information returns may also
be made available under the provisions of a specific treaty or agreement to the
tax authorities of the country in which the Non-U.S. Holder resides. In the case
of payments of interest (including OID) to Non-U.S. Holders, temporary Treasury
Regulations provide that information reporting and backup withholding at a rate
of 31% will not apply to such payments with respect to which either the
requisite certification has been received or an exemption has otherwise been
established (provided that neither the payor nor its paying agent has actual
knowledge that the holder is a U.S. person or the conditions of any other
exemption are not, in fact, satisfied).
The Treasury regulations provide that backup withholding and information
reporting will not apply to payments of principal on the New Notes by Hedstrom
or Holdings to a Non-U.S. Holder, if the Holder certifies as to its non-U.S.
status under penalties of perjury or otherwise establishes an exemption
(provided that neither Hedstrom nor Holdings nor their paying agents has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not, in fact, satisfied.)
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possibly backup withholding unless the owner certifies
as its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for U.S. federal income tax purposes or (ii) a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is not a U.S. person or a U.S. related person (absent actual knowledge that
the payee is a U.S. person).
136
<PAGE> 139
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR TAX
CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
137
<PAGE> 140
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of Holdings' Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation").
Such summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions of the Certificate of
Incorporation, copies of which are available as set forth under "Available
Information."
GENERAL
The Certificate of Incorporation provides for, among other things, the
authorization of 100,000,000 shares of Holdings Common Stock, 40,000,000 shares
of Holdings Non-Voting Common Stock and 10,000,000 shares of undesignated
preferred stock (the "Preferred Stock"). As of June 30, 1997, there were
36,127,395 shares of Holdings Common Stock, 31,520,000 shares of Holdings
Non-Voting Common Stock and no shares of Preferred Stock outstanding. In
addition, Holdings had 2,174,216 shares of Holdings Common Stock reserved for
issuance upon exercise of outstanding options granted under the 1995 Option Plan
and 31,520,000 shares of Holdings Common Stock reserved for issuance upon
conversion of Holdings Non-Voting Common Stock.
COMMON STOCK
All of the issued and outstanding shares of Holdings Common Stock and
Holdings Non-Voting Common Stock are fully paid and non-assessable. The Holdings
Common Stock and Holdings Non-Voting Common Stock are substantially identical
except with respect to voting and conversion rights. Holders of Holdings Common
Stock are entitled to one vote per share on all matters to be voted on by
stockholders whereas holders of Holdings Non-Voting Common Stock generally have
no right to vote except as may be specified in the Certificate of Incorporation
or as required by applicable law. Subject to the rights of holders of any class
or series of Preferred Stock and the restrictions, if any, imposed by
indebtedness outstanding from time to time, the holders of Holdings Common Stock
and Holdings Non-Voting Common Stock are entitled to receive dividends and other
distributions on a pro rata basis as and when declared by the Board of Directors
of Holdings out of any funds of Holdings legally available therefor. Holders of
Holdings Common Stock and Holdings Non-Voting Common Stock have no preemptive,
subscription, redemption or sinking fund rights under the terms of the
Certificate of Incorporation, but each holder of Holdings Common Stock and
Holdings Non-Voting Common Stock who is a party to the Stockholders Agreement is
entitled to the preemptive rights granted therein. See "Stock Ownership and
Certain Transactions -- Certain Transactions -- Stockholders Agreement." Shares
of Holdings Non-Voting Common Stock are convertible into shares of Holdings
Common Stock at any time and from time to time at the option of the holders
thereof.
In connection with the Units Offering, 2,705,896 shares of Holdings Common
Stock were issued. Such shares will not trade separately from the Old Discount
Notes until the commencement of the Discount Notes Exchange Offer or the
effectiveness of a shelf registration statement with respect to the Old Discount
Notes or such earlier date after July 12, 1997, as the Initial Purchasers may
determine. Pursuant to a Common Stock Registration Rights Agreement, dated as of
June 9, 1997, among Holdings and the Initial Purchasers, Holdings is required to
file a shelf registration statement with respect to such shares of Holdings
Common Stock.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors of
Holdings to create and issue one or more classes or series of Preferred Stock
and to determine the rights and preferences of each class or series, to the
extent permitted by the Certificate of Incorporation and applicable law. The
Board of Directors of Holdings may determine, without the further vote or action
by Holding's stockholders: (i) whether or not the class or series is to have
voting rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes or
series of stock; (ii) the number of shares to constitute the class or series and
the designations thereof; (iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the qualifications, limitations,
or restrictions thereof, if any, with respect to any class or series; (iv)
whether or not the shares of any class or series shall be redeemable at the
option of Holdings or the holders thereof or upon the happening of any
138
<PAGE> 141
specified event and, if redeemable, the redemption price or prices (which may be
payable in the form of cash, notes, securities, or other property), and the time
or times at which, and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption; (v) whether or not the shares of a
class or series shall be subject to the operation of retirement or sinking funds
to be applied to the purchase or redemption of such shares for retirement, and,
if such retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock of
Holdings, or other property, the conditions upon which and the times when such
dividends are payable, the preference to or the relation to the payment of
dividends payable on any other class or classes or series of stock, whether or
not such dividends shall be cumulative or noncumulative, and if cumulative, the
date or dates from which such dividends shall accumulate; (vii) the preferences,
if any, and the amounts thereof which the holders of any class or series thereof
shall be entitled to receive upon the voluntary or involuntary dissolution of,
or upon any distribution of the assets of, Holdings; (viii) whether or not the
shares of any class or series, at the option of Holdings or the holder thereof
or upon the happening of any specified event, shall be convertible into or
exchangeable for, the shares of any other class or classes or of any other
series of the same or any other class or classes of stock, securities, or other
property of Holdings and the conversion price or prices or ratio or ratios or
the rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and (ix) such other special rights and protective provisions with
respect to any class or series as may to the Board of Directors of Holdings seem
advisable.
139
<PAGE> 142
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
an Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuers have agreed that, for a period of 180 days after
the applicable Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1997 all dealers effecting transactions
in the New Notes may be required to deliver a Prospectus.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to an Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to an
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the applicable Expiration Date, Hedstrom
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Exchange Offers (including the expenses of one counsel for the
holders of the Old Notes) other than commissions or concessions of any brokers
or dealers and will indemnify holders of the Old Notes (including any
broker-dealers) against certain liabilities, including certain liabilities under
the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon for Holdings and Hedstrom by Weil, Gotshal & Manges LLP, Dallas,
Texas.
INDEPENDENT AUDITORS
The audited consolidated financial statements of Holdings included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, to the extent and for the periods indicated in
their report thereon, and are included herein in reliance upon the authority of
said firm as experts in giving said reports. The audited financial statements of
ERO, Inc. included in this Registration Statement have been audited by Price
Waterhouse LLP, independent certified public accountants, to the extent and for
the periods indicated in their report thereon, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
140
<PAGE> 143
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
July 31, 1996.......................................... F-3
Consolidated Income Statements for the five months ended
December 31, 1996, and for each of the fiscal years
ended July 31, 1996, 1995, and 1994.................... F-4
Consolidated Statements of Stockholders' Equity for the
five months ended December 31, 1996, and for each of
the fiscal years ended July 31, 1996, 1995 and 1994.... F-5
Consolidated Statements of Cash Flows for the five months
ended December 31, 1996 and for each of the fiscal
years ended July 31, 1996, 1995 and 1994............... F-6
Notes to Consolidated Financial Statements................ F-7
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996...................... F-22
Consolidated Income Statements for the six months ended
June 30, 1997 and 1996
(unaudited)............................................ F-23
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 1997 (unaudited)................. F-24
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited)............... F-25
Notes to Consolidated Financial Statements (unaudited).... F-26
ERO, INC.:
Report of Independent Public Accountants.................. F-36
Consolidated Balance Sheets as of December 31, 1996, and
1995................................................... F-37
Consolidated Income Statements for the years ended
December 31, 1996, 1995, and 1994...................... F-38
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-39
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........... F-40
Notes to Consolidated Financial Statements................ F-41
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996...................... F-54
Consolidated Income Statements for the three months ended
March 31, 1997 and 1996
(unaudited)............................................ F-55
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited).............. F-56
Notes to Consolidated Financial Statements (unaudited).... F-57
</TABLE>
F-1
<PAGE> 144
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hedstrom Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Hedstrom
Holdings, Inc. (a Delaware corporation) and subsidiary as of December 31, 1996,
and July 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the five months ended December 31,
1996, and for each of the fiscal years ended July 31, 1996, 1995, and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hedstrom Holdings, Inc. and
subsidiary as of December 31, 1996, and July 31, 1996, and the results of their
operations and their cash flows for the five months ended December 31, 1996, and
for each of the fiscal years ended July 31, 1996, 1995, and 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 11, 1997 (except with respect
to the matter discussed in Note 15,
as to which the date is June 12, 1997)
F-2
<PAGE> 145
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996, AND JULY 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1996
------------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 533 $ 7,998
Trade accounts receivable, net of
allowance for doubtful accounts of
$505 and $441, respectively........ 13,586 23,384
Inventories........................... 23,816 21,774
Deferred income taxes................. 5,027 3,121
Prepaid expenses and other current
assets............................. 690 826
-------- -------
Total current assets.......... 43,652 57,103
-------- -------
PROPERTY, PLANT, AND EQUIPMENT, at cost,
net of accumulated depreciation....... 21,743 22,000
OTHER ASSETS:
Deferred charges and other, net of
accumulated amortization........... 2,318 2,515
Deferred income taxes................. 4,362 3,406
-------- -------
Total other assets............ 6,680 5,921
-------- -------
Total assets.................. $ 72,075 $85,024
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit.............. $ 17,400 $26,450
Current portion of term loans......... 1,750 --
Current portion of capital leases..... 215 208
Accounts payable...................... 11,698 9,847
Accrued expenses --
Compensation....................... 1,061 1,882
Commissions and royalties.......... 206 196
Customer allowances and other...... 1,736 1,719
-------- -------
Total current liabilities..... 34,066 40,302
-------- -------
LONG-TERM DEBT:
Term loans............................ 36,750 38,500
Notes payable to related parties...... 2,500 2,500
Capital leases........................ 1,556 1,648
Other................................. 300 400
-------- -------
Total long-term debt.......... 41,106 43,048
-------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
10,000,000 shares authorized, no
shares issued or outstanding....... -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
32,941,499 shares issued, and
outstanding........................ 329 329
Additional paid-in capital............ 10,437 10,437
Accumulated deficit................... (13,863) (9,092)
-------- -------
Total stockholders' (deficit)
equity...................... (3,097) 1,674
-------- -------
Total liabilities and
stockholders' equity........ $ 72,075 $85,024
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 146
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1996, AND
FOR EACH OF THE FISCAL YEARS ENDED JULY 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JULY 31,
DECEMBER 31, ------------------------------------
1996 1996 1995 1994
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES........................................ $23,994 $133,194 $133,862 $108,655
COST OF SALES.................................... 21,973 105,068 107,312 87,170
------- -------- -------- --------
Gross profit........................... 2,021 28,126 26,550 21,485
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.... 7,546 24,603 19,207 18,181
------- -------- -------- --------
Operating income (loss)................ (5,525) 3,523 7,343 3,304
RECAPITALIZATION EXPENSES........................ -- 9,600 -- --
INTEREST EXPENSE................................. 2,115 5,896 4,573 2,982
------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES................................... (7,640) (11,973) 2,770 322
INCOME TAX BENEFIT (EXPENSE)..................... 2,869 3,857 (1,440) (103)
------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... (4,771) (8,116) 1,330 219
LOSS FROM DISCONTINUED OPERATIONS (net of tax
benefit of $619 and $1,503, respectively)...... -- -- (585) (3,180)
------- -------- -------- --------
NET INCOME (LOSS)................................ $(4,771) $ (8,116) $ 745 $ (2,961)
======= ======== ======== ========
PRO FORMA NET INCOME (LOSS) PER SHARE:
Net income (loss).............................. $ (0.07) $ (0.12) -- --
Weighted average shares outstanding............ 67,647 67,647 -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 147
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1996, AND FOR EACH
OF THE FISCAL YEARS ENDED JULY 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
---------- --------- ----------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1993............ 2,500,000 $ 2,500 33,231,090 $ 332 $ 12,964 $ 1,812 $ 17,608
Paid-in-kind dividends on
preferred stock................. 249,403 250 -- -- -- (250) --
Net loss.......................... -- -- -- -- -- (2,961) (2,961)
---------- ------- ----------- ----- -------- -------- --------
BALANCE AT JULY 31, 1994............ 2,749,403 2,750 33,231,090 332 12,964 (1,399) 14,647
Paid-in-kind dividends on
preferred stock................. 256,152 256 -- -- -- (256) --
Net income........................ -- -- -- -- -- 745 745
---------- ------- ----------- ----- -------- -------- --------
BALANCE AT JULY 31, 1995............ 3,005,555 3,006 33,231,090 332 12,964 (910) 15,392
Paid-in-kind dividends on
preferred stock................. 66,277 66 -- -- -- (66) --
Redemption of common stock from
existing stockholders........... -- -- (27,531,941) (275) (29,497) -- (29,772)
Redemption of preferred stock from
existing stockholders........... (3,071,832) (3,072) -- -- -- -- (3,072)
Sale of common stock to new
stockholders.................... -- -- 27,242,350 272 26,970 -- 27,242
Net loss.......................... -- -- -- -- -- (8,116) (8,116)
---------- ------- ----------- ----- -------- -------- --------
BALANCE AT JULY 31, 1996............ -- -- 32,941,499 329 10,437 (9,092) 1,674
Net loss.......................... -- -- -- -- -- (4,771) (4,771)
---------- ------- ----------- ----- -------- -------- --------
BALANCE AT DECEMBER 31, 1996........ -- $ -- 32,941,499 $ 329 $ 10,437 $(13,863) $ (3,097)
========== ======= =========== ===== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 148
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1996, AND
FOR EACH OF THE FISCAL YEARS ENDED JULY 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS FOR THE FISCAL YEARS ENDED
ENDED JULY 31,
DECEMBER 31, ------------------------------
1996 1996 1995 1994
------------- -------- ------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income..................... $ (4,771) $ (8,116) $ 745 $(2,961)
Adjustments to reconcile net (loss)
income to net cash provided by (used
for) operating activities-
Depreciation of property, plant and
equipment......................... 1,626 2,903 2,365 1,883
Amortization of deferred assets..... 350 511 582 521
Discontinued operations............. -- -- 1,204 4,683
Deferred income tax (benefit)
provision......................... (2,862) (3,808) 755 (1,428)
Gain on the disposition of property,
plant, and equipment.............. (60) (182) -- --
Provision for losses on accounts
receivable........................ 64 37 100 119
Changes in assets and liabilities
Accounts receivable............... 9,734 (892) (2,139) (4,041)
Inventories....................... (2,042) (139) (6,941) (1,703)
Prepaid expenses.................. (119) 6 (2,428) 1
Accounts payable.................. 1,851 (7,906) 5,757 5,054
Accrued expenses.................. (793) (158) 396 (784)
-------- -------- ------- -------
Net cash provided by (used for)
operating activities......... 2,978 (17,744) 396 1,344
-------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant, and
equipment........................... (1,376) (6,738) (2,574) (2,988)
Proceeds from the sale of property,
plant, and equipment................ 67 248 -- --
-------- -------- ------- -------
Net cash used for investing
activities................... (1,309) (6,490) (2,574) (2,988)
-------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of common stock from
existing stockholders............... -- (29,772) -- --
Redemption of preferred stock from
existing stockholders............... -- (3,072) -- --
Notes payable to related parties...... -- 2,500 -- --
Proceeds from sale of common stock to
new stockholders.................... -- 27,242 -- --
Term loan borrowings.................. -- 35,000 -- --
Borrowings on old line of credit...... -- -- 4,667 --
Payments on old line of credit........ -- (23,837) (1,768) (840)
Borrowings on new revolving line of
credit.............................. 12,050 26,450 -- --
Payments on new revolving line of
credit.............................. (21,100) (4,973) -- --
Capital lease (payments) borrowings
and other........................... (84) 1,597 -- 1,900
-------- -------- ------- -------
Net cash (used for) provided by
financing activities......... (9,134) 31,135 2,899 1,060
-------- -------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... (7,465) 6,901 721 (584)
CASH AND CASH EQUIVALENTS:
Beginning of year/period.............. 7,998 1,097 376 960
-------- -------- ------- -------
End of year/period.................... $ 533 $ 7,998 $ 1,097 $ 376
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid..................... $ 45 $ 503 $ 46 41
Interest paid......................... $ 1,534 $ 5,036 $ 4,405 $ 2,972
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 149
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Hedstrom Holdings, Inc. ("Holdings") is a holding Company with no
operations or assets, other than its 100% ownership of Hedstrom Corporation
("Hedstrom", and together with Holdings, the "Company"). The Company is a
manufacturer and marketer of children's activity-oriented play products. The
Company's principal products fall within two main categories: outdoor gym sets
and playballs. Through its facility in Bedford, Pennsylvania, the Company
manufactures and distributes gym set products consisting of painted metal gym
sets, composite metal and plastic gym sets, wood gym kits, plastic outdoor
slides and gym set accessories. Through its facility in Ashland, Ohio, the
Company manufactures playball products, which consist of premium playballs made
of plastic or vinyl and decorated with popular licensed characters or designs,
nonpremium playballs that generally have minimal decoration, athletic balls
targeted at young children, and ball pit products. The Company sells its
products through major national toy retailers, mass merchants, supermarkets,
drug store chains, and home centers in the United States, Canada, and the United
Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Holdings and its wholly owned subsidiary, Hedstrom. All intercompany balances
and transactions have been eliminated in consolidation.
During fiscal 1995, Holdings discontinued the operations of its Hedstrom
Holdings II subsidiary. Hedstrom Holdings II was involved in the manufacturing
of traffic control devices. The sole customer of Hedstrom Holdings II was a
related party which the Company no longer has an ongoing relationship with.
During the fiscal years ended July 31, 1995 and 1994, Hedstrom Holdings II
incurred net losses of $0.6 million and $3.2 million, respectively.
Fiscal Year
Prior to August 1, 1996, the Company's fiscal year ended on July 31.
Effective January 1, 1997, the Company changed its fiscal year to a calendar
year ending on December 31.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original
maturities of three months or less. These investments are stated at cost which
approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The cost of manufactured products
includes materials, direct labor, and an allocation of plant overheads. The cost
of purchased products includes inbound freight and duty.
Property, Plant, and Equipment
Property, plant, and equipment acquired subsequent to January 10, 1991, are
stated at cost. Property, plant, and equipment acquired in connection with a
prior acquisition of the Company on January 10, 1991, were stated at fair market
value as of that date as determined by independent appraisals. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Additions and improvements are capitalized, while expenditures for
maintenance and repairs are charged to operations as incurred. The cost and
accumulated depreciation of property sold or retired are removed from the
respective accounts and the resultant gains or losses, if any, are included in
current operations.
F-7
<PAGE> 150
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives of property, plant, and equipment are as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10-40 years
Machinery and equipment..................................... 3-12 years
Furniture and fixtures...................................... 5 years
</TABLE>
Depreciation is allocated to cost of sales and selling, general, and
administrative expense based upon the related asset's use. Depreciation of
approximately $1,576,000, $2,797,000, $2,248,000, and $1,749,000 is included in
cost of sales for the five months ended December 31, 1996, and for each of the
fiscal years ended July 31, 1996, 1995, and 1994, respectively. Depreciation of
approximately $50,000, $106,000, $117,000, and $134,000 is included in selling,
general, and administrative expense for the five months ended December 31, 1996,
and for each of the fiscal years ended July 31, 1996, 1995, and 1994,
respectively.
Effective August 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 had no effect on the Company's financial
position or results of operations as of and for the five months ended December
31, 1996.
Deferred Charges and Other, Net
Deferred charges and other on the accompanying balance sheets is comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1996
------------ ----------
<S> <C> <C>
Deferred expenses.......................................... $2,546,000 $2,388,000
Barter credits............................................. 519,000 524,000
---------- ----------
3,065,000 2,912,000
Less-Accumulated amortization.............................. (747,000) (397,000)
---------- ----------
$2,318,000 $2,515,000
========== ==========
</TABLE>
Deferred expenses primarily relate to costs the Company incurs to obtain
shelf space, and replace competitors products, at certain of its retail
customers. In connection with these transactions, the Company obtains a
commitment from the retailer that it will exclusively stock the Company's
products for a period not less than three years. As a result, these costs are
deferred and amortized over a 36-month period on a straight-line basis.
Amortization expense is included in selling, general, and administrative expense
on the accompanying income statements and was $350,000, $358,000, $37,000, and
$0 for the five months ended December 31, 1996 and for each of the fiscal years
ended July 31, 1996, 1995, and 1994, respectively.
Prior to the recapitalization discussed in Note 3, the Company had
capitalized certain financing costs and organizational costs. These costs were
immediately expensed in connection with the recapitalization and are included in
recapitalization expenses on the accompanying July 31, 1996, income statement.
The deferred financing costs were being amortized over the period of the
underlying debt on a straight-line basis and organizational costs were being
amortized over a 60-month period. Prior to the recapitalization, amortization of
deferred financing costs were $67,000, $202,000, and $179,000 in the fiscal
years ended July 31, 1996, 1995, and 1994, respectively, and are included in
interest expense on the accompanying income statements. Amortization of
organizational costs prior to the recapitalization were $85,000, $341,000, and
$341,000 in the fiscal years ended July 31, 1996, 1995, and 1994, respectively,
and are included in selling, general, and administrative expense on the
accompanying income statements.
F-8
<PAGE> 151
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fiscal year ended July 31, 1995, the Company exchanged certain
finished goods inventory with a cost basis of approximately $2,000,000 for
barter credits. Although the barter credits had a stated value of approximately
$3,200,000, they were recorded at an amount equal to the cost basis of the
inventory exchanged, such that no profit was recognized on the transaction. The
barter credits can be used principally for the purchase of print and media
advertising; however, cash must be used in addition to the barter credits to
secure the advertising. During the fiscal year ended July 31, 1996, and for the
five months ended December 31, 1996, the Company utilized approximately $262,000
of these barter credits. As a result of the Company's decision to reduce its
advertising expenditures during calendar 1997, management determined that all of
its barter credits may not be fully utilized prior to their expiration in August
1998. Therefore, the Company wrote-off an additional $1,000,000 of the barter
credits during the fiscal year ended July 31, 1996. Management believes that the
remaining recorded credits will be utilized prior to their expiration.
Revenue Recognition
The Company recognizes revenue when title to the goods transfers. For the
majority of the Company's sales, this occurs at the time of shipment.
Income Taxes
Deferred income taxes are determined under the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109). Deferred income taxes arise from
temporary differences between the income tax basis of assets and liabilities and
their reported amounts in the financial statements.
Pro Forma Net Income (Loss) Per Common Share
Pro forma net income (loss) per common share are based on the number of
common shares outstanding immediately after the Acquisition (see Note 16).
Average common equivalent shares (stock options) outstanding have not been
included, since their inclusion would be anti-dilutive. Preferred dividends are
deducted from net earnings to arrive at net earnings available to common
shareholders, when applicable. The number of pro forma common shares used in
computing net income (loss) per share was 67,647,000 for the five months ended
December 31, 1996, and for the fiscal year ended July 31, 1996.
Fair Value of Financial Instruments
The carrying amount reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximates fair value because of the immediate or short-term maturity
of these financial instruments. The carrying amount reported for long-term debt
approximates fair market value because the underlying instruments are at rates
similar to current rates offered to the Company for debt with the same remaining
maturities.
Significant Concentration of Customers
All trade accounts receivable are unsecured. A significant level of the
Company's net sales is generated from approximately five retail companies that
serve national markets. Sales to the Company's top five customers aggregated
approximately 55%, 56%, 50%, and 52% of net sales for the five months ended
December 31, 1996, and for each of the fiscal years ended July 31, 1996, 1995,
and 1994, respectively. Three of the Company's customers, Toys "R" Us, Wal-Mart,
and Target each accounted for over 10% of the Company's net sales during the
five months ended 1996, and for each of the fiscal years ended July 31, 1996,
1995, and 1994, aggregating approximately 41%, 47%, 41%, and 41% of net sales,
respectively.
F-9
<PAGE> 152
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates.
3. RECAPITALIZATION:
Prior to October 27, 1995, the majority of Holdings common stock was held
by Arnold E. Ditri, President and Chief Executive Officer, and Alastair H.
McKelvie, Executive Vice President. The remaining common stock was held by John
H. Hurshman and the Fidelity Investment Charitable Gift Trust.
On October 27, 1995, Holdings was purchased by another investment group.
Concurrently, all of the outstanding preferred stock was redeemed, the
outstanding common stock held by John H. Hurshman and the Fidelity Investment
Charitable Trust was redeemed, a majority of the outstanding common stock of
Arnold E. Ditri and Alastair H. McKelvie was redeemed, new common shares were
issued to the purchaser, new debt facilities were obtained and existing debt
facilities were repaid as part of the transaction. As Arnold Ditri and Alastair
H. McKelvie retained a minority investment in Holdings, the transaction was
accounted for as a recapitalization, and existing account balances were carried
forward. The Company expensed all of its costs associated with the
recapitalization, which totaled approximately $9,600,000.
In connection with the recapitalization, Holdings effected a common stock
split of 39,095.40 shares for one and increased the authorized shares from 1,000
(par value $.01) to 50,000,000 (par value $.01). After the recapitalization, the
majority of the common stock is held by Hicks, Muse, Tate & Furst Equity Fund
II, L.P. (Hicks Muse). The remaining common stock is held by Arnold E. Ditri,
Alastair H. McKelvie, various other members of management, and various other
investment groups.
4. INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1996
------------ -----------
<S> <C> <C>
Raw materials.............................................. $ 7,534,000 $ 8,456,000
Work-in-process............................................ 2,298,000 1,262,000
Finished goods............................................. 13,984,000 12,056,000
----------- -----------
$23,816,000 $21,774,000
=========== ===========
</TABLE>
F-10
<PAGE> 153
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1996
------------ -----------
<S> <C> <C>
Buildings and improvements................................. $ 7,695,000 $ 7,598,000
Machinery and equipment.................................... 25,218,000 24,235,000
Furniture and fixtures..................................... 758,000 540,000
----------- -----------
33,671,000 32,373,000
Less - Accumulated depreciation............................ (12,074,000) (10,519,000)
----------- -----------
21,597,000 21,854,000
Land....................................................... 146,000 146,000
----------- -----------
$21,743,000 $22,000,000
=========== ===========
</TABLE>
6. REVOLVING LINE OF CREDIT:
In connection with the recapitalization discussed in Note 3, the Company
entered into a new revolving line of credit agreement, which allows the Company
to borrow up to $65,000,000. The Company pays interest on the borrowings equal
to either the highest of 1/2 of 1% in excess of the Base Rate, as defined in the
agreement, or the Eurodollar Rate, as defined in the agreement, plus the
Applicable Margin on Base Rate Loans of 1.50% and Eurodollar Loans of 2.75%. The
Company has the ability to convert their borrowings from Base Rate Loans to
Eurodollar Loans and vice versa pursuant to certain restrictions in the
agreement. At December 31, 1996, and July 31, 1996, the Company has borrowings
outstanding under this revolving line of credit of $17,400,000 and $26,450,000,
respectively, of which $14,000,000 and $16,000,000, respectively, are at the
Eurodollar Rate (8.25% and 8.19%, respectively) and $3,400,000 and $10,450,000,
respectively, are at the Base Rate (9.75%).
The revolving line of credit agreement contains restrictive covenants,
which were revised effective July 31, 1996, the most significant of which
requires the Company to comply with certain consolidated financial ratios,
including a leverage ratio and an interest coverage ratio, earnings before
interest, income taxes, depreciation and amortization, and annual capital
expenditure requirements. Additionally the revolving line of credit is
collateralized by the Company's inventories and accounts receivable. The Company
was in compliance with the revised restrictive covenants as of December 31,
1996, and July 31, 1996.
7. TERM LOANS:
In connection with the recapitalization discussed in Note 3, a term loan
agreement was entered into for $35,000,000. The Company pays interest on these
borrowings consistent with the revolving line of credit (see Note 6). At
December 31, 1996, and July 31, 1996, the term loan has an interest rate equal
to the Eurodollar rate (8.25% and 8.19%, respectively). Principal payments,
which range from $525,000 to $7,875,000 over the life of the term loan
agreement, begin on October 15, 1997, and continue until the term loan matures
on April 27, 2001. The term loan is also subject to the revised restrictive
covenants described in Note 6 for the revolving line of credit.
The Company also has a $3,500,000 Industrial Revenue Bond from Bedford
County which bears interest at 7.13%. Annual principal payments begin in 2004 in
amounts ranging from $500,000 to $600,000 and will retire the bond in 2009.
Aggregate maturities of the Company's term loans over the next five years
are as follows: 1997 -- $1,750,000; 1998 -- $3,500,000; 1999 -- $6,000,000;
2000 -- $8,000,000; 2001 -- $15,750,000; thereafter, $3,500,000.
F-11
<PAGE> 154
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE TO RELATED PARTIES:
In connection with the recapitalization discussed in Note 3, $2,500,000 of
the common stock redemption payment was held back from the previous owners. This
$2,500,000 is payable to the previous owners at the earlier of April 30, 2002,
or when the Company has met certain cash flow levels. Holdings makes quarterly
interest payments to the previous owners based on a rate of 10.00% per annum.
9. INCOME TAXES:
Provisions (benefits) for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JULY 31,
DECEMBER 31, --------------------------------------
1996 1996 1995 1994
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Continuing operations....................... $(2,869,000) $(3,857,000) $1,440,000 $ 103,000
Discontinued operations..................... -- -- (619,000) (1,503,000)
----------- ----------- ---------- -----------
$(2,869,000) $(3,857,000) $ 821,000 $(1,400,000)
=========== =========== ========== ===========
</TABLE>
The components of the provisions (benefits) for income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JULY 31,
DECEMBER 31, -------------------------------------
1996 1996 1995 1994
------------ ----------- --------- -----------
<S> <C> <C> <C> <C>
Current:
State....................................... $ 33,000 $ 43,000 $ 179,000 $ 28,000
U.S. federal................................ (40,000) (92,000) (113,000) --
----------- ----------- --------- -----------
(7,000) (49,000) 66,000 28,000
Deferred:
U.S. federal................................ (2,862,000) (3,808,000) 755,000 (1,428,000)
----------- ----------- --------- -----------
$(2,869,000) $(3,857,000) $ 821,000 $(1,400,000)
=========== =========== ========= ===========
</TABLE>
The provisions (benefits) for income taxes differ from those computed using
the statutory U.S. federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JULY 31,
DECEMBER 31, -------------------------------------
1996 1996 1995 1994
------------ ----------- --------- -----------
<S> <C> <C> <C> <C>
Expected provision (benefit).................. $(2,598,000) $(4,071,000) $ 532,000 $(1,483,000)
State income taxes, net of federal benefit.... (219,000) (183,000) 82,000 (200,000)
Foreign corporate earnings.................... 47,000 151,000 169,000 116,000
Recapitalization costs........................ -- 479,000 -- --
Other......................................... (99,000) (233,000) 38,000 167,000
----------- ----------- --------- -----------
Actual provision (benefit).................... $(2,869,000) $(3,857,000) $ 821,000 $(1,400,000)
=========== =========== ========= ===========
</TABLE>
F-12
<PAGE> 155
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1996
------------ -----------
<S> <C> <C>
Current deferred tax asset:
Net operating loss carryforward......................... $ 2,246,000 $ --
Inventory reserves...................................... 248,000 454,000
Costs capitalized to inventory for tax purposes......... 304,000 247,000
Allowances for accounts receivable...................... 938,000 1,187,000
Nondeductible accruals.................................. 1,243,000 1,184,000
Other................................................... 48,000 49,000
----------- -----------
Current deferred tax asset...................... $ 5,027,000 $ 3,121,000
=========== ===========
Noncurrent deferred tax asset (liability):
Net operating loss carryforward......................... $ 4,408,000 $ 3,238,000
Tax over book depreciation.............................. (1,898,000) (1,844,000)
Recapitalization costs.................................. 1,592,000 1,753,000
Other................................................... 260,000 259,000
----------- -----------
Noncurrent deferred tax asset................... $ 4,362,000 $ 3,406,000
=========== ===========
</TABLE>
The Company has net operating loss carryforwards of $17,511,000 to apply
against future taxable income. Such carryforwards expire as follows: $911,000 in
2008, $3,500,000 in 2009, $4,200,000 in 2010, and $8,900,000 in 2011. A
valuation allowance has not been recorded for the deferred income tax assets
since the Company believes it will generate sufficient taxable income in the
future to realize all of the recorded benefits.
10. EMPLOYEE BENEFIT PLANS:
All Company employees are eligible to participate in either the Union
Employees' Tax Sheltered Savings Plan or the tax-sheltered Savings Plan
(collectively the "Plans"), depending upon the employment status of the
employees as union or nonunion after meeting certain requirements. The Union
Employees' Tax Sheltered Savings Plan covers all union employees 18 years of age
or older who have worked for 1,000 consecutive hours within a 12-month period.
The tax-sheltered Savings Plan covers all nonunion employees 18 years of age or
older who have been employed for 120 consecutive days within a 12-month period.
For both Plans the employees may contribute from 1% to 15% of their
compensation (either before tax, after tax, or a combination thereof) to the
Plans. The Company provides matching contributions at the rate of 50% of the
employee's contribution up to 6% of gross wages as defined by the Plans
agreements.
The Company may make annual discretionary contributions to the Plans.
Discretionary contributions during the five months ended December 31, 1996, and
for each of the fiscal years ended July 31, 1996, 1995, and 1994, aggregated
approximately $218,000, $634,000, $642,000, and $591,000, respectively.
11. STOCK-BASED COMPENSATION PLAN:
In October 1995, Holdings adopted the Hedstrom Holdings, Inc. 1995 Stock
Option Plan (the "Plan") which authorizes grants of stock options to all regular
salaried full-time officers and key employees of the Company. There are
2,446,236 shares of common stock authorized for issuance under the Plan. In
October 1995 and December 1996, stock options were granted for 2,174,216 and
200,000 shares, respectively, at 100% of the fair market value at the date of
grant. Fair market value of Holdings common stock on the October 1995 and
December 1996 grant dates was assumed to be $1 per share, which is equal to the
per share value paid by Hicks Muse in connection with their acquisition of
Holdings in October 1995.
Options issued under the Plan expire ten years from date of grant and vest
equally over a three year period from the date of grant. There were
approximately 725,000 options exercisable as of December 31, 1996. No
F-13
<PAGE> 156
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options were exercised or forfeited during the fiscal year ended July 31, 1996
or for the five months ended December 31, 1996.
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for the stock options
issued in October 1995 and December 1996 been determined under the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net losses for the fiscal year ended July
31, 1996 and the five months ended December 31,1996 would not have been
materially different from the reported net losses for those respective periods.
Pro forma compensation cost may not be representative of that to be expected in
future years.
The fair value of each option is estimated on the date of grant using the
minimum value method with the following assumptions used for the two grants in
October 1995 and December 1996; risk free interest rates of 6.16% - 6.21%;
expected dividend yield of 0% and expected life of ten years.
12. COMMITMENTS AND CONTINGENCIES:
Leases
In July 1996, the Company entered into a capital lease agreement for
certain production equipment. The net capital lease asset of $1,767,000 and
$1,880,000 as of December 31, 1996, and July 31, 1996, respectively, is included
in property, plant, and equipment on the accompanying consolidated balance
sheets. Aggregate future minimum lease payments related to this capital lease
are as follows: 1997 -- $362,000; 1998 -- $362,000; 1999 -- $362,000;
2000 -- $362,000; 2001 -- $362,000; thereafter -- $511,000. The portion related
to interest over the remaining life of the lease was $550,000 at December 31,
1996.
The Company leases production equipment under operating lease agreements
with terms expiring at various times through 2004. Rent expense under operating
leases for the five months ended December 31, 1996, and for the fiscal years
ended July 31, 1996, 1995, and 1994, aggregated $936,000, $2,500,000,
$1,167,800, and $742,000, respectively. Aggregate future minimum lease
commitments for noncancelable operating leases that have initial or remaining
lease terms in excess of one year as of December 31, 1996, are as follows:
1997 -- $943,000; 1998 -- $746,000; 1999 -- $661,000; 2000 -- $548,000;
2001 -- $481,000; thereafter $807,000.
Legal Matters
There are various claims and pending legal actions against the Company,
primarily involving product liability, seeking damages in varying amounts. In
the opinion of management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position or results of
operations of the Company.
13. RELATED-PARTY TRANSACTIONS:
On October 27, 1995, in connection with the recapitalization discussed in
Note 3, the Company entered into a ten-year agreement with Hicks Muse, pursuant
to which they pay Hicks Muse an annual fee of $175,000 for management and
advisory services in connection with the organization, management, and
operations of the Company. The annual fee is adjustable at the end of each
fiscal year to an amount equal to 0.1% of the consolidated net sales of the
Company during such fiscal year, but in no event less than $175,000. Management
fees and related expenses under this agreement amounted to $82,000 and $207,000
for the five months ended December 31, 1996, and for the fiscal year ended July
31, 1996, respectively, and are included in selling, general, and administrative
expenses on the accompanying income statements.
On October 27, 1995, in connection with the recapitalization discussed in
Note 3, the Company entered into a ten-year agreement with an affiliate of Hicks
Muse pursuant to which they paid this affiliate a financial advisory
F-14
<PAGE> 157
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fee of approximately $1,175,000 as compensation for its services as financial
advisor in connection with the recapitalization. In addition, this Hicks Muse
affiliate will be entitled to receive a fee equal to 1.5% of the transaction
value, as defined, for each add-on transaction, as defined, in which the Company
is involved.
14. 1996 COST REDUCTION PLAN:
During fiscal 1996, the Company incurred a loss before income taxes and
recapitalization expenses of $2.4 million. In order to improve Hedstrom's
profitability in 1997 and thereafter, management implemented a plan in the fall
of 1996 (the "1996 Cost Reduction Plan") to reduce costs by over $9 million in
1997 and thereafter as compared with fiscal 1996 levels. Important elements of
the plan include:
- Implementing Just-in-Time Manufacturing. In late 1996, Hedstrom
restructured certain of its manufacturing operations to increase its
daily production capacity of outdoor gym sets. This restructuring has
enabled Hedstrom to manufacture outdoor gym sets to specific customer
orders rather than producing outdoor gym sets in anticipation of customer
orders, which Hedstrom had done in the past because of capacity
constraints. In fiscal 1996, prior to implementing this restructuring,
Hedstrom experienced a significant and unexpected change in its sales mix
of outdoor gym sets, requiring Hedstrom to use third party warehouses to
store many of the outdoor gym sets it had produced in anticipation of
customer demand. As a result, Hedstrom incurred approximately $2.1
million of higher warehouse and material handling costs. The
implementation of just-in-time manufacturing of outdoor gym sets will
enable Hedstrom to carry a lower level of outdoor gym set inventory and,
as a result, to eliminate the need for utilizing third party warehouses
for outdoor gym sets. Management believes the Company will save
approximately $2.1 million of warehouse and material handling expense in
1997 and thereafter as a result of implementing just-in-time
manufacturing of outdoor gym sets.
- Improved Manufacturing Procedures. In an effort to streamline outdoor gym
set production and improve manufacturing efficiencies, in 1996 Hedstrom
(i) reduced its number of outdoor gym set product offerings, (ii)
redesigned certain outdoor gym set components to reduce the cost of such
components and (iii) further standardized many of the components among
its various outdoor gym set product offerings. Management believes these
actions will improve profitability by approximately $2.0 million in 1997
and thereafter over fiscal 1996 levels.
- In-sourcing Certain Plastic Components. Hedstrom periodically evaluates
the economics of producing internally certain plastic components used in
the production and assembly of its outdoor gym sets versus purchasing
such components externally. In 1996, Hedstrom invested approximately $3.0
million in new plastic blow-molding equipment to manufacture many of the
plastic slides that it had previously purchased from third-party vendors.
Management estimates that producing these slides internally will provide
annual cost savings of approximately $1.5 million as compared to fiscal
1996 levels.
- Discontinuation of Trial Advertising Campaign. Hedstrom historically has
advertised its products in cooperation with its retail customers,
principally through print media such as newspaper circulars and
free-standing inserts sponsored by its customers. In fiscal 1996,
Hedstrom initiated, on a trial basis, its own multi-media advertising
program designed to increase consumer awareness of the Hedstrom brand
over time. The total cost for this advertising program was approximately
$1.5 million. After careful review, management determined that this trial
advertising campaign would not provide an acceptable return on investment
and elected to discontinue it. Therefore, such costs will not be incurred
in 1997 and thereafter.
- Restructure Promotional Programs. Consistent with industry practice,
Hedstrom provides retailers with certain promotional allowances, a
portion of which typically is fixed in nature and a portion of which is
based on the volume of customer purchases of Hedstrom products. In late
1996, Hedstrom reduced the fixed component of certain of its promotional
allowances and restructured its promotional programs with
F-15
<PAGE> 158
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
several customers by raising the required volumes necessary to achieve
certain promotional discounts. Management believes these initiatives will
improve profitability in 1997 and thereafter by approximately $1.4
million over fiscal 1996 levels.
- Personnel Reductions. Hedstrom reduced its number of full-time employees
by approximately 30 people in a variety of departments in the second half
of 1996. Management believes that such personnel reductions will result
in savings of approximately $0.7 million in 1997 and thereafter over
fiscal 1996 levels.
15. QUARTERLY FINANCIAL DATA (UNAUDITED; IN THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1996 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales...................................... $19,115 $24,217 $60,430 $29,432
Gross profit................................... 3,160 5,713 16,125 3,128
Net (loss) income.............................. (7,782) (387) 4,415 (4,362)
Pro forma income (loss) per share.............. (0.12) (0.01) 0.07 (0.06)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1995 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales...................................... $17,120 $27,009 $61,827 $27,906
Gross profit................................... 2,743 6,193 13,721 3,893
Net (loss) income.............................. (584) 525 2,254 (1,450)
</TABLE>
16. SUBSEQUENT EVENT:
On April 10, 1997, Hedstrom and HC Acquisition Corp., a wholly owned
subsidiary of Hedstrom, entered into an Agreement and Plan of Merger (the
"Merger Agreement") with ERO, Inc. to acquire ERO for a total enterprise value
of approximately $200 million. Pursuant to the Merger Agreement, HC Acquisition
Corp. commenced and, on June 12, 1997, consummated a tender offer for all of the
outstanding shares of the common stock of ERO at a purchase price of $11.25 per
share (the "Tender Offer"). Upon consummation of the Tender Offer, (i) HC
Acquisition Corp. was merged with and into ERO (the "Merger") with ERO surviving
the Merger as a wholly owned subsidiary of Hedstrom, (ii) certain of ERO's
outstanding indebtedness was refinanced by Hedstrom (the "ERO Refinancing") and
(iii) Hedstrom refinanced (the "Hedstrom Refinancing") its existing revolving
credit facility and term loan facility (the Merger, the Tender Offer, the ERO
Refinancing and the Hedstrom Refinancing, are collectively referred to herein as
the "Acquisition").
Holdings and Hedstrom required approximately $301.1 million in cash to
consummate the Acquisition, including approximately (i) $122.6 million paid in
connection with the Tender Offer and the Merger, (ii) $82.6 million paid in
connection with the ERO Refinancing, (iii) $74.9 million paid in connection with
the Hedstrom Refinancing, and (iv) $21.0 million incurred in respect of fees and
expenses. The funds required to consummate the Acquisition were provided by (i)
$75.0 million of term loans under a new six-year senior secured term loan
facility (the "Tranche A Term Loan Facility"), (ii) $35.0 million of term loans
under a new eight-year senior secured term loan facility (the "Tranche B Term
Loan Facility" and, together with the Tranche A Term Loan Facility, the "Term
Loan Facilities"), (iii) $16.1 million of borrowings under a new $70.0 million
senior secured revolving credit facility (the "Revolving Credit Facility" and,
together with the Term Loan Facilities, the "Senior Credit Facilities", (iv)
$110.0 million of gross proceeds from the offering by Hedstrom of 10% Senior
Subordinated Notes Due 2007 (the "Senior Subordinated Notes"), (v) $25.0 million
of gross proceeds from the offering by Holdings of 44,612 units consisting of
12% Senior Discount Notes Due 2009 (the "Discount Notes") and 2,705,896 shares
of common stock, $.01 par value per share, of Holdings and (vi) $40.0 million of
gross proceeds from the private placement of shares of non-voting common stock,
$.01 par value per share, of Holdings.
F-16
<PAGE> 159
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of ERO will be accounted for under the purchase method of
accounting, and accordingly, the purchase price will be allocated to the assets
acquired and the liabilities assumed based upon fair value at the date of the
acquisition of ERO. The excess of the purchase price over the fair values of the
tangible net assets acquired is $146.8 million, will be recorded as goodwill and
will be amortized on a straight-line basis over 40 years.
The net purchase price will be allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 59,400
Net property, plant and equipment........................... 20,000
Goodwill.................................................... 146,800
Liabilities assumed......................................... (103,600)
---------
Cash paid for ERO................................. $ 122,600
=========
</TABLE>
In connection with the acquisition of ERO, management implemented a plan
(the "Rationalization Plan") that will result in annual cost savings of $6
million as a result of rationalizing sales, marketing and general and
administrative functions, closings of duplicate facilities and reductions in
external administrative expenditures including legal, insurance, tax, audit and
public relations expenditures. The cost savings outlined below reflect personnel
terminations that have already occurred or that have been formally communicated
to the employees, closings of duplicate facilities that have occurred and
reductions in external administrative expenses that have been negotiated.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Salaries and benefits from personnel terminations........... $3,700
Duplicative facilities that have been closed................ 900
External administrative expenses that have been reduced..... 1,400
------
Total annual cost savings......................... $6,000
======
</TABLE>
The unaudited pro forma results below assume the Acquisition occurred at
the beginning of the periods presented and that the Rationalization Plan
discussed in the preceding paragraph and a portion of the 1996 Cost Reduction
Plan discussed in Note 14 were implemented at the beginning of the periods
presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIVE MONTHS TWELVE MONTHS FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996 JULY 31, 1996
----------------- ----------------- -------------
<S> <C> <C> <C>
Net sales............................. $119,745 $283,307 $260,008
Net income (loss)..................... $ 2,723 $ 44 $(12,792)
Net income (loss) per share........... $ 0.04 $ 0.00 $ (0.19)
</TABLE>
The above pro forma results include adjustments to give effect to
amortization of goodwill, interest expense related to the Senior Subordinated
Notes, the Discount Notes and the Senior Credit Facilities and implementation of
the Rationalization Plan and a portion of the 1996 Cost Reduction Plan, together
with the related tax effects. The pro forma results are not necessarily
indicative of the operating results that would have occurred had the Acquisition
been consummated and the Rationalization Plan and the 1996 Cost Reduction Plan
were implemented as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results.
F-17
<PAGE> 160
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The obligations of Hedstrom relating to the Senior Subordinated Notes and
the Senior Credit Facilities are unconditionally and irrevocably guaranteed by
Holdings and each of Hedstrom's direct and indirect domestic subsidiaries. The
Discount Notes are unsecured senior obligations of Holdings.
Following is financial information pertaining to Hedstrom and its
subsidiary guarantors and its subsidiary nonguarantor (with respect to the
Senior Subordinated Notes and the Senior Credit Facilities) for the periods in
which they are included in Holding's consolidated financial statements.
HEDSTROM CORPORATION
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996 AND JULY 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT JULY 31, 1996
------------------------------------- -------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTOR HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- ------------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 467 $ 66 $ 533 $ 7,893 $ 105 $ 7,998
Trade accounts receivable, net....... 13,126 460 13,586 21,984 1,400 23,384
Inventories.......................... 23,368 448 23,816 21,279 495 21,774
Deferred income taxes................ 5,027 0 5,027 3,121 -- 3,121
Prepaid expenses and other........... 674 16 690 797 29 826
-------- ------- -------- ------- ------- -------
Total current assets........... 42,662 990 43,652 55,074 2,029 57,103
PROPERTY, PLANT, AND EQUIPMENT, net.... 21,735 8 21,743 21,990 10 22,000
DEFERRED CHARGES AND OTHER,
net.................................. 2,318 -- 2,318 2,515 -- 2,515
DEFERRED INCOME TAXES.................. 4,251 -- 4,251 3,335 -- 3,335
-------- ------- -------- ------- ------- -------
Total assets................... $ 70,966 $ 998 $71,964 $82,914 $ 2,039 $84,953
======== ======= ======== ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit............. $ 15,430 $ 1,970 $17,400 $24,158 $ 2,292 $26,450
Current portion of term loans........ 1,750 -- 1,750 -- -- --
Current portion of capital leases.... 215 -- 215 208 -- 208
Accounts payable..................... 11,275 131 11,406 9,522 137 9,659
Accrued expenses..................... 3,006 (3) 3,003 3,170 627 3,797
-------- ------- -------- ------- ------- -------
Total current liabilities...... 31,676 2,098 33,774 37,058 3,056 40,114
LONG-TERM DEBT:
Term loans........................... 36,750 -- 36,750 38,500 -- 38,500
Capital leases....................... 1,556 -- 1,556 1,648 -- 1,648
Other................................ 300 -- 300 400 -- 400
-------- ------- -------- ------- ------- -------
Total long-term debt........... 38,606 -- 38,606 40,548 -- 40,548
STOCKHOLDER'S EQUITY:
Common stock......................... -- -- -- -- -- --
Additional paid-in capital........... 8,929 -- 8,929 8,929 -- 8,929
Accumulated deficit.................. (8,245) (1,100) (9,345) (3,621) (1,017) (4,638)
-------- ------- -------- ------- ------- -------
Total stockholder's equity
(deficit).................... 684 (1,100) (416) 5,308 (1,017) 4,291
-------- ------- -------- ------- ------- -------
Total liabilities and
stockholder's equity......... $ 70,966 $ 998 $71,964 $82,914 $ 2,039 $84,953
======== ======= ======== ======= ======= =======
</TABLE>
F-18
<PAGE> 161
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDSTROM CORPORATION
CONSOLIDATING INCOME STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1996 AND
THE FISCAL YEAR ENDED JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS ENDED
DECEMBER 31, 1996 FOR THE FISCAL YEAR ENDED JULY 31, 1996
------------------------------------- -----------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTOR HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- ------------- -------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES............................... $ 23,074 $ 920 $23,994 $ 129,074 $ 4,120 $ 133,194
COST OF SALES........................... 21,238 735 21,973 101,482 3,586 105,068
-------- ------- -------- --------- ------- ---------
Gross Profit.................... 1,836 185 2,021 27,592 534 28,126
SG&A EXPENSES........................... 7,225 321 7,546 23,659 944 24,603
-------- ------- -------- --------- ------- ---------
Operating income (loss)......... (5,389) (136) (5,525) 3,933 (410) 3,523
RECAPITALIZATION EXPENSES............... -- -- -- 9,600 -- 9,600
INTEREST EXPENSE........................ 2,010 1 2,011 5,674 34 5,708
-------- ------- -------- --------- ------- ---------
LOSS BEFORE TAXES....................... (7,399) (137) (7,536) (11,341) (444) (11,785)
INCOME TAX BENEFIT...................... 2,775 54 2,829 3,786 -- 3,786
-------- ------- -------- --------- ------- ---------
NET LOSS $ (4,624) $ (83) $(4,707) $ (7,555) $ (444) $ (7,999)
======== ======= ======== ========= ======= =========
</TABLE>
HEDSTROM CORPORATION
CONSOLIDATING INCOME STATEMENTS
FOR THE FISCAL YEARS ENDED JULY 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
JULY 31, 1995 JULY 31, 1994
-------------------------------------- -------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTOR HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- ------------- --------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES................................ $ 131,551 $ 2,311 $133,862 $107,211 $ 1,444 $108,655
COST OF SALES............................ 105,223 2,089 107,312 85,747 1,423 87,170
--------- ------- --------- -------- ------- --------
Gross profit..................... 26,328 222 26,550 21,464 21 21,485
SG&A EXPENSES............................ 18,508 699 19,207 17,820 361 18,181
--------- ------- --------- -------- ------- --------
Operating income (loss).......... 7,820 (477) 7,343 3,644 (340) 3,304
INTEREST EXPENSE......................... 4,555 18 4,573 2,973 9 2,982
--------- ------- --------- -------- ------- --------
INCOME (LOSS) BEFORE TAXES............... 3,265 (495) 2,770 671 (349) 322
INCOME TAX (EXPENSE) BENEFIT............. (1,577) 137 (1,440) (237) 134 (103)
--------- ------- --------- -------- ------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................. 1,688 (358) 1,330 434 (215) 219
LOSS FROM DISCONTINUED OPERATIONS (NET OF
TAX BENEFIT)........................... (585) -- (585) (3,180) -- (3,180)
--------- ------- --------- -------- ------- --------
NET INCOME (LOSS)........................ $ 1,103 $ (358) $ 745 $ (2,746) $ (215) $ (2,961)
========= ======= ========= ======== ======= ========
</TABLE>
F-19
<PAGE> 162
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDSTROM CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1996 AND
THE FISCAL YEAR ENDED JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS ENDED
DECEMBER 31, 1996 FOR THE FISCAL YEAR ENDED JULY 31, 1996
-------------------------------------- -----------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTOR HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- -------------- -------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (4,624) $ (83) $(4,707) $ (7,555) $ (444) $ (7,999)
Depreciation and amortization...... 1,973 3 1,976 3,407 7 3,414
Deferred income tax benefit........ (2,862) -- (2,862) (3,808) -- (3,808)
Other.............................. 4 -- 4 (145) -- (145)
Changes in assets and liabilities:
Accounts receivable.............. 8,794 940 9,734 (817) (75) (892)
Inventories...................... (2,089) 47 (2,042) (64) (75) (139)
Prepaid expenses and other....... (132) 13 (119) (20) 26 6
Accounts payable................. 1,793 (6) 1,787 (8,012) (11) (8,023)
Accrued expenses................. (163) (630) (793) 26 (184) (158)
-------- ----- -------- -------- ------- --------
Net cash provided by (used
for) operating
activities................. 2,694 284 2,978 (16,988) (756) (17,744)
-------- ----- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of PP&E............... (1,375) (1) (1,376) (6,735) (3) (6,738)
Proceeds from the sale of PP&E..... 67 -- 67 248 -- 248
-------- ----- -------- -------- ------- --------
Net cash used for investing
activities................. (1,308) (1) (1,309) (6,487) (3) (6,490)
-------- ----- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of common stock......... -- -- -- (29,772) -- (29,772)
Redemption of preferred stock...... -- -- -- (3,072) -- (3,072)
Proceeds from sale of common
stock............................ -- -- -- 29,742 -- 29,742
Term loan borrowings............... -- -- -- 35,000 -- 35,000
Borrowings on revolving line of
credit........................... 12,050 -- 12,050 24,528 1,922 26,450
Payments on revolving line of
credit........................... (20,778) (322) (21,100) (27,690) (1,120) (28,810)
Capital lease (payments) borrowings
and other........................ (84) -- (84) 1,597 -- 1,597
-------- ----- -------- -------- ------- --------
Net cash (used for) provided
by financing activities.... (8,812) (322) (9,134) 30,333 802 31,135
-------- ----- -------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................... (7,426) (39) (7,465) 6,858 43 6,901
CASH AND CASH EQUIVALENTS:
Beginning of year/period........... 7,893 105 7,998 1,035 62 1,097
-------- ----- -------- -------- ------- --------
End of year/period................. $ 467 $ 66 $ 533 $ 7,893 $ 105 $ 7,998
======== ===== ======== ======== ======= ========
</TABLE>
F-20
<PAGE> 163
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDSTROM CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JULY 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JULY 31, 1995 FOR THE FISCAL YEAR ENDED JULY 31, 1994
---------------------------------------- ----------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTOR HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
----------- -------------- --------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 1,103 $ (358) $ 745 $(2,746) $ (215) $(2,961)
Depreciation and amortization........ 2,942 5 2,947 2,402 2 2,404
Discontinued operations.............. 1,204 -- 1,204 4,683 -- 4,683
Deferred income tax provision........ 755 -- 755 (1,428) -- (1,428)
Other................................ 100 -- 100 119 -- 119
Changes in assets and liabilities:
Accounts receivable................ (1,741) (398) (2,139) (3,114) (927) (4,041)
Inventories........................ (6,876) (65) (6,941) (1,348) (355) (1,703)
Prepaid expenses and other......... (2,434) 6 (2,428) (22) 23 1
Accounts payable................... 5,662 95 5,757 5,086 (32) 5,054
Accrued expenses................... (455) 851 396 (744) (40) (784)
------- ------- ------- ------- ------- -------
Net cash provided by (used for)
operating activities......... 260 136 396 2,888 (1,544) 1,344
------- ------- ------- ------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisitions of PP&E................. (2,565) (9) (2,574) (2,977) (11) (2,988)
------- ------- ------- ------- ------- -------
Net cash used for investing
activities................... (2,565) (9) (2,574) (2,977) (11) (2,988)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of
credit............................. 3,366 1,301 4,667 -- -- --
Payments on revolving line of
credit............................. (383) (1,385) (1,768) (406) (434) (840)
Capital lease (payments) borrowings
and other.......................... -- -- -- (108) 2,008 1,900
------- ------- ------- ------- ------- -------
Net cash provided by (used for)
financing activities......... 2,983 (84) 2,899 (514) 1,574 1,060
------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 678 43 721 (603) 19 (584)
CASH AND CASH EQUIVALENTS:
Beginning of year.................... 357 19 376 960 -- 960
------- ------- ------- ------- ------- -------
End of year.......................... $ 1,035 $ 62 $ 1,097 $ 357 $ 19 $ 376
======= ======= ======= ======= ======= =======
</TABLE>
F-21
<PAGE> 164
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,165 $ 533
Trade accounts receivable................................. 70,231 13,586
Inventories............................................... 47,120 23,816
Deferred income taxes..................................... 3,611 5,027
Prepaid expenses and other current assets................. 4,116 690
-------- --------
Total current assets.............................. 128,243 43,652
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost, net of accumulated
depreciation.............................................. 42,442 21,743
GOODWILL, net of accumulated amortization................... 146,800 --
OTHER ASSETS:
Deferred financing charges, net of accumulated
amortization........................................... 17,800 --
Deferred charges and other, net of accumulated
amortization........................................... 7,691 2,318
Deferred income taxes..................................... 6,986 4,362
-------- --------
Total other assets................................ 32,477 6,680
-------- --------
Total assets...................................... $349,962 $ 72,075
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit.................................. 2,700 17,400
Current portion of long-term debt......................... 6,371 1,965
Accounts payable.......................................... 22,621 11,698
Accrued expenses.......................................... 27,320 3,003
-------- --------
Total current liabilities......................... 59,012 34,066
-------- --------
LONG-TERM DEBT
Senior Subordinated Notes................................. 110,000 --
Senior Discount Notes..................................... 21,618 --
Term loans................................................ 108,375 36,750
Notes payable to related parties.......................... 2,500 2,500
Capital leases............................................ 1,745 1,556
Other..................................................... 2,380 300
-------- --------
Total long-term debt.............................. 246,618 41,106
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 36,127,395 and 32,941,499 shares issued and
outstanding, respectively.............................. 361 329
Non-voting common stock, $.01 par value, 40,000,000 shares
authorized, 31,520,000 shares issued and outstanding... 315 --
Additional paid-in capital................................ 51,534 10,437
Accumulated deficit....................................... (7,878) (13,863)
-------- --------
Total stockholders' equity (deficit).............. 44,332 (3,097)
-------- --------
Total liabilities and stockholders' equity........ $349,962 $ 72,075
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-22
<PAGE> 165
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
NET SALES................................................... $104,051 $ 96,059
COST OF SALES............................................... 73,579 72,897
-------- --------
Gross profit...................................... 30,472 23,162
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES............... 16,242 15,107
-------- --------
Operating income.................................. 14,230 8,055
INTEREST EXPENSE............................................ 4,709 3,545
-------- --------
INCOME BEFORE INCOME TAXES.................................. 9,521 4,510
INCOME TAX EXPENSE.......................................... 3,536 1,812
-------- --------
NET INCOME.................................................. $ 5,985 $ 2,698
======== ========
PRO FORMA NET INCOME PER SHARE:
Net income per share...................................... $ 0.09 $ 0.04
Weighted average shares outstanding....................... 67,647 67,647
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-23
<PAGE> 166
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
----------- ----- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996......... 32,941,499 $329 $10,437 $(13,863) $(3,097)
Issuance of voting common stock.... 3,185,896 32 3,950 -- 3,982
Issuance of non-voting common
stock........................... 31,520,000 315 37,147 -- 37,462
Net income......................... -- -- -- 5,985 5,985
----------- ---- ------- -------- -------
BALANCE AT JUNE 30, 1997............. 67,647,395 $676 $51,534 $ (7,878) $44,332
=========== ==== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-24
<PAGE> 167
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 5,985 $ 2,698
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization............................. 2,767 2,322
Deferred income tax provision (benefit)................... (2,676) --
Changes in assets and liabilities:
Accounts receivable.................................... (32,260) (27,569)
Inventories............................................ 6,239 3,607
Prepaid expenses and other current assets.............. 983 (343)
Accounts payable....................................... 949 2,821
Accrued expenses....................................... 13,890 3,739
Other.................................................. (2,845) --
--------- --------
Net cash used for operating activities.................... (6,968) (12,725)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ERO, Inc................................... (122,600) --
Acquisitions of property, plant and equipment............. (3,446) (4,792)
--------- --------
Net cash used for investing activities.................... (126,046) (4,792)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Senior Subordinated Notes... 110,000 --
Net proceeds from issuance of new term loans.............. 110,000 --
Net proceeds from issuance of Senior Discount Notes....... 21,618 --
Borrowings on new revolving line of credit, net........... 2,700 --
Repayments of old term loans.............................. (91,393) --
Repayments of old revolving lines of credit, net.......... (38,925) 16,058
Debt financing costs...................................... (17,800) --
Net proceeds from issuance of voting common stock......... 3,982 --
Net proceeds from issuance of non-voting common stock..... 37,462 --
Capital lease payments and other.......................... (1,998) 1,648
--------- --------
Net cash provided by financing activities................. 135,646 17,706
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,632 189
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 533 388
--------- --------
End of period............................................. $ 3,165 $ 577
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-Cash investing and financing activities:
Fair value of ERO Assets Acquired...................... $ 226,200 --
ERO Liabilities Assumed................................ $(103,600) --
--------- --------
Cash Paid......................................... $ 122,600 $ --
========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-25
<PAGE> 168
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION
The accompanying interim consolidated financial statements include the
accounts of Hedstrom Holdings, Inc. ("Holdings") and its wholly owned
subsidiary, Hedstrom Corporation ("Hedstrom," and together with Holdings, the
"Company"). Effective June 12, 1997, Hedstrom acquired ERO, Inc. ("ERO"), which
became a wholly owned subsidiary of Hedstrom (see Note 2). The accompanying
consolidated financial statements reflect the operations of ERO for the month of
June 1997. These financial statements are unaudited but, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial condition, results of
operations and cash flows of the Company. All intercompany balances and
transactions have been eliminated in consolidation.
The results of operations for the six months ended June 30, 1997, are not
necessarily indicative of the results to be expected for the entire fiscal year.
2. ACQUISITION OF ERO, INC.
On April 10, 1997, Hedstrom and HC Acquisition Corp., a wholly owned
subsidiary of Hedstrom, entered into an Agreement and Plan of Merger (the
"Merger Agreement") with ERO to acquire ERO for a total enterprise value of
approximately $200 million. Pursuant to the Merger Agreement, HC Acquisition
Corp. commenced and, on June 12, 1997, consummated a tender offer for all of the
outstanding shares of the common stock of ERO at a purchase price of $11.25 per
share (the "Tender Offer"). Upon consummation of the Tender Offer, (i) HC
Acquisition Corp. was merged with and into ERO (the "Merger") with ERO surviving
the Merger as a wholly owned subsidiary of Hedstrom, (ii) certain of ERO's
outstanding indebtedness was refinanced by Hedstrom (the "ERO Refinancing") and
(ii) Hedstrom refinanced (the "Hedstrom Refinancing") its existing revolving
credit facility and term loan facility (the Merger, the Tender Offer, the ERO
Refinancing and the Hedstrom Refinancing, are collectively referred to herein as
the "Acquisition").
Holdings and Hedstrom required approximately $301.1 million in cash to
consummate the Acquisition, including approximately (i) $122.6 million paid in
connection with the Tender Offer and the Merger, (ii) $82.6 million paid in
connection with the ERO Refinancing, (iii) $74.9 million paid in connection with
the Hedstrom Refinancing and (iv) $21.0 million incurred in respect of fees and
expenses. The funds required to consummate the Acquisition were provided by (i)
$75.0 million of term loans under a new six-year senior secured term loan
facility (the "Tranche A Term Loan Facility"), (ii) $35.0 million of term loans
under a new eight-year senior secured term loan facility (the "Tranche B Term
Loan Facility" and, together with the Tranche A Term Loan Facility, the "Term
Loan Facilities"), (iii) $16.1 million of borrowings under a new $70.0 million
senior secured revolving credit facility (the "Revolving Credit Facility" and,
together with the Term Loan Facilities, the "Senior Credit Facilities", (iv)
$110.0 million of gross proceeds from the offering by Hedstrom of 10% Senior
Subordinated Notes Due 2007 (the "Senior Subordinated Notes"), (v) $25.0 million
of gross proceeds from the offering by Holdings of 44,612 units consisting of
12% Senior Discount Notes Due 2009 (the "Discount Notes") and 2,705,896 shares
of common stock, $.01 par value per share, of Holdings and (vi) $40.0 million of
gross proceeds from the private placement of shares of non-voting common stock,
$.01 par value per share, of Holdings. In addition, Hedstrom entered into a new
$70.0 million senior secured revolving credit facility (the "Revolving Credit
Facility") to finance certain seasonal working capital requirements.
The acquisition of ERO has been accounted for under the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon fair value at the date of the
acquisition of ERO. The excess of the purchase price over the fair values of the
tangible net assets acquired was approximately $146.8 million, has been recorded
as goodwill and is being amortized on a straight-line basis over 40 years. In
the event that facts and circumstances indicate that the goodwill may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted
F-26
<PAGE> 169
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash flows associated with the asset would be compared to the assets carrying
amount to determine if an adjustment is required.
The net purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 59,400
Net property, plant and equipment........................... 20,000
Goodwill.................................................... 146,800
Liabilities assumed......................................... (103,600)
---------
Cash paid for ERO................................. $ 122,600
=========
</TABLE>
The unaudited pro forma results below assume the Acquisition occurred at
the beginning of the periods presented and that the Rationalization Plan and the
1996 Cost Reduction Plan, discussed below, were implemented at the beginning of
the periods presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales.............................................. $142,355 $144,551
Net income (loss)...................................... $ (26) $ (2,954)
Net income (loss) per share............................ $ 0.00 $ (0.04)
</TABLE>
The above pro forma results include adjustments to give effect to
amortization of goodwill, interest expense related to the Senior Subordinated
Notes, the Discount Notes and the Senior Credit Facilities and implementation of
the Rationalization Plan and the 1996 Cost Reduction Plan (both discussed
below), together with the related tax effects. The pro forma results are not
necessarily indicative of the operating results that would have occurred had the
Acquisition been consummated and the Rationalization Plan and the Cost Reduction
Plan been implemented as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results.
In connection with the acquisition of ERO, management implemented a plan
(the "Rationalization Plan") that will result in annual cost savings of $6
million as a result of rationalizing sales, marketing and general and
administrative functions, closings of duplicate facilities and reductions in
external administrative expenditures including legal, insurance, tax, audit and
public relations expenditures. The cost savings outlined below reflect personnel
terminations that have already occurred or that have been formally communicated
to the employees, closings of duplicate facilities that have occurred and
reductions in external administrative expenses that have been negotiated.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Salaries and benefits from personnel terminations..... $$3,700
Duplicative functions and facilities that have been
closed.............................................. 900
External administrative expenses that have been
reduced............................................. 1,400
------
Total Annual Cost Savings................... $6,000
======
</TABLE>
Independent from the acquisition of ERO and the related refinancings,
certain other events have occurred which are material to the operations of the
Company. Management of Hedstrom implemented a plan (the "1996 Cost Reduction
Plan") in the fall of 1996 to reduce the costs of Hedstrom in 1997 and
thereafter as compared with 1996 levels. The plan includes the following
significant elements:
F-27
<PAGE> 170
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) Hedstrom invested approximately $3.0 million in new plastic
blow-molding equipment to manufacture many of the plastic slides that it
had previously purchased from third-party vendors. Management believes that
producing these slides internally is currently providing annual cost
savings of approximately $1.5 million as compared to 1996 levels.
(2) Hedstrom reduced its number of full-time employees by
approximately 30 persons in a variety of departments. Management believes
that such personnel reductions will result in savings of approximately $0.7
million in 1997 and thereafter.
(3) Hedstrom re-engineered certain manufacturing operations to
increase its daily production capacity of outdoor gym sets allowing for the
ability to implement just-in-time manufacturing of the outdoor gym sets.
The implementation of just-in-time manufacturing has enabled Hedstrom to
manufacture outdoor gym sets to specific customer orders rather than
producing in anticipation of customer orders, which Hedstrom had done in
the past because of capacity constraints. The implementation of
just-in-time manufacturing has enabled Hedstrom to carry a lower level of
outdoor gym set inventory and, as a result, eliminate the need for
third-party warehousing for outdoor gym sets. Management believes that it
is currently saving over $2.1 million of warehouse and material-handling
expense in 1997 as a result of this re-engineering effort.
(4) In fiscal year 1996, Hedstrom initiated, on a trial basis, its own
multi-media advertising program designed to increase consumer awareness of
the Hedstrom brand over time. Historically, Hedstrom has advertised its
products in cooperation with its retail customers through the print media.
Management determined that a reasonable return on investment was not
forthcoming from this program and elected to terminate it. Therefore, the
$1.5 million annual cost of this program will no longer be incurred.
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Senior Subordinated Notes................................... $110,000 $ --
Term Loans.................................................. 113,500 38,500
Senior Discount Notes....................................... 21,618 --
Revolving Credit Facility................................... 2,700 17,400
Other....................................................... 7,571 4,571
-------- -------
$255,389 $60,471
======== =======
</TABLE>
if redeemed during the 12-month period commencing on June 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 105.000
2003........................................................ 103.333
2004........................................................ 101.667
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to June 1, 2000,
Hedstrom may redeem in the aggregate up to $44.0 million principal amount of
Senior Subordinated Notes with the proceeds of one or more equity offerings so
long as there is a public market at the time of such redemption (provided that
if the equity offering is an offering by Holdings, a portion of the net cash
proceeds thereof equal to the amount required to redeem any such Senior
Subordinated Notes is contributed to the equity capital of Hedstrom), at a
redemption price (expressed as a percentage of principal amount) of 110%, plus
accrued and unpaid interest, if any, to the
F-28
<PAGE> 171
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redemption date; provided, however, that at least $66.0 million aggregate
principal amount of the Senior Subordinated Notes remains outstanding after each
such redemption.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of Hedstrom and are unconditionally guaranteed on a senior basis by Holdings and
on a senior subordinated basis by each domestic subsidiary of Hedstrom. The
Senior Subordinated Notes are subordinated to all senior indebtedness (as
defined) of Hedstrom rank pari passu in right of payment with all senior
subordinated indebtedness (as defined) of Hedstrom.
The Senior Subordinated Notes Indenture contains certain covenants that,
among other things, limit (i) the incurrence of additional indebtedness by
Hedstrom and its restricted subsidiaries (as defined), (ii) the payment of
dividends and other restricted payments by Hedstrom and its restricted
subsidiaries, (iii) restrictions on distributions from restricted subsidiaries,
(iv) asset sales, (v) transactions with affiliates, (vi) sales or issuances of
restricted subsidiary capital stock and (vii) mergers and consolidations.
Term Loans and Revolving Credit Facility
In connection with the Acquisition, Hedstrom's existing term loans of $35.0
million and its existing revolving credit facility borrowings were repaid and
the facilities were terminated. Hedstrom's $3.5 million Industrial Revenue Bond
from Bedford County, which bears interest at 7.13%, was not retired in
connection with the Acquisition.
As discussed in Note 2, in connection with the Acquisition, Hedstrom
obtained the Term Loan Facilities and the Revolving Credit Facility
(collectively, the "Senior Credit Facilities"). The Senior Credit Facilities
consist of (a) a six-year Tranche A Senior Secured Term Loan Facility providing
for term loans to Hedstrom in a principal amount of $75 million; (b) an
eight-year Tranche B Senior Secured Term Loan Facility providing for term loans
to Hedstrom in a principal amount of $35 million; and (c) a Senior Secured
Revolving Credit Facility providing for revolving loans to Hedstrom and the
issuance of letters of credit for the account of Hedstrom in an aggregate
principal and stated amount at any time not to exceed $70 million. Borrowings
under the Revolving Credit Facility will be available based upon a borrowing
base not to exceed 85% of eligible accounts receivable and 50% of eligible
inventory.
At Hedstrom's option, the interest rates per annum applicable to the Senior
Credit Facilities will be either (i) the Eurocurrency Rate (as defined) plus
2.5% in the case of the Tranche A Term Loan Facility and the Revolving Credit
Facility or 3.0% in the case of the Tranche B Term Loan Facility or (ii) the
Alternate Base Rate (as defined) plus 1.5% in the case of the Tranche A Term
Loan Facility and the Revolving Credit Facility or 2.0% in the case of the
Tranche B Term Loan Facility. The Alternate Base Rate is the highest of (a)
Credit Suisse First Boston's Prime Rate (as defined) or (b) the federal funds
effective rate from time to time plus 0.5%. The applicable margin in respect of
the Tranche A Term Loan Facility and the Revolving Credit Facility will be
adjusted from time to time by amounts to be agreed upon based on the achievement
of certain performance targets to be determined.
The obligations of Hedstrom under the Senior Credit Facilities are
unconditionally and irrevocably guaranteed by Holdings and each of Hedstrom's
direct or indirect domestic subsidiaries (collectively, the "Senior Credit
Facilities Guarantors"). In addition, the Senior Credit Facilities will be
secured by first priority or equivalent security interests in (i) all the
capital stock of, or other equity interests in, each direct or indirect domestic
subsidiary of Hedstrom and 65% of the capital stock of, or other equity
interests in, each direct foreign subsidiary of Hedstrom, or any of its domestic
subsidiaries and (ii) all tangible and intangible assets (including, without
limitation, intellectual property and owned real property) of Hedstrom and the
Senior Credit Facilities Guarantors.
F-29
<PAGE> 172
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Credit Facilities contain a number of significant covenants
that, among other things, restrict the ability of Hedstrom to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, make investments or
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in certain transactions with affiliates. In addition, under the Senior
Credit Facilities, Hedstrom is required to comply with specified minimum
interest coverage and maximum leverage ratios.
Senior Discount Notes
In connection with the Acquisition, Holdings received $25.0 million of
gross proceeds from the issuance by Holdings of 44,612 units, consisting of the
Discount Notes and 2,705,896 shares of Holdings common stock. Of the $25.0
million in gross proceeds, $3.4 million ($1.25 per share) was allocated to the
common stock, based upon management's estimate of fair market value, and $21.6
million was allocated to Discount Notes.
The Discount Notes are unsecured obligations of Holdings and have an
aggregate principal amount at maturity (June 1, 2009) of $44.6 million,
representing a yield to maturity of 12%. No cash interest will accrue on the
Discount Notes prior to June 1, 2002. Thereafter, cash interest will be payable
on June 1 and December 1 of each year, commencing December 1, 2002.
Except as set forth below, the Discount Notes will not be redeemable at the
option of Holdings prior to June 1, 2002. On and after such date, the Discount
Notes will be redeemable, at Holdings' option, in whole or in part, at the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest to the redemption date:
if redeemed during the 12-month period commencing on June 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 106.000
2003........................................................ 104.000
2004........................................................ 102.000
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to June 1, 2000,
Holdings may redeem in the aggregate up to 40% of the accreted value of the
Discount Notes with the proceeds of one or more equity offerings by Holdings so
long as there is a public market at the time of such redemption, at a redemption
price (expressed as a percentage of accreted value on the redemption date) of
112%, plus accrued and unpaid interest, if any, to the redemption date; provided
however, that at least $26.8 million aggregate principal amount at maturity of
the Discount Notes remains outstanding after each such redemption.
Senior Subordinated Notes
The $110.0 million Senior Subordinated Notes bear interest at 10% per
annum, payable on June 1 and December 1 of each year, commencing December 1,
1997. The Senior Subordinated Notes mature on June 1, 2007. Except as set forth
below, the Senior Subordinated Notes are not redeemable at the option of
Hedstrom prior to June 1, 2002. On and after such date, the Senior Subordinated
Notes are redeemable, at Hedstrom's option, in whole or in part, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest to the redemption date:
At any time on or prior to June 1, 2002, the Discount Notes may also be
redeemed as a whole at the option of Holdings upon the occurrence of a change of
control (as defined) at a redemption price equal to 100% of the accreted value
thereof plus the applicable premium as of, and accrued and unpaid interest, if
any, to the date of redemption.
F-30
<PAGE> 173
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Discount Notes Indenture contains certain covenants that, among other
things, limit (i) the incurrence of additional indebtedness by Holdings and its
restricted subsidiaries (as defined), (ii) the payment of dividends and other
restricted payments by Holdings and its restricted subsidiaries, (iii)
restrictions on distributions from restricted subsidiaries, (iv) asset sales,
(v) transactions with affiliates, (vi) sales or issuances of restricted
subsidiary capital stock and (vii) mergers and consolidations.
Other Debt
Other debt consists of a $2.5 million Holdings note payable to the previous
owners of Holdings as well as various other mortgages, capital leases and
equipment loans. The $2.5 million note payable bears interest at 10% per annum
and is payable at the earlier of April 30, 2002, or when the Company has met
certain cash flow levels and the mortgages and equipment loans have varying
interest rates and maturities.
F-31
<PAGE> 174
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUBSIDIARY GUARANTORS/NONGUARANTORS FINANCIAL INFORMATION
The following is financial information pertaining to Hedstrom and its
subsidiary guarantors and subsidiary nonguarantors (with respect to the Senior
Subordinated Notes and the Senior Credit Facilities) for the periods in which
they are included in Holding's accompanying consolidated financial statements.
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT JUNE 30, 1997 AT DECEMBER 31, 1996
----------------------------------------------------- -------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY ADJUSTMENTS/ TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTORS ELIMINATIONS HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- -------------- ------------ -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,666 $ 516 $ (17) $ 3,165 $ 467 $ 66 $ 533
Trade accounts receivable,
net........................... 64,441 5,829 (39) 70,231 13,126 460 13,586
Inventories..................... 32,353 14,627 140 47,120 23,368 448 23,816
Deferred income taxes........... 3,611 -- -- 3,611 5,027 -- 5,027
Prepaid expenses and other...... 3,696 691 -- 4,387 674 16 690
-------- -------- --------- -------- -------- ------- --------
Total current assets...... 106,767 21,663 84 128,514 42,662 990 43,652
PROPERTY, PLANT, AND EQUIPMENT,
net............................. 27,153 15,289 -- 42,442 21,735 8 21,743
Investment in and Advances to
Nonguarantor Subsidiaries..... 241,637 (30,468) (211,169) -- -- -- --
GOODWILL, net..................... 132,672 18,503 (4,375) 146,800 -- -- --
DEFERRED CHARGES AND OTHER, net... 24,241 -- -- 24,241 2,318 -- 2,318
DEFERRED INCOME TAXES............. 7,496 (510) -- 6,986 4,251 -- 4,251
-------- -------- --------- -------- -------- ------- --------
Total assets.............. $539,966 $ 24,477 $(215,460) $348,983 $ 70,966 $ 998 $ 71,964
======== ======== ========= ======== ======== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit........ 2,700 -- -- 2,700 15,430 1,970 17,400
Current portion of term loans... 1,736 4,282 -- 6,018 1,750 -- 1,750
Current portion of capital
leases........................ 353 -- -- 353 215 -- 215
Advances from Nonguarantor
Subsidiaries.................. 143,812 5,718 (149,530) -- -- -- --
Accounts payable................ 21,632 2,988 (1,999) 22,621 11,275 131 11,406
Accrued expenses................ 24,498 3,327 (505) 27,320 3,006 (3) 3,003
-------- -------- --------- -------- -------- ------- --------
Total current
liabilities............. 194,731 16,315 (152,034) 59,012 31,676 2,098 33,774
LONG-TERM DEBT:
Senior subordinated notes....... 110,000 -- -- 110,000 -- -- --
Term loans...................... 108,375 -- -- 108,375 36,750 -- 36,750
Capital leases.................. 1,745 -- -- 1,745 1,556 -- 1,556
Other........................... 1,792 588 -- 2,380 300 -- 300
-------- -------- --------- -------- -------- ------- --------
Total long-term debt...... 221,912 588 -- 222,500 38,606 -- 38,606
STOCKHOLDER'S EQUITY
Total Stockholder's equity
(deficit)............... 123,323 7,574 (63,426) 67,471 684 (1,100) (416)
-------- -------- --------- -------- -------- ------- --------
Total liabilities and
Stockholder's equity.... $539,966 $ 24,477 $(215,460) $348,983 $ 70,966 $ 998 $ 71,964
======== ======== ========= ======== ======== ======= ========
</TABLE>
F-32
<PAGE> 175
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------- -------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY ADJUSTMENTS/ TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTORS ELIMINATIONS HEDSTROM GUARANTORS NON-GUARANTOR HEDSTROM
---------- -------------- ------------ -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES............. $100,923 $ 7,024 $(3,896) $104,051 $ 93,403 $ 2,656 $ 96,059
COST OF SALES......... 71,344 4,762 (2,527) 73,579 70,465 2,432 72,897
-------- ------- ------- -------- -------- ------- --------
Gross
profit..... 29,579 2,262 (1,369) 30,472 22,938 224 23,162
SG&A EXPENSES......... 15,270 986 (14) 16,242 14,582 525 15,107
-------- ------- ------- -------- -------- ------- --------
Operating
income
(loss)..... 14,309 1,276 (1,355) 14,230 8,356 (301) 8,055
INTEREST EXPENSE...... 4,364 219 -- 4,583 3,404 15 3,419
-------- ------- ------- -------- -------- ------- --------
INCOME (LOSS) BEFORE
TAXES............... 9,945 1,057 (1,355) 9,647 4,952 (316) 4,636
INCOME TAX BENEFIT
(EXPENSE)........... (3,849) (21) 285 (3,585) (1,979) 119 (1,860)
-------- ------- ------- -------- -------- ------- --------
NET INCOME
(LOSS).............. $ 6,096 $ 1,036 $(1,070) $ 6,062 $ 2,973 $ (197) $ 2,776
======== ======= ======= ======== ======== ======= ========
</TABLE>
F-33
<PAGE> 176
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------------ --------------------------------------
HEDSTROM HEDSTROM HEDSTROM HEDSTROM
SUBSIDIARY SUBSIDIARY ADJUSTMENTS/ TOTAL SUBSIDIARY SUBSIDIARY TOTAL
GUARANTORS NON-GUARANTORS ELIMINATIONS HEDSTROM GUARANTORS NON-GUARANTORS HEDSTROM
---------- -------------- ------------ --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. 6,096 1,036 (1,070) $ 6,062 $ 2,973 $ (197) $ 2,776
Depreciation and
amortization................ 2,614 153 -- 2,767 2,317 5 2,322
Deferred income tax provision
(benefit)................... (2,676) -- -- (2,676) 48 -- 48
Changes in assets and
liabilities:
Accounts receivable......... (30,173) (2,126) 39 (32,260) (26,466) (1,103) (27,569)
Inventories................. 7,830 (1,451) (140) 6,239 3,933 (326) 3,607
Prepaid expenses and
other..................... 979 4 -- 983 (338) (5) (343)
Deferred charges and
other..................... (4,089) 12 -- (4,077) -- -- --
Accounts payable............ (805) 1,100 654 949 2,589 106 2,695
Accrued expenses............ 12,124 1,266 500 13,890 3,931 (192) 3,739
--------- ------- ------- --------- -------- ------- --------
Net cash provided by
(used for) operating
activities............ (8,100) (6) (17) (8,123) (11,013) (1,712) (12,725)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of ERO, Inc....... (122,600) -- -- (122,600) -- -- --
Acquisitions of PP&E.......... (3,444) (2) -- (3,446) (4,791) (1) (4,792)
--------- ------- ------- --------- -------- ------- --------
Net cash used for
investing
activities............ (126,044) (2) -- (126,046) (4,791) (1) (4,792)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
Senior Subordinated notes... 110,000 -- -- 110,000 -- -- --
Net proceeds from issuance of
new term loans.............. 110,000 -- -- 110,000 -- -- --
Equity contribution from
Holdings.................... 63,062 -- -- 63,062 -- -- --
Borrowings on new revolving
line of credit.............. 2,700 -- -- 2,700 -- -- --
Repayments of old term
loans....................... (91,851) -- -- (91,851) -- -- --
Debt financing cost........... (16,550) -- (16,550) -- -- --
Repayments on old revolving
lines of credit, net........ (38,925) 458 -- (38,467) 14,330 1,728 16,058
Other......................... (2,093) -- -- (2,093) 1,648 -- 1,648
--------- ------- ------- --------- -------- ------- --------
Net cash provided by
(used for) financing
activities............ 136,343 458 -- 136,801 15,978 1,728 17,706
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS.......... 2,199 450 (17) 2,632 174 15 189
CASH AND CASH EQUIVALENTS:
Beginning of period........... 467 66 -- 533 383 5 388
--------- ------- ------- --------- -------- ------- --------
End of period................. $ 2,666 $ 516 $ (17) $ 3,165 $ 557 20 $ 577
========= ======= ======= ========= ======== ======= ========
</TABLE>
F-34
<PAGE> 177
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Raw materials............................................... $15,806
Work-in-progress............................................ 7,907
Finished goods.............................................. 23,407
-------
$47,120
=======
</TABLE>
6. PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
Pro forma net income per common share is based on the number of common
shares outstanding immediately after the Acquisition (See Note 2). Average
common equivalent shares (stock options) have not been included in the
calculation of weighted average number of common shares outstanding for the six
months ended June 30, 1997, since their inclusion would not be significant
during this period. The number of common shares used in computing net income per
share was 67,647,000 for the six months ended June 30, 1997 and 1996,
respectively.
Holdings will adopt SFAS No. 128 "Earnings Per Share", effective December
15, 1997. SFAS No. 128 requires the calculation of basic and diluted earnings
per share. Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed by dividing the net income by the
weighted average number of shares of common stock and common stock equivalents.
As required, Holdings will restate the reported earnings per share upon adoption
of SFAS No. 128. Assuming adoption of SFAS No. 128, basic and diluted earnings
per share for the six months ended June 30, 1997 and 1996, respectively would
have been the same as reported earnings per share.
F-35
<PAGE> 178
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of ERO, Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, of stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of ERO, Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
Chicago, Illinois
February 7, 1997, except as to Note 13,
which is as of June 12, 1997
F-36
<PAGE> 179
ERO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 5,094 $ 154
Trade accounts receivable, net of
allowance for doubtful accounts of
$287 and $1,038, respectively...... 48,296 38,679
Inventories........................... 22,058 17,001
Prepaid expenses and other current
assets............................. 4,085 2,662
-------- --------
TOTAL CURRENT ASSETS.......... 79,533 58,496
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost,
net of accumulated depreciation....... 20,871 20,348
-------- --------
OTHER ASSETS:
Deferred charges, net of accumulated
amortization....................... 2,648 3,283
Intangible assets, net of accumulated
amortization....................... 56,942 61,212
Deferred income tax benefit........... -- 799
-------- --------
TOTAL OTHER ASSETS............ 59,590 65,294
-------- --------
TOTAL ASSETS.................. $159,994 $144,138
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt..... $ 8,893 $ 6,728
Accounts payable...................... 9,389 6,398
Accrued expenses:
Compensation....................... 1,131 1,207
Commissions and royalties.......... 4,793 2,861
Advertising, freight and other
allowances........................ 3,821 4,777
Purchase price..................... -- 2,960
Other.............................. 1,600 1,991
Income taxes payable.................. 70 2,882
-------- --------
TOTAL CURRENT LIABILITIES..... 29,697 29,804
-------- --------
LONG-TERM DEBT:
Revolving loan........................ 31,525 15,225
Term loan............................. 46,000 54,000
Other loans........................... 9,222 9,045
-------- --------
TOTAL LONG-TERM DEBT.......... 86,747 78,270
-------- --------
DEFERRED INCOME TAX LIABILITY........... 536 --
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
9,947,700 shares authorized, no
shares issued and outstanding...... -- --
Common stock, $0.01 par value,
50,000,000 shares authorized,
10,373,300 and 10,346,300 shares
issued, respectively............... 104 103
Capital in excess of par value........ 39,173 38,990
Foreign currency translation
adjustment......................... 3 324
Retained earnings/(accumulated
deficit), per accompanying
statement.......................... 4,507 (3,251)
Common stock held in treasury, 120,000
and 15,000 shares, respectively, at
cost............................... (773) (102)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.... 43,014 36,064
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........ $159,994 $144,138
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-37
<PAGE> 180
ERO, INC.
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $157,913 $128,722 $126,734
Cost of sales............................................... 97,802 80,693 79,776
-------- -------- --------
Gross profit................................................ 60,111 48,029 46,958
Selling, general and administrative expense................. 38,896 33,183 34,078
-------- -------- --------
Operating income............................................ 21,215 14,846 12,880
Interest expense............................................ 9,062 1,997 1,939
-------- -------- --------
Income before income taxes.................................. 12,153 12,849 10,941
Income tax provision........................................ 4,395 5,167 4,482
-------- -------- --------
Net income.................................................. $ 7,758 $ 7,682 $ 6,459
======== ======== ========
Net income per share........................................ $ 0.75 $ 0.73 $ 0.61
Weighted average number of shares outstanding (in
thousands)................................................ 10,316 10,487 10,580
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-38
<PAGE> 181
ERO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 7,758 $ 7,682 $ 6,459
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation of property, plant and equipment.......... 2,739 1,422 1,018
Amortization of other assets........................... 3,395 2,237 2,184
Deferred income taxes.................................. 1,335 (588) (294)
Loss (gain) on the disposition of property, plant and
equipment............................................ 21 (3) 21
Provision for losses on accounts receivable............ 770 343 460
Tax benefit of stock options exercised................. 9 -- 162
Changes in current assets and current liabilities, net
of acquisitions:
Accounts receivable.................................. (10,405) (59) (8,600)
Inventories.......................................... (4,958) 3,626 3,425
Prepaid expenses..................................... (1,414) (936) 471
Accounts payable..................................... 2,942 (7,907) 1,682
Accrued expenses..................................... (657) (1,735) 1,268
Income taxes payable................................. (2,812) 1,500 576
-------- -------- -------
Net cash provided by (used for) operating activities........ (1,277) 5,582 8,832
-------- -------- -------
Cash flows from investing activities:
Acquisitions of property, plant and equipment............. (3,625) (1,772) (1,287)
Proceeds from the sale of property, plant and equipment... 6 3 --
Acquisition of Amav Industries Ltd. ...................... -- (55,098) --
Acquisition of Impact, Inc. .............................. -- -- (4,400)
Acquisition of ERO Canada, Inc. .......................... -- -- (755)
-------- -------- -------
Net cash used for investing activities...................... (3,619) (56,867) (6,442)
-------- -------- -------
Cash flows from financing activities:
Net borrowings (repayments) under revolving loan.......... 16,300 (5,236) (2,775)
Net borrowings (repayments) under term loan............... (6,000) 60,000 --
Net borrowings (repayments) under other loans............. 342 (315) --
Financing fees paid....................................... (310) (3,210) --
Net proceeds from the exercise of stock options........... 175 -- 260
Purchase of common stock for treasury..................... (671) -- --
-------- -------- -------
Net cash provided by (used for) financing activities........ 9,836 51,239 (2,515)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ 4,940 (46) (125)
Cash and cash equivalents:
Beginning of year......................................... 154 200 325
-------- -------- -------
End of year............................................... $ 5,094 $ 154 $ 200
======== ======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 8,515 $ 1,574 $ 1,822
Income taxes paid......................................... 5,872 4,295 4,038
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-39
<PAGE> 182
ERO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL FOREIGN RETAINED
COMMON STOCK IN EXCESS CURRENCY EARNINGS/
---------------------- OF PAR TRANSLATION (ACCUMULATED TREASURY
SHARES PAR VALUE VALUE ADJUSTMENT DEFICIT) STOCK TOTAL
---------- --------- --------- ----------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ 10,257,300 $103 $38,568 -- $(17,392) $(102) $21,177
Stock options exercised................. 89,000 -- 260 -- -- -- 260
Tax benefit from stock options
exercised............................. -- -- 162 -- -- -- 162
Foreign currency translation
adjustment............................ -- -- -- $(61) -- -- (61)
Net income.............................. -- -- -- -- 6,459 -- 6,459
---------- ---- ------- ---- -------- ----- -------
Balance at December 31, 1994............ 10,346,300 103 38,990 (61) (10,933) (102) 27,997
Foreign currency translation
adjustment............................ -- -- -- 385 -- -- 385
Net income.............................. -- -- -- -- 7,682 -- 7,682
---------- ---- ------- ---- -------- ----- -------
Balance at December 31, 1995............ 10,346,300 103 38,990 324 (3,251) (102) 36,064
Stock options exercised................. 27,000 1 174 -- -- -- 175
Tax benefit from stock options
exercised............................. -- -- 9 -- -- -- 9
Purchase of common stock for treasury... -- -- -- -- -- (671) (671)
Foreign currency translation
adjustment............................ -- -- -- (321) -- -- (321)
Net income.............................. -- -- -- -- 7,758 -- 7,758
---------- ---- ------- ---- -------- ----- -------
Balance at December 31, 1996............ 10,373,300 $104 $39,173 $ 3 $ 4,507 $(773) $43,014
========== ==== ======= ==== ======== ===== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-40
<PAGE> 183
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS:
ERO, Inc. ("ERO" or the "Company") is a leading designer, manufacturer,
importer and marketer of children's leisure products. ERO's major product areas
are grouped into four business units: ERO Industries, Inc., which consists of
Slumber Shoppe and water sports products; Impact, Inc., which consists of
back-to-school products; Priss Prints, Inc., which consists of children's room
decor products; and Amav Industries, Inc., which consists of children's
activities, arts and crafts. The Company's products are sold to all major mass
retailers, sporting goods stores, toy retailers and specialty craft chains.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, ERO Industries, Inc., Impact,
Inc., Priss Prints, Inc., Amav Industries, Inc., ERO Canada, Inc. and ERO
Marketing, Inc. All intercompany balances and transactions have been eliminated
in consolidation. These consolidated financial statements include estimates that
are determined by the Company's management.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original
maturities of three months or less. These investments are stated at cost which
approximates market.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The cost of manufactured products
includes materials, direct labor and an allocation of plant overheads. The cost
of the purchased products includes inbound freight and duty.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Additions
and improvements are capitalized, while expenditures for maintenance and repairs
are charged to operations as incurred. The cost and accumulated depreciation of
property sold or retired are removed from the respective accounts and the
resultant gains or losses, if any, are included in current operations.
The estimated useful lives of these assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-20 years
Machinery and equipment..................................... 3-10 years
Computer hardware and software.............................. 3-5 years
Furniture and fixtures...................................... 5-10 years
</TABLE>
Depreciation is allocated to cost of sales and selling, general and
administrative expense based upon the related asset's use. Depreciation of
approximately $2,046,000, $786,000 and $482,000 is included in cost of sales for
the years ended December 31, 1996, 1995 and 1994, respectively. Depreciation of
approximately $693,000, $636,000 and $536,000 is included in selling, general
and administrative expense for the years ended December 31, 1996, 1995 and 1994,
respectively.
DEFERRED CHARGES
Deferred charges consist of costs associated with certain prepaid
noncompetition agreements and professional fees and other costs incurred in
connection with obtaining borrowings under long-term debt agreements.
F-41
<PAGE> 184
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The costs of noncompetition agreements are amortized over their terms using the
straight-line method. Deferred financing costs are amortized over the life of
the related debt. Fully amortized items are removed from the accounts.
Amortization of noncompetition agreements of approximately $100,000,
$435,000 and $483,000 is included in selling, general and administrative expense
for the years ended December 31, 1996, 1995 and 1994, respectively. Amortization
of deferred financing costs of approximately $845,000, $94,000 and $133,000 is
included as additional interest expense for the years ended December 31, 1996,
1995 and 1994, respectively.
INTANGIBLE ASSETS
Capitalized intangible assets include license agreements, trademarks and
trade names, patents and the excess of cost over the fair value of identifiable
assets acquired (goodwill). License agreements are amortized using an
accelerated method over their average estimated useful lives of 10 years.
Trademarks and trade names and goodwill are amortized using the straight-line
method over their estimated useful lives of 10 years and 15-40 years,
respectively. Patents are amortized using the straight-line method over their
remaining lives.
Amortization of intangible assets of $2,450,000, $1,708,000 and $1,568,000
is included in selling, general and administrative expense for the years ended
December 31, 1996, 1995 and 1994, respectively.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In the event that facts and circumstances indicate that the cost of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow is
required. The Company did not write-down any long-lived assets during the year
ended December 31, 1996.
INCOME TAXES
Deferred income taxes are determined under the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Deferred income taxes arise from temporary
differences between the income tax basis of assets and liabilities and their
reported amounts in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value because of the immediate or short-term maturity of these
financial instruments. The carrying amount reported for long-term debt
approximates fair market value because the underlying instruments are at rates
similar to current rates offered to the Company for debt with the same remaining
maturities.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using each subsidiary's local currency as the
functional currency. Assets and liabilities of the foreign subsidiaries are
translated to U.S. dollars using exchange rates in effect at balance sheet
dates. Income and expense items are translated at monthly average rates of
exchange. The resultant translation gains or losses are included in the
component of stockholders' equity designated as foreign currency translation
adjustment. Transaction gains or losses were not significant in any year.
F-42
<PAGE> 185
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
Earnings per share are determined by dividing net income by the weighted
average number of common shares outstanding, including common stock equivalents
(stock options granted), using the treasury stock method.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), encourages, but does not require companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount the employee must pay to acquire
the stock. See Note 7.
SIGNIFICANT CONCENTRATION OF CUSTOMERS
All trade accounts receivable are unsecured. A significant level of the
Company's net sales is generated from approximately five retail companies that
serve national markets. Sales to the Company's top five customers aggregated
approximately 56%, 60% and 61% of net sales for the years ended December 31,
1996, 1995 and 1994, respectively. Three of the Company's customers, Toys "R"
Us, Wal-Mart and Target, each accounted for over 10% of the Company's net sales
during 1996, 1995 and 1994, aggregating approximately 46%, 49% and 52% of net
sales, respectively.
SIGNIFICANT CONCENTRATION OF LICENSORS
The Company has entered into numerous license agreements with multiple
licensors. Typically, these licenses have a life of two years. A significant
level of the Company's net sales is generated from a variety of products
licensed from four licensors. Sales of these products aggregated approximately
42%, 62% and 73% of net sales for the years ended December 31, 1996, 1995 and
1994, respectively. One of the Company's licensors, The Walt Disney Company,
accounted for over 10% of the Company's net sales during 1996, aggregating
approximately 33% of net sales. Two of the Company's licensors, The Walt Disney
Company and Warner Bros., each accounted for over 10% of the Company's net sales
during 1995, aggregating approximately 48% of net sales. Three of the Company's
licensors, The Walt Disney Company, Warner Bros. and Saban Merchandising, Inc.,
each accounted for over 10% of the Company's net sales during 1994, aggregating
approximately 70% of net sales.
NOTE 3 -- ACQUISITIONS:
AMAV INDUSTRIES LTD.
Pursuant to the terms of an asset purchase agreement, on October 1, 1995
(the date effective control was transferred to the Company), the Company,
through its newly formed subsidiary, Amav Industries, Inc. ("Amav"), acquired
certain assets and assumed certain liabilities of Amav Industries Ltd.
("Seller") of Montreal, Quebec and its wholly-owned U.S. subsidiary, and
acquired the stock of its wholly-owned U.K. subsidiary for $54.4 million in
cash. The purchase price for the assets acquired, including related transaction
costs, was approximately $61.3 million. The Company financed the acquisition
through borrowings under a new $110 million credit facility (Note 5).
The Company recorded a $2,960,000 current liability to account for an
estimate of an unpaid purchase price contingency as well as unpaid transaction
costs relating to the acquisition. The actual amount of this liability was paid
in 1996 and approximated the estimate. The purchase agreement also incudes an
additional C$5 million (Canadian dollars) of purchase price contingent upon the
achievement of certain conditions. If these conditions are met, the contingent
purchase price is due to be paid March 1, 1998.
F-43
<PAGE> 186
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This transaction has been accounted for using the purchase method.
Accordingly, the total purchase price of $61.3 million, which includes
transaction costs, was allocated to the assets acquired and liabilities assumed
based upon their fair market values at the effective date of acquisition.
The fair value of assets acquired and liabilities assumed, reflecting the
final allocation, was as follows:
<TABLE>
<S> <C>
Net working capital......................................... $ 17,748,000
Property, plant and equipment............................... 15,229,000
Goodwill.................................................... 43,755,000
Deferred financing fees..................................... 3,210,000
Debt assumed................................................ (18,674,000)
------------
$ 61,268,000
============
</TABLE>
The income statement for the year ended December 31, 1995 reflects the
operations of Amav since October 1, 1995. Unaudited pro forma combined results
of operations for the Company and Amav for the years ended December 31, 1995 and
1994, as if the acquisition had occurred on January 1, 1994, would be as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Net sales............................................... $154,144,000 $151,530,000
Net income.............................................. $ 6,792,000 $ 3,806,000
Net income per share.................................... $ 0.65 $ 0.36
Weighted average shares outstanding..................... 10,487,000 10,580,000
</TABLE>
The unaudited pro forma amounts are not necessarily indicative of the
actual results of operations had the acquisition occurred on January 1, 1994.
IMPACT, INC.
Effective January 1, 1994, pursuant to the terms of an asset purchase
agreement, the Company, through its newly formed subsidiary, Impact, Inc.,
acquired for $4,400,000 in cash, certain assets of Impact International, Inc.
and Impact Designs, Ltd., marketers of licensed school supplies.
The acquisition has been accounted for using the purchase method.
Accordingly, the net purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of acquisition. The
income statement for the year ended December 31, 1994 reflects the operations of
Impact, Inc. since January 1, 1994.
ERO CANADA, INC.
During the third quarter of 1994, the Company incorporated a wholly-owned
subsidiary, ERO Canada, Inc., which subsequently purchased certain assets of a
Canadian manufacturer and distributor of licensed products for a purchase price
of $755,000. These assets primarily consisted of inventories and prepaid
expenses.
F-44
<PAGE> 187
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- COMPOSITION OF BALANCE SHEET ACCOUNTS:
The composition of certain balance sheet accounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
INVENTORIES
Raw materials............................................. $ 6,823,000 $ 6,333,000
Work-in-process........................................... 1,720,000 3,090,000
Finished goods............................................ 13,515,000 7,578,000
------------ ------------
$ 22,058,000 $ 17,001,000
============ ============
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements................................ $ 9,049,000 $ 9,066,000
Machinery and equipment................................... 12,817,000 10,490,000
Computer hardware and software............................ 2,856,000 2,186,000
Furniture and fixtures.................................... 1,084,000 1,045,000
------------ ------------
25,806,000 22,787,000
Less: Accumulated depreciation............................ (8,745,000) (6,324,000)
------------ ------------
17,061,000 16,463,000
Land...................................................... 3,810,000 3,885,000
------------ ------------
$ 20,871,000 $ 20,348,000
============ ============
DEFERRED CHARGES
Noncompetition agreements................................. $ -- $ 1,200,000
Deferred financing costs.................................. 3,210,000 3,210,000
------------ ------------
3,210,000 4,410,000
Less: Accumulated amortization............................ (562,000) (1,127,000)
------------ ------------
$ 2,648,000 $ 3,283,000
============ ============
INTANGIBLE ASSETS
License agreements........................................ $ 6,463,000 $ 6,463,000
Trademarks and trade names................................ 3,984,000 3,984,000
Patents................................................... 335,000 335,000
Goodwill.................................................. 60,134,000 61,999,000
------------ ------------
70,916,000 72,781,000
Less: Accumulated amortization............................ (13,974,000) (11,569,000)
------------ ------------
$ 56,942,000 $ 61,212,000
============ ============
</TABLE>
NOTE 5 -- LONG-TERM DEBT:
On December 14, 1995, in connection with the Amav acquisition (Note 3), the
Company amended its existing credit agreement with a group of banks to provide a
$110,000,000 Credit Facility (the "Credit Facility") consisting of a $60,000,000
Term Loan (the "Term Loan"), a $40,000,000 Revolving Credit Facility (the
"Revolving Loan"), and a $10,000,000 Letter of Credit Facility. During 1996, the
Company amended the Credit Facility to provide a seasonal increase of
$10,000,000 to the Revolving Loan limit. This increase was in effect from
September 1, 1996 through January 15, 1997. Borrowings under the Credit Facility
bear interest, at the option of the Company, at either the prime rate plus 1.75%
or a Eurodollar rate plus 3.0%. The Company is also required to pay a commitment
fee of 0.50% per annum on the daily unborrowed portion of the Revolving Loan.
F-45
<PAGE> 188
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Credit Facility, which expires on December 14, 2001, is secured by
substantially all of the Company's assets and contains customary restrictive
covenants requiring the maintenance of certain minimum financial ratios and
limiting the amount of any dividends paid by the Company.
As of December 31, 1996, the Company had two three-year interest rate swap
agreements (the "Swap Agreements") in place with two of its lenders, with
notional amounts totaling $27 million. Under the Swap Agreements, the Company
exchanged a variable interest rate for a fixed interest rate of 8.41%. The
Company anticipates that the counter parties to the Swap Agreements will fully
perform their obligations.
The Company also maintains various other mortgages, equipment loans and
other loans ("Other Loans") with varying interest rates and maturities,
including the mortgage on Amav's Montreal, Quebec facility ("Amav Mortgage")
with a balance and interest rate of $5,750,000 and 9.88% at December 31, 1996,
respectively. The Amav Mortgage is payable in full on December 14, 2002, is held
by the Seller and is secured by the Montreal Facility.
Aggregate maturities of long-term debt over the next five years are as
follows: 1997 -- $8,893,000; 1998 -- $10,847,000; 1999 -- $10,658,000;
2000 -- $12,383,000; 2001 -- $14,213,000
NOTE 6 -- INCOME TAXES:
The sources of pretax income (loss) are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Domestic................................ $ (397,000) $ 5,419,000 $10,941,000
Foreign................................. 12,550,000 7,430,000 --
----------- ----------- -----------
$12,153,000 $12,849,000 $10,941,000
=========== =========== ===========
</TABLE>
The Company has not provided for U.S. federal income and foreign income
withholding taxes on its foreign subsidiaries' undistributed earnings as of
December 31, 1996, because such earnings are considered to be indefinitely
reinvested. Repatriation of these earnings would not materially increase the
Company's tax liability. If these earnings were distributed in the form of
dividends or otherwise, foreign tax credits could be used to offset the U.S.
income taxes due on income earned from foreign sources.
The components of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
State................................. $ (21,000) $ 498,000 $ 860,000
U.S. Federal.......................... (102,000) 2,403,000 3,916,000
Foreign............................... 3,183,000 2,854,000 --
---------- ---------- ----------
3,060,000 5,755,000 4,776,000
---------- ---------- ----------
Deferred:
State................................. (7,000) (114,000) (53,000)
U.S. Federal.......................... (33,000) (518,000) (241,000)
Foreign................................. 1,375,000 44,000 --
---------- ---------- ----------
1,335,000 (588,000) (294,000)
---------- ---------- ----------
$4,395,000 $5,167,000 $4,482,000
========== ========== ==========
</TABLE>
F-46
<PAGE> 189
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes differ from those computed using the
statutory U.S. federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Expected provision.................... $4,132,000 34% $4,369,000 34% $3,720,000 34%
Rate difference on foreign income..... 279,000 2 372,000 3 -- --
State income taxes, net of federal
benefit............................. 1,000 -- 254,000 2 521,000 5
Amortization of goodwill.............. 106,000 1 106,000 1 106,000 1
Other................................. (123,000) (1) 66,000 -- 135,000 1
---------- -- ---------- -- ---------- --
Actual provision...................... $4,395,000 36% $5,167,000 40% $4,482,000 41%
========== == ========== == ========== ==
</TABLE>
The net deferred tax asset (liability) is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Depreciation of property, plant and equipment............... $(946,000) $(411,000)
Amortization of package design costs........................ 871,000 714,000
Amortization of intangible assets........................... (547,000) 146,000
Allowance for doubtful accounts............................. 70,000 191,000
Additional inventory capitalization......................... 18,000 65,000
Accrued restructuring costs................................. -- 64,000
Other....................................................... (2,000) 30,000
--------- ---------
$(536,000) $ 799,000
========= =========
</TABLE>
NOTE 7 -- STOCK OPTION PLANS:
The Company maintains three stock option plans, the 1988 Key Employee Stock
Option Plan, the 1992 Key Employee Stock Option Plan and the 1992 Directors'
Stock Option Plan, which entitle certain employees and directors of the Company
to acquire up to 490,000, 900,000 and 15,000 shares, respectively, of the
Company's authorized common stock. Options granted under these plans have a
maximum term of 10 years. Awards can no longer be granted under the 1988 plan.
Options granted under the 1992 plans are made at the discretion of the
Compensation Committee of the Board of Directors, are to be issued at no less
than the fair market value of the Company's common stock at the date of the
grant, and vest over periods of time, as determined by the Compensation
Committee.
Additionally, during 1993, options to purchase 540,000 shares of the
Company's common stock were granted to the Company's Chairman, President and
Chief Executive Officer at the fair market value of the Company's common stock
on the date of grant. These options vest in equal annual installments over three
years and have a maximum term of 10 years.
F-47
<PAGE> 190
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option transactions during the three
years ended December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES OPTION PRICES EXERCISE PRICE
--------- ----------------- ----------------
<S> <C> <C> <C>
Shares under option at December 31, 1993........ 1,270,000 $0.974 to $12.750 $ 7.275
Options granted............................... 481,000 6.750 to 8.750 8.005
Options exercised............................. (89,000) 0.974 to 7.250 2.928
Options terminated............................ (451,000) 1.160 to 12.750 10.154
--------- ----------------- -------
Shares under option at December 31, 1994........ 1,211,000 0.974 to 10.125 6.646
Options granted............................... 91,500 6.250 to 8.625 6.773
Options exercised............................. --
Options terminated............................ (62,934) 8.000 to 8.500 8.076
--------- ----------------- -------
Shares under option at December 31, 1995........ 1,239,566 0.974 to 10.125 6.583
Options granted............................... 317,000 5.750 to 6.500 6.020
Options exercised............................. (27,000) 6.456 to 6.456 6.456
Options terminated............................ (111,066) 6.250 to 9.750 7.605
--------- ----------------- -------
Shares under option at December 31, 1996........ 1,418,500 0.974 to 10.125 6.370
--------- ----------------- -------
Shares exercisable at December 31, 1996......... 853,367 0.974 to 10.125 6.168
Shares exercisable at December 31, 1995......... 636,600 0.974 to 10.125 6.122
Shares exercisable at December 31, 1994......... 312,400 $0.974 to $10.125 $ 5.515
--------- ----------------- -------
</TABLE>
At December 31, 1996, 202,500 remaining options are available for grant
under the 1992 Key Employee Stock Option Plan and 9,000 remaining options are
available for grant under the 1992 Director's Stock Option Plan.
The following table summarizes information about shares under option at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE --------------------------
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ---------------- --------- ---------------- ---------------- ------- ----------------
<C> <C> <C> <C> <C> <C>
$0.974 - $ 1.320 55,000 2.42 $1.100 55,000 $1.100
5.250 - 5.750 187,000 9.10 5.737 1,000 5.250
6.110 - 6.750 851,500 7.13 6.212 646,900 6.164
7.000 - 7.875 115,000 7.19 7.353 50,000 7.330
8.000 - 8.750 206,600 7.62 8.394 97,067 8.348
9.750 - 10.125 3,400 6.04 9.816 3,400 9.816
--------- ----- ------- ------- -------
$0.974 - $10.125 1,418,500 7.28 $6.370 853,367 $6.168
--------- ----- ------- ------- -------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's plans been determined based on
the fair value at the grant date for awards in the years ended December 31, 1996
and 1995, the Company's net income and net income per share would not have been
materially different from the amounts reported by the Company.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for options granted during the years ended December 31, 1996
and 1995: dividend yield of 0.0%; risk-free interest rate of 7.5%; and expected
term of 7.5 years. For options granted during the years ended December 31, 1996
and 1995, an expected volatility of 40.0% and 41.7%, respectively, was assumed.
The weighted-average fair value of options granted during the year ended
December 31, 1996 totaled $3.47.
F-48
<PAGE> 191
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLAN:
The Company maintains a contributory profit sharing plan established
pursuant to the provisions of Section 401(k) of the Internal Revenue Code which
provides retirement benefits for eligible employees of the Company. The Company
may make annual discretionary contributions to the plan. Discretionary
contributions during the years ended December 31, 1996, 1995 and 1994 aggregated
$187,000, $72,000 and $296,000, respectively.
NOTE 9 -- COMMITMENTS UNDER OPERATING LEASE AGREEMENTS:
The Company leases certain office and distribution facilities and
manufacturing and office equipment under operating lease agreements with terms
expiring at various times through 2001.
Aggregate future minimum lease commitments, exclusive of escalation
payments, for noncancellable leases that have initial or remaining lease terms
in excess of one year as of December 31, 1996 are as follows: 1997 --
$1,159,000; 1998 -- $982,000; 1999 -- $421,000; 2000 -- $55,000;
2001 -- $53,000.
Rent expense under operating leases for the years ended December 31, 1996,
1995 and 1994 aggregated approximately $1,035,000, $1,544,000 and $1,006,000,
respectively.
NOTE 10 -- STOCK REPURCHASE:
On October 19, 1995, the Company's Board of Directors approved the
repurchase of up to 500,000 shares of the Company's common stock. Such
repurchases can be made from time to time in the open market, in privately
negotiated transactions or otherwise. As of December 31, 1996, the Company had
repurchased 105,000 shares of common stock under this program at a total cost of
$671,000. The Company's Credit Facility allows for annual stock repurchases of
up to 10% of the prior year's net income, or $776,000, in 1997.
NOTE 11 -- GEOGRAPHIC INFORMATION:
Summarized geographic information for the years ended December 31, 1996 and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER FOREIGN
1996 STATES CANADA OPERATIONS ELIMINATIONS TOTAL
---- -------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $139,579 $11,205 $7,129 $ -- $157,913
Transfers between geographic areas...... 9,649 52,637 -- (62,286) --
-------- ------- ------ --------- --------
Total net sales......................... $149,228 $63,842 $7,129 $ (62,286) $157,913
-------- ------- ------ --------- --------
Operating income........................ $ 6,206 $15,760 $ 675 $ (1,426) $ 21,215
-------- ------- ------ --------- --------
Identifiable assets..................... $210,106 $64,761 $5,145 $(120,018) $159,994
-------- ------- ------ --------- --------
</TABLE>
<TABLE>
<CAPTION>
UNITED OTHER FOREIGN
1995 STATES CANADA OPERATIONS ELIMINATIONS TOTAL
---- -------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers....... $121,314 $ 6,261 $1,147 $ -- $128,722
Transfers between geographic areas.... 2,389 18,332 -- (20,721) --
-------- ------- ------ --------- --------
Total net sales....................... $123,703 $24,593 $1,147 $ (20,721) $128,722
-------- ------- ------ --------- --------
Operating income...................... $ 8,029 $ 7,544 $ 334 $ (1,061) $ 14,846
-------- ------- ------ --------- --------
Identifiable assets................... $194,500 $66,026 $5,645 $(122,033) $144,138
-------- ------- ------ --------- --------
</TABLE>
The Company generated no material foreign income for the year ended
December 31, 1994 and owned no material foreign assets at December 31, 1994.
F-49
<PAGE> 192
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized unaudited quarterly data for the years ended December 31, 1996
and 1995 are as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------
1996 FIRST SECOND THIRD FOURTH TOTAL
---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales................................... $18,883 $29,609 $49,633 $59,788 $157,913
Gross profit................................ 5,619 11,115 18,310 25,067 60,111
Operating income (loss)..................... (1,934) 2,812 7,771 12,566 21,215
Net income (loss)........................... (2,228) 483 3,067 6,436 7,758
Net income (loss) per share................. $(0.21) $ 0.05 $ 0.30 $ 0.62 $ 0.75
Weighted average number of shares
outstanding (in thousands)................ 10,364 10,324 10,305 10,406 10,316
Market price of common stock:
High...................................... $ 7.250 $ 7.250 $ 6.250 $ 8.750 $ 8.750
Low....................................... 5.750 $ 5.750 4.250 5.125 4.250
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------
1995 FIRST SECOND THIRD FOURTH TOTAL
---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales................................... $14,807 $37,478 $28,238 $48,199 $128,722
Gross profit................................ 5,622 13,081 9,983 19,343 48,029
Operating income............................ 375 3,576 2,026 8,869 14,846
Net income.................................. 65 1,906 1,014 4,697 7,682
Net income per share........................ $ 0.01 $ 0.18 $ 0.10 $ 0.45 $ 0.73
Weighted average number of shares
outstanding (in thousands)................ 10,495 10,540 10,529 10,380 10,487
Market price of common stock:
High...................................... $ 8.250 $ 9.250 $ 9.000 $ 7.250 $ 9.250
Low....................................... 6.750 7.000 6.500 5.250 5.250
</TABLE>
NOTE 13 -- SUBSEQUENT EVENT:
On April 10, 1997, Hedstrom Holdings, Inc. and HC Acquisition Corp., a
wholly owned subsidiary of Hedstrom Holdings, Inc., entered into an Agreement
and Plan of Merger (the "Merger Agreement") with ERO to acquire the Company for
a total enterprise value of approximately $200 million. Pursuant to the Merger
Agreement, HC Acquisition Corp. commenced and, on June 12, 1997, consummated a
tender offer for all of the outstanding shares of common stock of the Company.
Following is consolidating financial information pertaining to the Company
and its subsidiary guarantors and its subsidiary nonguarantors (with respect to
Hedstrom Holdings, Inc.'s 10% Senior Subordinated Notes Due 2007 and Senior
Credit Facilities) for the years ended December 31, 1996 and 1995.
F-50
<PAGE> 193
ERO, INC.
CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
------------------------------------------------------------ -------------------------------
PARENT PARENT
COMPANY COMPANY
AND TOTAL AND TOTAL
SUBSIDIARY SUBSIDIARY ERO, INC. SUBSIDIARY SUBSIDIARY
GUARANTORS NON-GUARANTORS ELIMINATION CONSOLIDATED GUARANTORS NON-GUARANTORS
-------------- -------------- ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ 3,992 $ 1,102 $ -- $ 5,094 $ 154 $ --
Accounts receivable........ 40,496 8,118 (318) 48,296 32,944 5,737
Inventories................ 16,073 7,595 (1,610) 22,058 12,596 5,437
Prepaid expenses and
other.................... 3,784 301 -- 4,085 2,709 575
-------- ------- --------- -------- -------- --------
Total current assets..... 64,345 17,116 (1,928) 79,533 48,403 11,749
-------- ------- --------- -------- -------- --------
Property, plant, and
equipment, net........... 6,118 14,753 -- 20,871 6,522 13,826
-------- ------- --------- -------- -------- --------
Goodwill................... 26,835 30,107 -- 56,942 28,188 33,024
Deferred financing costs... 1,460 1,188 -- 2,648 1,855 1,428
Deferred income taxes...... -- -- -- -- 843 --
Investment in/advances to
Subsidiaries............. 107,344 -- (107,344) -- 104,716 --
-------- ------- --------- -------- -------- --------
Total other assets....... 135,639 31,295 (107,344) 59,590 135,602 34,452
-------- ------- --------- -------- -------- --------
Total assets................. $206,102 $63,164 $(109,272) $159,994 $190,527 $ 60,027
======== ======= ========= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt........... $ 8,120 $ 773 $ -- $ 8,893 $ 6,123 $ 605
Accounts payable........... 6,289 4,235 (1,135) 9,389 3,400 3,319
Accrued expenses........... 9,527 2,156 (338) 11,345 11,618 2,872
Income taxes payable
(receivable)............. (408) (866) 1,344 70 1,047 1,284
-------- ------- --------- -------- -------- --------
Total current
liabilities............ 23,528 6,298 (129) 29,697 22,188 8,080
-------- ------- --------- -------- -------- --------
Revolving loan............. 29,727 1,798 -- 31,525 15,225 --
Term loan.................. 40,250 5,750 -- 46,000 54,000 --
Intercompany advance and
other.................... 70,490 -- (61,268) 9,222 63,050 7,263
-------- ------- --------- -------- -------- --------
Total long-term debt..... 140,467 7,548 (61,268) 86,747 132,275 7,263
Intercompany -- other long-
term liability and
equity................... -- 33,831 (33,831) -- -- 40,188
Deferred income taxes...... (907) 1,443 -- 536 -- --
-------- ------- --------- -------- -------- --------
Total stockholders' equity... 43,014 14,044 (14,044) 43,014 36,064 4,496
-------- ------- --------- -------- -------- --------
Total liabilities and
stockholders' equity....... $206,102 $63,164 $(109,272) $159,994 $190,527 $ 60,027
======== ======= ========= ======== ======== ========
<CAPTION>
AT DECEMBER 31, 1995
--------------------------
ERO, INC.
ELIMINATION CONSOLIDATED
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ -- $ 154
Accounts receivable........ (2) 38,679
Inventories................ (1,032) 17,001
Prepaid expenses and
other.................... (622) 2,662
--------- ---------
Total current assets..... (1,656) 58,496
--------- ---------
Property, plant, and
equipment, net........... -- 20,348
--------- ---------
Goodwill................... -- 61,212
Deferred financing costs... -- 3,283
Deferred income taxes...... (44) 799
Investment in/advances to
Subsidiaries............. (104,716) --
--------- ---------
Total other assets....... (104,760) 65,294
--------- ---------
Total assets................. $(106,416) $ 144,138
========= =========
Current liabilities:
Current portion of
long-term debt........... $ -- $ 6,728
Accounts payable........... (321) 6,398
Accrued expenses........... (694) 13,796
Income taxes payable
(receivable)............. 551 2,882
--------- ---------
Total current
liabilities............ (464) 29,804
--------- ---------
Revolving loan............. -- 15,225
Term loan.................. -- 54,000
Intercompany advance and
other.................... (61,268) 9,045
--------- ---------
Total long-term debt..... (61,268) 78,270
Intercompany -- other long-
term liability and
equity................... (40,188) --
Deferred income taxes...... -- --
--------- ---------
Total stockholders' equity... (4,496) 36,064
--------- ---------
Total liabilities and
stockholders' equity....... $(106,416) $ 144,138
========= =========
</TABLE>
F-51
<PAGE> 194
ERO, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
PARENT
COMPANY
AND TOTAL
STATEMENT OF SUBSIDIARY SUBSIDIARY ERO, INC.
OPERATIONS GUARANTORS NON-GUARANTORS ELIMINATION CONSOLIDATED
------------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............ $90,074 $67,839 $ -- $157,913
Cost of sales........ 50,593 47,209 -- 97,802
------- ------- ------- --------
Gross profit......... 39,481 20,630 -- 60,111
Selling, general and
administrative..... 34,329 4,567 -- 38,896
------- ------- ------- --------
Operating income..... 5,152 16,063 -- 21,215
Interest............. 6,126 2,936 -- 9,062
------- ------- ------- --------
Income before income
taxes.............. (974) 13,127 -- 12,153
Income tax
provision.......... 816 3,579 -- 4,395
------- ------- ------- --------
Net income (loss)
before equity
income
adjustment......... (1,790) 9,548 -- 7,758
Equity income in
subsidiaries....... 9,548 -- (9,548) --
------- ------- ------- --------
Net income (loss).... $ 7,758 $ 9,548 $(9,548) $ 7,758
======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
PARENT
COMPANY
AND TOTAL
STATEMENT OF SUBSIDIARY SUBSIDIARY ERO, INC.
OPERATIONS GUARANTORS NON-GUARANTORS ELIMINATION CONSOLIDATED
------------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............ $107,911 $20,811 $ -- $128,722
Cost of sales........ 67,643 13,050 -- 80,693
-------- ------- ------- --------
Gross profit......... 40,268 7,761 -- 48,029
Selling, general and
administrative..... 31,551 1,632 -- 33,183
-------- ------- ------- --------
Operating income..... 8,717 6,129 -- 14,846
Interest............. 1,633 364 -- 1,997
-------- ------- ------- --------
Income before income
taxes.............. 7,084 5,765 -- 12,849
Income tax
provision.......... 3,898 1,269 -- 5,167
-------- ------- ------- --------
Net income (loss)
before equity
income
adjustment......... 3,186 4,496 -- 7,682
Equity income in
subsidiaries....... 4,496 -- (4,496) --
-------- ------- ------- --------
Net income (loss).... $ 7,682 $ 4,496 $(4,496) $ 7,682
======== ======= ======= ========
</TABLE>
F-52
<PAGE> 195
ERO, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
PARENT
COMPANY TOTAL
AND SUBSIDIARY
SUBSIDIARY NON- ERO, INC.
GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 7,758 $ 9,548 $(9,548) $ 7,758
Adjustments to reconcile net
income to net cash (used for)
provided by operating
activities:
Equity income in
subsidiaries............... (9,548) -- 9,548 --
Depreciation of property,
plant and equipment........ 1,255 1,484 -- 2,739
Amortization of other
assets..................... 2,370 1,025 -- 3,395
Deferred income taxes........ (110) 1,445 -- 1,335
(Gain) loss on the
disposition of property,
plant and equipment........ -- 21 -- 21
Provision for losses on
accounts receivable........ 716 54 -- 770
Tax benefit of stock options
exercised.................. 9 -- -- 9
Changes in current assets and
current liabilities, net of
acquisitions:
Accounts receivable........ (8,024) (2,381) -- (10,405)
Inventories................ (2,800) (2,158) -- (4,958)
Prepaid expenses and other
current assets........... (1,688) 274 -- (1,414)
Accounts payable........... 1,556 1,386 -- 2,942
Accrued expenses........... 529 (1,186) -- (657)
Intercompany other
long-term liability...... 6,179 (6,179) -- --
Income taxes............... (1,341) (1,471) -- (2,812)
------- ------- ------- --------
Net cash (used for) provided by
operating activities........... (3,139) 1,862 -- (1,277)
------- ------- ------- --------
Cash flows from investing
activities:
Acquisitions of property, plant
and equipment................ (2,406) (1,219) -- (3,625)
Acquisition of Amav Industries,
Ltd. ........................ -- -- -- --
Proceeds from the sale of
property, plant and
equipment.................... -- 6 -- 6
------- ------- ------- --------
Net cash used for investing
activities..................... (2,406) (1,213) -- (3,619)
------- ------- ------- --------
Cash flows from financing
activities:
Net borrowings under revolving
loan facility................ 16,189 111 -- 16,300
Net repayments under term loan
facility..................... (6,000) -- -- (6,000)
Net repayments under other
loans........................ -- 342 -- 342
Financing fees paid............ (310) -- -- (310)
Purchase of common stock for
treasury..................... 175 -- -- 175
Net proceeds from the exercise
of stock options............. (671) -- -- (671)
------- ------- ------- --------
Net cash provided (used) by
financing activities........... 9,383 453 -- 9,836
------- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents........... 3,838 1,102 -- 4,940
Cash and cash equivalents:
Beginning of period............ 154 -- -- 154
------- ------- ------- --------
End of period.................. $ 3,992 $ 1,102 $ -- $ 5,094
======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
PARENT
COMPANY TOTAL
AND SUBSIDIARY
SUBSIDIARY NON- ERO, INC.
GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 7,682 $ 4,496 $(4,496) $ 7,682
Adjustments to reconcile net
income to net cash (used for)
provided by operating
activities:
Equity income in
subsidiaries............... (4,496) -- 4,496 --
Depreciation of property,
plant and equipment........ 1,189 233 -- 1,422
Amortization of other
assets..................... 2,024 213 -- 2,237
Deferred income taxes........ (632) 44 -- (588)
(Gain) loss on the
disposition of property,
plant and equipment........ (3) -- -- (3)
Provision for losses on
accounts receivable........ 214 129 -- 343
Tax benefit of stock options
exercised.................. -- -- -- --
Changes in current assets and
current liabilities, net of
acquisitions:
Accounts receivable........ 2,894 (2,953) -- (59)
Inventories................ 671 2,955 -- 3,626
Prepaid expenses and other
current assets........... (1,069) 133 -- (936)
Accounts payable........... (3,289) (4,618) -- (7,907)
Accrued expenses........... (2,021) 286 -- (1,735)
Intercompany other
long-term liability...... (7,399) 7,399 -- --
Income taxes............... 196 1,304 -- 1,500
-------- ------- ------- --------
Net cash (used for) provided by
operating activities........... (4,039) 9,621 -- 5,582
-------- ------- ------- --------
Cash flows from investing
activities:
Acquisitions of property, plant
and equipment................ (1,052) (720) -- (1,772)
Acquisition of Amav Industries,
Ltd. ........................ (55,098) -- -- (55,098)
Proceeds from the sale of
property, plant and
equipment.................... 3 -- -- 3
-------- ------- ------- --------
Net cash used for investing
activities..................... (56,147) (720) -- (56,867)
-------- ------- ------- --------
Cash flows from financing
activities:
Net borrowings under revolving
loan facility................ 3,350 (8,586) -- (5,236)
Net repayments under term loan
facility..................... 60,000 -- -- 60,000
Net repayments under other
loans........................ -- (315) -- (315)
Financing fees paid............ (3,210) -- -- (3,210)
Purchase of common stock for
treasury..................... -- -- -- --
Net proceeds from the exercise
of stock options............. -- -- -- --
-------- ------- ------- --------
Net cash provided (used) by
financing activities........... 60,140 (8,901) -- 51,239
-------- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents........... (46) -- -- (46)
Cash and cash equivalents:
Beginning of period............ 200 -- -- 200
-------- ------- ------- --------
End of period.................. $ 154 $ -- $ -- $ 154
======== ======= ======= ========
</TABLE>
F-53
<PAGE> 196
ERO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............... $ 1,364 $ 5,094
Trade accounts receivable, net of
allowance for doubtful accounts....... 22,419 48,296
Inventories............................. 25,237 22,058
Prepaid expenses and other current
assets................................ 5,067 4,085
Prepaid income taxes.................... 3,084 --
-------- --------
TOTAL CURRENT ASSETS.................... 57,171 79,533
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost,
net of accumulated depreciation....... 20,244 20,871
-------- --------
OTHER ASSETS:
Deferred charges, net of accumulated
amortization....................... 2,592 2,648
Intangible assets, net of accumulated
amortization....................... 56,374 56,942
-------- --------
TOTAL OTHER ASSETS...................... 58,966 59,590
-------- --------
TOTAL ASSETS............................ $136,381 $159,994
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt....... $ 9,393 $ 8,893
Accounts payable........................ 7,765 9,389
Accrued expenses:
Compensation.......................... 1,139 1,131
Commissions and royalties............. 2,578 4,793
Advertising, freight and other
allowances......................... 1,963 3,821
Other................................. 2,160 1,600
Income taxes payable.................... -- 70
-------- --------
TOTAL CURRENT LIABILITIES............... 24,998 29,697
-------- --------
LONG-TERM DEBT:
Revolving loan........................ 17,600 31,525
Term loan............................. 43,500 46,000
Other loans........................... 8,938 9,222
-------- --------
TOTAL LONG-TERM DEBT.................... 70,038 86,747
-------- --------
DEFERRED TAX LIABILITY.................. 696 536
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
9,947,700 shares authorized, no
shares issued and outstanding...... -- --
Common stock, $0.01 par value,
50,000,000 shares authorized,
10,394,300 shares issued........... 104 104
Capital in excess of par value........ 39,329 39,173
Foreign currency translation
adjustment......................... (365) 3
Retained earnings..................... 2,354 4,507
Common stock held in treasury, 120,000
shares and 15,000 shares,
respectively, at cost.............. (773) (773)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.............. 40,649 43,014
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $136,381 $159,994
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-54
<PAGE> 197
ERO, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
Net sales................................................... $19,939 $18,883
Cost of sales............................................... 13,814 13,264
------- -------
Gross profit................................................ 6,125 5,619
Selling, general and administrative expense................. 7,763 7,553
------- -------
Operating loss.............................................. (1,638) (1,934)
Interest expense............................................ 2,010 1,846
------- -------
Loss before income taxes.................................... (3,648) (3,780)
Income tax benefit.......................................... (1,495) (1,552)
------- -------
Net loss.................................................... $(2,153) $(2,228)
======= =======
Net loss per share.......................................... $ (0.20) $ (0.21)
Weighted average number of shares outstanding (in
thousands)................................................ 10,652 10,364
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-55
<PAGE> 198
ERO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Net loss.................................................... $ (2,153) $(2,228)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation of property, plant and equipment............. 742 631
Amortization of other assets.............................. 715 847
Deferred income taxes..................................... 160 592
Provision for losses on accounts receivable............... 68 164
Tax benefit of stock options exercised.................... 18 --
Changes in current assets and current liabilities, net of
acquisitions:
Accounts receivable.................................... 25,659 16,523
Inventories............................................ (3,304) (3,181)
Prepaid expenses and other current assets.............. (982) (611)
Accounts payable....................................... (1,592) 102
Accrued expenses....................................... (3,469) (3,648)
Income taxes payable................................... (3,154) (4,398)
-------- -------
Net cash provided by operating activities................... 12,708 4,793
-------- -------
Cash flows from investing activities:
Acquisitions of property, plant and equipment............. (289) (448)
-------- -------
Net cash used for investing activities...................... (289) (448)
-------- -------
Cash flows from financing activities:
Net repayments under revolving loan facility.............. (13,925) (1,275)
Net repayments under term loan facility................... (2,000) (1,500)
Net repayments under other loans.......................... (284) (182)
Financing fees paid....................................... (78) --
Net proceeds from the exercise of stock options........... 138 --
Purchase of common stock for treasury..................... -- (671)
-------- -------
Net cash used for financing activities...................... (16,149) (3,628)
-------- -------
Net increase (decrease) in cash and cash equivalents........ (3,730) 717
Cash and cash equivalents:
Beginning of period....................................... 5,094 154
-------- -------
End of period............................................. $ 1,364 $ 871
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-56
<PAGE> 199
ERO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- PRINCIPLES OF CONSOLIDATION:
The accompanying interim consolidated financial statements include the
accounts of ERO, Inc. (the "Company") and its wholly-owned subsidiaries, ERO
Industries, Inc., Impact, Inc., Priss Prints, Inc., Amav Industries, Inc., ERO
Canada, Inc. and ERO Marketing, Inc. These financial statements are unaudited
but, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
condition, results of operations and cash flows of the Company.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, as
filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire fiscal year.
NOTE 2 -- INVENTORIES:
Inventories at March 31, 1997 and December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Raw materials..................................... $ 7,277,000 $ 6,823,000
Work-in-process................................... 4,161,000 1,720,000
Finished goods.................................... 13,799,000 13,515,000
----------- -----------
$25,237,000 $22,058,000
=========== ===========
</TABLE>
F-57
<PAGE> 200
- ------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HEDSTROM CORPORATION OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS
SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 26
Use of Proceeds....................... 33
Capitalization........................ 34
Unaudited Pro Forma Consolidated
Financial Information............... 35
Selected Consolidated Historical
Financial Data of Holdings.......... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Hedstrom and
Holdings............................ 41
Selected Consolidated Historical
Financial Data of ERO............... 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of ERO................ 47
Business.............................. 50
Management............................ 60
Stock Ownership and Certain
Transactions........................ 64
Description of the Senior Credit
Facilities.......................... 67
The Exchange Offers................... 68
Certain United States Federal Income
Tax Considerations Relating to the
Exchange Offers..................... 77
Description of New Senior Subordinated
Notes............................... 78
Description of the New Discount
Notes............................... 106
Certain United States Federal Income
Tax Considerations with Respect to
the New Notes....................... 131
Description of Capital Stock.......... 138
Plan of Distribution.................. 140
Legal Matters......................... 140
Independent Auditors.................. 140
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HEDSTROM
Offer for All Outstanding
10% Senior Subordinated Notes
Due 2007
in Exchange for
10% Senior Subordinated Notes
Due 2007
of
Hedstrom Corporation
Offer for All Outstanding
12% Senior Discount Notes
Due 2009
in Exchange for
12% Senior Discount Notes
Due 2009
of
Hedstrom Holdings, Inc.
PROSPECTUS
, 1997
- -------------------------------------------------------------------------------
<PAGE> 201
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable in connection with the
offering of the securities to be registered and offered hereby. All of such
expenses are estimates, other than the registration fee payable to the
Securities and Exchange Commission.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $41,018.08
----------
Printing and Engraving Expenses............................. *
----------
Legal Fees and Expenses..................................... *
----------
Accounting Fees and Expenses................................ *
----------
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes corporations to limit or to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The certificate of
incorporation of each Issuer, as amended, limits the liability of such Issuer's
directors to such Issuer or its stockholders to the fullest extent permitted by
the Delaware statute as in effect from time to time. Specifically, directors of
an Issuer will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to such Issuer or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in the Delaware law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The certificate of incorporation, as amended, of each Issuer provides that
such Issuer shall indemnify its officers and directors and former officers and
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware. Pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware, each Issuer has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of such Issuer) by reason of the fact that he is or
was a director, officer, employee, or agent of such Issuer, against any and all
expenses, judgments, fines, and amounts paid in actually and reasonably incurred
in connection with such action, suit, or proceeding. The power to indemnify
applies only if such person acted in good faith and in a manner he reasonably
believed to be in the best interest or not opposed to the best interest, of the
Issuer and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of an
Issuer as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
II-1
<PAGE> 202
Insofar as indemnifications for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of an Issuer pursuant to the foregoing
provisions, or otherwise, the Issuers have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by an Issuer of expenses incurred or paid by a director, officer or
controlling person thereof in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, such Issuer will, unless in the
opinion of its counsel the matter has been settled by controlled precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 12, 1997, Hedstrom sold $110,000,000 aggregate principal amount of
Old Senior Subordinated Notes in a private placement in reliance on Section 4(2)
under the Securities Act, at a price equal to 100% of the stated principal
amount of such Old Senior Subordinated Notes. The Old Senior Subordinated Notes
were immediately resold by the initial purchasers thereof in reliance on Rule
144A under the Securities Act.
On June 12, 1997, Holdings sold 44,612 Units consisting of $44,612,000
aggregate principal amount at maturity of Old Discount Notes and 2,705,896
shares of Holdings Common Stock in a private placement in reliance of Section
4(2) under the Securities Act, for a total price of $25,000,000. The Old
Discount Notes were immediately resold by the initial purchasers thereof in
reliance on Rule 144A under the Securities Act.
On October 27, 1995, in connection with the 1995 Recapitalization, Holdings
issued (i) to HM Fund II and certain other parties, an aggregate of 32,941,499
shares of Holdings Common Stock, and (ii) to certain officers of Hedstrom and
other individuals, Subordinated Notes, Promissory Notes (Series A) and
Promissory Notes (Series B) in private placements in reliance on Section 4(2)
under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of April 10, 1997,
among Hedstrom Corporation, HC Acquisition Corp. and ERO,
Inc.*
3.1 -- Restated Certificate of Incorporation of Hedstrom
Holdings, Inc., as filed with the Secretary of State of
the State of Delaware on October 27, 1995.*
3.2 -- Certificate of Amendment of Restated Certificate of
Incorporation of Hedstrom Holdings, Inc., as filed with
the Secretary of State of the State of Delaware on June
6, 1997.*
3.3 -- Restated Bylaws of Hedstrom Holdings, Inc.*
3.4 -- Certificate of Incorporation of New Hedstrom Corp., as
filed with the Secretary of State of the State of
Delaware on November 20, 1990.*
3.5 -- Certificate of Amendment of the Certificate of
Incorporation of New Hedstrom Corp., as filed with the
Secretary of State of the State of Delaware on January
14, 1991.*
3.6 -- By-Laws of Hedstrom Corporation.*
3.7 -- Amended and Restated Certificate of Incorporation of ERO,
Inc., as filed as Annex A to that certain Certificate of
Ownership and Merger filed with the Secretary of State of
the State of Delaware on June 12, 1997 merging HC
Acquisition Corp. with and into ERO, Inc.*
3.8 -- Amended and Restated Bylaws of ERO, Inc.*
3.9 -- Certificate of Incorporation of ERO Industries, Inc., as
filed as Annex A to that certain Certificate of Merger
filed with the Secretary of State of the State of
Delaware on July 15, 1988 merging GTC Leisure, Inc. with
and into ERO Industries, Inc.*
3.10 -- By-Laws of ERO Industries, Inc.*
3.11 -- Articles of Incorporation of ERO Marketing, Inc., as
filed with the Secretary of State of the State of
Illinois on January 21, 1992.*
</TABLE>
II-2
<PAGE> 203
<TABLE>
<CAPTION>
<C> <S>
3.12 -- Bylaws of ERO Marketing, Inc.*
3.13 -- Certificate of Incorporation of Priss Prints Acquisition
Corp., as filed with the Secretary of State of the State
of Delaware on September 19, 1986.*
3.14 -- Certificate of Amendment of Certificate of Incorporation
of Priss Prints Acquisition Corp., as filed with the
Secretary of State of the State of Delaware on November
5, 1986.*
3.15 -- By-Laws of Priss Prints, Inc.*
3.16 -- Certificate of Incorporation of Impact, Inc., as filed
with the Secretary of State of the State of Delaware on
November 3, 1993.*
3.17 -- By-Laws of Impact, Inc.*
3.18 -- Certificate of Incorporation of ERO Canada, Inc., as
filed with the Secretary of State of the State of
Delaware on August 3, 1994.*
3.19 -- By-Laws of ERO Canada, Inc.*
3.20 -- Certificate of Incorporation of ERO NY Acquisition, Inc.,
as filed with the Secretary of State of the State of
Delaware on October 12, 1995.*
3.21 -- Certificate of Amendment of Certificate of Incorporation
of ERO NY Acquisition, Inc., as filed with the Secretary
of State of the State of Delaware on January 23, 1996.*
3.22 -- By-Laws of Amav Industries, Inc.*
4.1 -- Indenture, dated as of June 1, 1997, among Hedstrom
Corporation, Hedstrom Holdings, Inc., the Subsidiary
Guarantors identified on the signature pages thereto and
IBJ Schroder Bank & Trust Company, as Trustee.*
4.2 -- Form of Old Senior Subordinated Note (included as Exhibit
1 to the Appendix of Exhibit 4.1 hereto).
4.3 -- Form of New Senior Subordinated Note (included as Exhibit
A to Exhibit 4.1 hereto).
4.4 -- Indenture, dated as of June 1, 1997, among Hedstrom
Holdings, Inc. and United States Trust Company of New
York, as Trustee.*
4.5 -- Form of Old Discount Note (included as Exhibit 1 to the
Appendix of Exhibit 4.4 hereto).
4.6 -- Form of New Discount Note (included as Exhibit A to
Exhibit 4.4 hereto).
4.7 -- Purchase Agreement, dated as of June 9, 1997, among
Hedstrom Corporation and Hedstrom Holdings, Inc., as
Issuers, and Credit Suisse First Boston Corporation,
Societe Generale Securities Corporation and UBS
Securities LLC, as Initial Purchasers.*
4.8 -- Registration Rights Agreement, dated as of June 9, 1997,
among Hedstrom Corporation and Hedstrom Holdings, Inc.,
as Issuers, and Credit Suisse First Boston Corporation,
Societe Generale Securities Corporation and UBS
Securities LLC, as Initial Purchasers.*
4.9 -- Common Stock Registration Rights Agreement, dated as of
June 9, 1997, among Hedstrom Holdings, Inc. and Credit
Suisse First Boston Corporation, Societe Generale
Securities Corporation and UBS Securities LLC, as Initial
Purchasers.*
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the
securities issued hereby.+
10.1 -- Credit Agreement, dated as of June 12, 1997, among
Hedstrom Corporation, Hedstrom Holdings, Inc., the
Lenders from time to time parties thereto, Societe
Generale, as Documentation Agent, UBS Securities LLC, as
Syndication Agent, and Credit Suisse First Boston
Corporation, as Administrative Agent.*
10.2 -- Form of Tranche A Note (included as Exhibit A to Exhibit
10.1 hereto).
10.3 -- Form of Tranche B Note (included as Exhibit B to Exhibit
10.1 hereto).
10.4 -- Form of Revolving Credit Note (included as Exhibit C to
Exhibit 10.1 hereto).
10.5 -- Form of Swing Line Note (included as Exhibit D to Exhibit
10.1 hereto).
10.6 -- Master Guarantee and Collateral Agreement, dated as of
June 12, 1997, made by Hedstrom Corporation, Hedstrom
Holdings, Inc. and the other Grantors party thereto in
favor of Credit Suisse First Boston Corporation, as
Administrative Agent.*
10.7 -- Open End Mortgage, dated as of June 12, 1997, from
Hedstrom Corporation, as Mortgagor, to Credit Suisse
First Boston Corporation, as Mortgagee.*
</TABLE>
II-3
<PAGE> 204
<TABLE>
<CAPTION>
<C> <S>
10.8 -- Open End Mortgage and Security Agreement, dated as of
June 12, 1997, from Hedstrom Corporation, as Mortgagor,
to Credit Suisse Corporation, as Mortgagee.*
10.9 -- Deed and Security Agreement, dated as of June 12, 1997,
from ERO Industries, Inc., as Grantor, to Credit Suisse
First Boston Corporation, as Grantee.*
10.10 -- Mortgage of Shares, dated as of June 12, 1997, between
Hedstrom Corporation, as Chargor, and Credit Suisse First
Boston, as Administrative Agent.*
10.11 -- Mortgage of Shares, dated as of June 12, 1997, between
Amav Industries, Inc., as Chargor, and Credit Suisse
First Boston, as Administrative Agent.*
10.12 -- Stockholders Agreement, dated as of October 27, 1995,
among Hedstrom Holdings and the Holders listed on the
signature pages thereof.*
10.13 -- First Amendment to Stockholders Agreement, dated as of
June 1, 1997, between Hedstrom Holdings, Inc. and Hicks,
Muse, Tate & Furst Equity Fund II, L.P.*
10.14 -- Form of Subordinated Note issued by Hedstrom Holdings,
Inc.*
10.15 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Subordinated Notes of
Hedstrom Holdings, Inc.*
10.16 -- Form of Promissory Note (Series A) issued by Hedstrom
Holdings, Inc.*
10.17 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Promissory Notes (Series A)
of Hedstrom Holdings, Inc.*
10.18 -- Form of Promissory Note (Series B) issued by Hedstrom
Holdings, Inc.*
10.19 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Promissory Notes (Series B)
of Hedstrom Holdings, Inc.*
10.20 -- Executive Employment Agreement, dated as of October 27,
1995, among Hedstrom Holdings, Inc., Hedstrom Corporation
and Arnold E. Ditri.*
10.21 -- Executive Employment Agreement, dated as of October 27,
1995, between Hedstrom Corporation and Alastair
McKelvie.*
10.22 -- Monitoring and Oversight Agreement, dated as of October
27, 1995, among Hedstrom Holdings, Inc., Hedstrom
Corporation and Hicks, Muse & Co. Partners, L.P.*
10.23 -- Financial Advisory Agreement, dated as of October 27,
1995, among Hedstrom Holdings, Inc., Hedstrom Corporation
and HM2/Management Partners, L.P.*
10.24 -- Hedstrom Holdings, Inc. 1995 Stock Option Plan.*
10.25 -- Manufacturing Agreement, dated as of July 21, 1987,
between Euro-Matic Ltd. and Hedstrom Corporation.*
10.26 -- Manufacturing and Royalty Agreement, dated as of April
13, 1994, between Euro-Matic Ltd. and Hedstrom
Corporation.*
10.27 -- Manufacturing Agreement, dated as of December 21, 1994,
between Euro-Matic Limited and Hedstrom Corporation.*
10.28 -- Lease, dated as of January 24, 1992, between J.J.D.
Properties and Hedstrom Corporation.*
10.29 -- Net Lease Agreement, dated as of May 26, 1992, between
Opus North Corporation and ERO Industries, Inc.*
12.1 -- Statement Re: Computation of Ratio of Earnings to Fixed
Charges.*
12.2 -- Statement Re: Computation of Pro Forma Ratio of Earnings
to Fixed Charges.*
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).+
23.2 -- Consent of Arthur Andersen LLP, independent auditors.*
23.3 -- Consent of Price Waterhouse LLP, independent auditors.*
24.1 -- Power of Attorney for Hedstrom Corporation (included on
the signature page of Hedstrom Corporation to this
Registration Statement).
24.2 -- Power of Attorney for Hedstrom Holdings, Inc. (included
on the signature page of Hedstrom Holdings, Inc. to this
Registration Statement).
</TABLE>
II-4
<PAGE> 205
<TABLE>
<CAPTION>
<C> <S>
24.3 -- Power of Attorney for ERO, Inc. (included on the
signature page of ERO, Inc. to this Registration
Statement).
24.4 -- Power of Attorney for ERO Industries, Inc. (included on
the signature page of ERO Industries, Inc. to this
Registration Statement).
24.5 -- Power of Attorney for ERO Marketing, Inc. (included on
the signature page of ERO Marketing, Inc. to this
Registration Statement).
24.6 -- Power of Attorney for Priss Prints, Inc. (included on the
signature page of Priss Prints, Inc. to this Registration
Statement).
24.7 -- Power of Attorney for Impact, Inc. (included on the
signature page of Impact, Inc. to this Registration
Statement).
24.8 -- Power of Attorney for ERO Canada, Inc. (included on the
signature page of ERO Canada, Inc. to this Registration
Statement).
24.9 -- Power of Attorney for Amav Industries, Inc. (included on
the signature page of Amav Industries, Inc. to this
Registration Statement).
25.1 -- Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee
under the Indenture filed as Exhibit 4.1.+
25.2 -- Form T-1 of United States Trust Company of New York, as
Trustee under the Indenture filed as Exhibit 4.4.+
27.1 -- Financial Data Schedule*
99.1 -- Form of Letter of Transmittal for 10% Senior Subordinated
Notes due 2007 of Hedstrom Corporation.+
99.2 -- Form of Notice of Guaranteed Delivery for 10% Senior
Subordinated Notes due 2007 of Hedstrom Corporation.+
99.3 -- Form of Letter of Transmittal for 12% Senior Discount
Notes due 2009 of Hedstrom Holdings, Inc.+
99.4 -- Form of Notice of Guaranteed Delivery for 12% Senior
Discount Notes due 2009 of Hedstrom Holdings, Inc.+
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is either
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Co-registrants hereby undertaken:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-5
<PAGE> 206
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) See Item 14.
II-6
<PAGE> 207
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President and Chief Executive
Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN R. MUSE Chairman of the Board of Directors of July 25, 1997
- ----------------------------------------------------- the Co-Registrant listed above
John R. Muse
/s/ ARNOLD E. DITRI President, Chief Executive Officer July 25, 1997
- ----------------------------------------------------- and Director of the Co-Registrant
Arnold E. Ditri listed above (Principal Executive
Officer)
/s/ DAVID F. CROWLEY Chief Financial Officer of the Co- July 25, 1997
- ----------------------------------------------------- Registrant listed above (Principal
David F. Crowley Financial and Accounting Officer)
/s/ ALAN B. MENKES Director of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above
Alan B. Menkes
/s/ ROBERT H. ELMAN Director of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above
Robert H. Elman
</TABLE>
II-7
<PAGE> 208
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President and Chief Executive
Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN R. MUSE Chairman of the Board of Directors of July 25, 1997
- ----------------------------------------------------- the Co-Registrant listed above
John R. Muse
/s/ ARNOLD E. DITRI President, Chief Executive Officer July 25, 1997
- ----------------------------------------------------- and Director of the Co-Registrant
Arnold E. Ditri listed above (Principal Executive
Officer)
/s/ DAVID F. CROWLEY Chief Financial Officer of the Co- July 25, 1997
- ----------------------------------------------------- Registrant listed above (Principal
David F. Crowley Financial and Accounting Officer)
/s/ ALAN B. MENKES Director of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above
Alan B. Menkes
/s/ ROBERT H. ELMAN Director of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above
Robert H. Elman
</TABLE>
II-8
<PAGE> 209
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
ERO, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-9
<PAGE> 210
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
ERO INDUSTRIES, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-10
<PAGE> 211
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
ERO MARKETING, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-11
<PAGE> 212
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
PRISS PRINTS, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President, and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-12
<PAGE> 213
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
IMPACT, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President, and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-13
<PAGE> 214
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
ERO CANADA, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-14
<PAGE> 215
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Prospect, State of Illinois, on the 25th day of July, 1997.
AMAV INDUSTRIES, INC.
By: /s/ ARNOLD E. DITRI
----------------------------------
Arnold E. Ditri
President
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Arnold E. Ditri and David F. Crowley, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD E. DITRI President and sole Director of the July 25, 1997
- ----------------------------------------------------- Co-Registrant listed above
Arnold E. Ditri (Principal Executive Officer)
/s/ DAVID F. CROWLEY Treasurer of the Co-Registrant listed July 25, 1997
- ----------------------------------------------------- above (Principal Financial and
David F. Crowley Accounting Officer)
</TABLE>
II-15
<PAGE> 216
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of April 10, 1997,
among Hedstrom Corporation, HC Acquisition Corp. and ERO,
Inc.*
3.1 -- Restated Certificate of Incorporation of Hedstrom
Holdings, Inc., as filed with the Secretary of State of
the State of Delaware on October 27, 1995.*
3.2 -- Certificate of Amendment of Restated Certificate of
Incorporation of Hedstrom Holdings, Inc., as filed with
the Secretary of State of the State of Delaware on June
6, 1997.*
3.3 -- Restated Bylaws of Hedstrom Holdings, Inc.*
3.4 -- Certificate of Incorporation of New Hedstrom Corp., as
filed with the Secretary of State of the State of
Delaware on November 20, 1990.*
3.5 -- Certificate of Amendment of the Certificate of
Incorporation of New Hedstrom Corp., as filed with the
Secretary of State of the State of Delaware on January
14, 1991.*
3.6 -- By-Laws of Hedstrom Corporation.*
3.7 -- Amended and Restated Certificate of Incorporation of ERO,
Inc., as filed as Annex A to that certain Certificate of
Ownership and Merger filed with the Secretary of State of
the State of Delaware on June 12, 1997 merging HC
Acquisition Corp. with and into ERO, Inc.*
3.8 -- Amended and Restated Bylaws of ERO, Inc.*
3.9 -- Certificate of Incorporation of ERO Industries, Inc., as
filed as Annex A to that certain Certificate of Merger
filed with the Secretary of State of the State of
Delaware on July 15, 1988 merging GTC Leisure, Inc. with
and into ERO Industries, Inc.*
3.10 -- By-Laws of ERO Industries, Inc.*
3.11 -- Articles of Incorporation of ERO Marketing, Inc., as
filed with the Secretary of State of the State of
Illinois on January 21, 1992.*
3.12 -- Bylaws of ERO Marketing, Inc.*
3.13 -- Certificate of Incorporation of Priss Prints Acquisition
Corp., as filed with the Secretary of State of the State
of Delaware on September 19, 1986.*
3.14 -- Certificate of Amendment of Certificate of Incorporation
of Priss Prints Acquisition Corp., as filed with the
Secretary of State of the State of Delaware on November
5, 1986.*
3.15 -- By-Laws of Priss Prints, Inc.*
3.16 -- Certificate of Incorporation of Impact, Inc., as filed
with the Secretary of State of the State of Delaware on
November 3, 1993.*
3.17 -- By-Laws of Impact, Inc.*
3.18 -- Certificate of Incorporation of ERO Canada, Inc., as
filed with the Secretary of State of the State of
Delaware on August 3, 1994.*
3.19 -- By-Laws of ERO Canada, Inc.*
3.20 -- Certificate of Incorporation of ERO NY Acquisition, Inc.,
as filed with the Secretary of State of the State of
Delaware on October 12, 1995.*
3.21 -- Certificate of Amendment of Certificate of Incorporation
of ERO NY Acquisition, Inc., as filed with the Secretary
of State of the State of Delaware on January 23, 1996.*
3.22 -- By-Laws of Amav Industries, Inc.*
4.1 -- Indenture, dated as of June 1, 1997, among Hedstrom
Corporation, Hedstrom Holdings, Inc., the Subsidiary
Guarantors identified on the signature pages thereto and
IBJ Schroder Bank & Trust Company, as Trustee.*
4.2 -- Form of Old Senior Subordinated Note (included as Exhibit
1 to the Appendix of Exhibit 4.1 hereto).
4.3 -- Form of New Senior Subordinated Note (included as Exhibit
A to Exhibit 4.1 hereto).
</TABLE>
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.4 -- Indenture, dated as of June 1, 1997, among Hedstrom
Holdings, Inc. and United States Trust Company of New
York, as Trustee.*
4.5 -- Form of Old Discount Note (included as Exhibit 1 to the
Appendix of Exhibit 4.4 hereto).
4.6 -- Form of New Discount Note (included as Exhibit A to
Exhibit 4.4 hereto).
4.7 -- Purchase Agreement, dated as of June 9, 1997, among
Hedstrom Corporation and Hedstrom Holdings, Inc., as
Issuers, and Credit Suisse First Boston Corporation,
Societe Generale Securities Corporation and UBS
Securities LLC, as Initial Purchasers.*
4.8 -- Registration Rights Agreement, dated as of June 9, 1997,
among Hedstrom Corporation and Hedstrom Holdings, Inc.,
as Issuers, and Credit Suisse First Boston Corporation,
Societe Generale Securities Corporation and UBS
Securities LLC, as Initial Purchasers.*
4.9 -- Common Stock Registration Rights Agreement, dated as of
June 9, 1997, among Hedstrom Holdings, Inc. and Credit
Suisse First Boston Corporation, Societe Generale
Securities Corporation and UBS Securities LLC, as Initial
Purchasers.*
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the
securities issued hereby.+
10.1 -- Credit Agreement, dated as of June 12, 1997, among
Hedstrom Corporation, Hedstrom Holdings, Inc., the
Lenders from time to time parties thereto, Societe
Generale, as Documentation Agent, UBS Securities LLC, as
Syndication Agent, and Credit Suisse First Boston
Corporation, as Administrative Agent.*
10.2 -- Form of Tranche A Note (included as Exhibit A to Exhibit
10.1 hereto).
10.3 -- Form of Tranche B Note (included as Exhibit B to Exhibit
10.1 hereto).
10.4 -- Form of Revolving Credit Note (included as Exhibit C to
Exhibit 10.1 hereto).
10.5 -- Form of Swing Line Note (included as Exhibit D to Exhibit
10.1 hereto).
10.6 -- Master Guarantee and Collateral Agreement, dated as of
June 12, 1997, made by Hedstrom Corporation, Hedstrom
Holdings, Inc. and the other Grantors party thereto in
favor of Credit Suisse First Boston Corporation, as
Administrative Agent.*
10.7 -- Open End Mortgage, dated as of June 12, 1997, from
Hedstrom Corporation, as Mortgagor, to Credit Suisse
First Boston Corporation, as Mortgagee.*
10.8 -- Open End Mortgage and Security Agreement, dated as of
June 12, 1997, from Hedstrom Corporation, as Mortgagor,
to Credit Suisse Corporation, as Mortgagee.*
10.9 -- Deed and Security Agreement, dated as of June 12, 1997,
from ERO Industries, Inc., as Grantor, to Credit Suisse
First Boston Corporation, as Grantee.*
10.10 -- Mortgage of Shares, dated as of June 12, 1997, between
Hedstrom Corporation, as Chargor, and Credit Suisse First
Boston, as Administrative Agent.*
10.11 -- Mortgage of Shares, dated as of June 12, 1997, between
Amav Industries, Inc., as Chargor, and Credit Suisse
First Boston, as Administrative Agent.*
10.12 -- Stockholders Agreement, dated as of October 27, 1995,
among Hedstrom Holdings and the Holders listed on the
signature pages thereof.*
10.13 -- First Amendment to Stockholders Agreement, dated as of
June 1, 1997, between Hedstrom Holdings, Inc. and Hicks,
Muse, Tate & Furst Equity Fund II, L.P.*
10.14 -- Form of Subordinated Note issued by Hedstrom Holdings,
Inc.*
10.15 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Subordinated Notes of
Hedstrom Holdings, Inc.*
10.16 -- Form of Promissory Note (Series A) issued by Hedstrom
Holdings, Inc.*
10.17 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Promissory Notes (Series A)
of Hedstrom Holdings, Inc.*
10.18 -- Form of Promissory Note (Series B) issued by Hedstrom
Holdings, Inc.*
</TABLE>
<PAGE> 218
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19 -- Amendment and Waiver, dated as of June 12, 1997, between
Hedstrom Holdings, Inc. and Alan Plotkin, as Holder
Representative, regarding the Promissory Notes (Series B)
of Hedstrom Holdings, Inc.*
10.20 -- Executive Employment Agreement, dated as of October 27,
1995, among Hedstrom Holdings, Inc., Hedstrom Corporation
and Arnold E. Ditri.*
10.21 -- Executive Employment Agreement, dated as of October 27,
1995, between Hedstrom Corporation and Alastair
McKelvie.*
10.22 -- Monitoring and Oversight Agreement, dated as of October
27, 1995, among Hedstrom Holdings, Inc., Hedstrom
Corporation and Hicks, Muse & Co. Partners, L.P.*
10.23 -- Financial Advisory Agreement, dated as of October 27,
1995, among Hedstrom Holdings, Inc., Hedstrom Corporation
and HM2/Management Partners, L.P.*
10.24 -- Hedstrom Holdings, Inc. 1995 Stock Option Plan.*
10.25 -- Manufacturing Agreement, dated as of July 21, 1987,
between Euro-Matic Ltd. and Hedstrom Corporation.*
10.26 -- Manufacturing and Royalty Agreement, dated as of April
13, 1994, between Euro-Matic Ltd. and Hedstrom
Corporation.*
10.27 -- Manufacturing Agreement, dated as of December 21, 1994,
between Euro-Matic Limited and Hedstrom Corporation.*
10.28 -- Lease, dated as of January 24, 1992, between J.J.D.
Properties and Hedstrom Corporation.*
10.29 -- Net Lease Agreement, dated as of May 26, 1992, between
Opus North Corporation and ERO Industries, Inc.*
12.1 -- Statement Re: Computation of Ratio of Earnings to Fixed
Charges.*
12.2 -- Statement Re: Computation of Pro Forma Ratio of Earnings
to Fixed Charges.*
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).+
23.2 -- Consent of Arthur Andersen LLP, independent auditors.*
23.3 -- Consent of Price Waterhouse LLP, independent auditors.*
24.1 -- Power of Attorney for Hedstrom Corporation (included on
the signature page of Hedstrom Corporation to this
Registration Statement).
24.2 -- Power of Attorney for Hedstrom Holdings, Inc. (included
on the signature page of Hedstrom Holdings, Inc. to this
Registration Statement).
24.3 -- Power of Attorney for ERO, Inc. (included on the
signature page of ERO, Inc. to this Registration
Statement).
24.4 -- Power of Attorney for ERO Industries, Inc. (included on
the signature page of ERO Industries, Inc. to this
Registration Statement).
24.5 -- Power of Attorney for ERO Marketing, Inc. (included on
the signature page of ERO Marketing, Inc. to this
Registration Statement).
24.6 -- Power of Attorney for Priss Prints, Inc. (included on the
signature page of Priss Prints, Inc. to this Registration
Statement).
24.7 -- Power of Attorney for Impact, Inc. (included on the
signature page of Impact, Inc. to this Registration
Statement).
24.8 -- Power of Attorney for ERO Canada, Inc. (included on the
signature page of ERO Canada, Inc. to this Registration
Statement).
24.9 -- Power of Attorney for Amav Industries, Inc. (included on
the signature page of Amav Industries, Inc. to this
Registration Statement).
25.1 -- Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee
under the Indenture filed as Exhibit 4.1.+
25.2 -- Form T-1 of United States Trust Company of New York, as
Trustee under the Indenture filed as Exhibit 4.4.+
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
27.1 -- Financial Data Schedule*
99.1 -- Form of Letter of Transmittal for 10% Senior Subordinated
Notes due 2007 of Hedstrom Corporation.+
99.2 -- Form of Notice of Guaranteed Delivery for 10% Senior
Subordinated Notes due 2007 of Hedstrom Corporation.+
99.3 -- Form of Letter of Transmittal for 12% Senior Discount
Notes due 2009 of Hedstrom Holdings, Inc.+
99.4 -- Form of Notice of Guaranteed Delivery for 12% Senior
Discount Notes due 2009 of Hedstrom Holdings, Inc.+
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND
PLAN OF MERGER
AMONG
HEDSTROM CORPORATION,
HC ACQUISITION CORP.
AND
ERO, INC.
dated as of April 10, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
THE OFFER
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
THE MERGER
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Representations and Warranties of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company Stockholders Meeting; Merger without a Company
Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Indemnification; Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.8 Conduct of Business of Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.10 Withholding Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.11 Continuation of Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . 47
7.2 Conditions to Obligation of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . 51
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership . . . . . . . . . . . . . . 53
9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 10, 1997
(the "Agreement"), is made and entered into by and among Hedstrom Corporation,
a Delaware corporation ("Parent"), HC Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and ERO, Inc., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have unanimously approved the acquisition of the Company by Parent,
by means of the merger (the "Merger") of Sub with and into the Company, upon
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, to effectuate the acquisition, Parent and the Company
each desire that Sub commence a cash tender offer to purchase all of the
outstanding shares of common stock, par value $0.01 per share, of the Company
("Shares" or "Company Common Stock") upon the terms and subject to the
conditions set forth in this Agreement and the Offer Documents (as defined in
Section 1.2), and the Board of Directors of the Company has unanimously
approved such Offer (as defined in Section 1.1) and agreed to recommend to the
stockholders of the Company that they accept the Offer and tender their Company
Common Stock pursuant thereto; and
WHEREAS, Parent and Sub are unwilling to enter into this
Agreement (and effect the transactions contemplated hereby) unless,
contemporaneously with the execution and delivery hereof, certain beneficial
and record holders of the Company Common Stock enter into agreements
(collectively, the "Stockholders Agreement") providing for certain matters with
respect to their Shares (including the tender of their Shares and certain other
actions relating to the Offer) and the other transactions contemplated by this
Agreement, and, in order to induce Parent and Sub to enter into this Agreement,
the Company has approved the execution and delivery by Parent and such
stockholders of the Stockholders Agreement, and such stockholders have agreed
to execute and deliver the Stockholders Agreement; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the
consummation thereof;
<PAGE> 5
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that none of the events set
forth in Exhibit A hereto shall have occurred and be continuing, as promptly as
practicable (but in any event not later than five business days after the
public announcement of the execution and delivery of this Agreement), Sub shall
commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), an offer to purchase (the "Offer") all
outstanding shares of the Company Common Stock at a price of $11.25 per share,
net to the seller in cash (the "Offer Consideration"). The obligation of
Parent and Sub to commence the Offer, consummate the Offer, accept for payment
and to pay for shares of Company Common Stock validly tendered in the Offer and
not withdrawn shall be subject only to those conditions set forth in Exhibit A
hereto.
(b) Parent and Sub expressly reserve the right to amend or
modify the terms of the Offer, except that, without the prior written consent
of the Company, Sub shall not (and Parent shall not cause Sub to): (i) decrease
the Offer Consideration, change the form of the Offer Consideration or decrease
the number of Shares sought pursuant to the Offer, (ii) amend or waive the
condition that there shall be validly tendered and not withdrawn prior to the
time the Offer expires a number of shares of Company Common Stock which
constitutes a majority of the Shares outstanding on a fully-diluted basis on
the date of purchase ("on a fully-diluted basis" having the following meaning,
as of any date: the number of shares of Company Common Stock outstanding,
together with Shares which the Company may be required, now or in the future,
to issue pursuant to options, warrants or other rights or obligations
outstanding at that date), (iii) extend the expiration date of the Offer
(except that Sub may extend the expiration date of the Offer (a) as required by
any rule, regulation or interpretation of the United States Securities and
Exchange Commission (the "SEC"), (b) for such periods as Sub may reasonably
deem necessary (but not to a date later than the 60th calendar day after the
date of commencement) in the event that any condition to the Offer is not
satisfied, or (c) for one or more times for an aggregate period of up to 15
days (not to exceed 60 calendar days from the date of commencement) for any
reason other than those specified in the immediately preceding
2
<PAGE> 6
clause (a) or clause (b)), or (iv) change any condition or impose additional
conditions to the Offer or amend any term of the Offer in any manner adverse to
holders of shares of Company Common Stock; provided, however, that, except as
set forth above, Sub may waive any other condition to the Offer in its sole
discretion; and provided further, that the Offer (i) may be extended in
connection with an increase in the consideration to be paid pursuant to the
Offer so as to comply with applicable rules and regulations of the SEC, and
(ii) will, for one time only, be automatically extended for a period which ends
on the 15th business day from the date the Company shall have received an
Acquisition Proposal (as hereinafter defined) in the event the Company shall
receive such Acquisition Proposal less than ten business days prior to the
expiration of the Offer. Assuming the prior satisfaction or waiver of the
conditions to the Offer, Sub shall accept for payment, and pay for, in
accordance with the terms of the Offer, all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after the expiration date thereof.
1.2 Offer Documents. As soon as practicable on the date
of commencement of the Offer, Parent and Sub shall file or cause to be filed
with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D- 1")
with respect to the Offer which shall contain the offer to purchase, related
letter of transmittal and other ancillary Offer documents and instruments
pursuant to which the Offer will be made (collectively with any supplements or
amendments thereto, the "Offer Documents"). The Offer Documents (i) shall
contain (or shall be amended in a timely manner to contain) all information
which is required to be included therein in accordance with the Exchange Act
and the rules and regulations thereunder and any other applicable law and (ii)
shall conform in all material respects with the requirements of the Exchange
Act and any other applicable law. Notwithstanding the foregoing, no agreement
or representation hereby is made or shall be made by Parent or Sub with respect
to information supplied by the Company expressly for inclusion in, or with
respect to Company information derived from the Company's public SEC filings
that is included or incorporated by reference in, the Offer Documents. Parent,
Sub and the Company each agree promptly to correct any information provided by
them for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect and Sub further agrees to
take all lawful action necessary to cause the Offer Documents as so corrected
to be filed promptly with the SEC and to be disseminated to holders of Company
Common Stock, in each case as and to the extent required by applicable law. In
conducting the Offer, Parent and Sub shall comply in all material respects with
the Exchange Act and any other applicable law. The
3
<PAGE> 7
Company and its counsel shall be given reasonable opportunity to review and
comment on the Offer Documents and any amendments or supplements thereto prior
to the filing thereof with the SEC. To the extent practicable, the Company and
its counsel shall also be given reasonable opportunity to review and comment on
correspondence with the SEC concerning the Offer Documents prior to the
delivery thereof to the SEC.
1.3 Company Actions. The Company hereby consents to the
Offer and the Merger and represents that (a) its Board of Directors (at a
meeting duly called and held) has unanimously (i) determined that each of this
Agreement, the Offer and the Merger are fair to and in the best interests of
the stockholders of the Company, (ii) approved the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby, including the Offer and the Merger, and such
approval constitutes approval of the foregoing for purposes of Section 203 of
the Delaware General Corporation Law, as amended (the "DGCL"), and for purposes
of Article Nine of the Company's Amended and Restated Certificate of
Incorporation, (iii) resolved to recommend (x) acceptance of the Offer, (y)
approval and adoption of this Agreement (if required) and (z) approval of the
Merger, by the holders of Company Common Stock, and (b) Dean Witter Reynolds
Inc. (the "Financial Advisor") has delivered to the Board of Directors of the
Company its written opinion that, as of such date and based upon and subject to
the matters set forth therein, the Offer Consideration to be received by the
holders of Company Common Stock (other than Parent, Sub and any other
Subsidiary of Parent) in the Offer is fair, from a financial point of view, to
such holders. The Company acknowledges and agrees that the Board of Directors
of the Company may not withdraw, modify or amend its approval or recommendation
of the Offer, this Agreement, the Stockholders Agreement or the Merger except
in accordance with Section 5.1(e)(ii). The Company hereby consents to the
inclusion in the Offer Documents of the recommendation referred to in this
Section 1.3. The Company hereby agrees to file with the SEC, simultaneously
with the filing by Parent and Sub of the Schedule 14D-1 (or promptly after such
filing), a Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto, the "Schedule 14D-9") containing
such recommendations of the Board of Directors of the Company in favor of the
Offer and the Merger and otherwise complying with Rule 14d-9 under the Exchange
Act. The Schedule 14D-9 shall comply in all material respects with the
Exchange Act and any other applicable law and shall contain (or shall be
amended in a timely manner to contain) all information that is required to be
included therein in accordance with the Exchange Act and the rules and
regulations promulgated thereunder
4
<PAGE> 8
and any other applicable law. Notwithstanding the foregoing, no agreement or
representation hereby is made or shall be made by the Company with respect to
Parent, Sub or any other Subsidiary of Parent. The Company, Parent and Sub
each agree promptly to correct any information provided by them for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
lawful action necessary to cause the Schedule 14D-9 as so corrected to be
promptly filed with the SEC and disseminated to the holders of Company Common
Stock, in each case as and to the extent required by applicable law. Parent,
Sub and their counsel shall be given an opportunity to review and comment on
the Schedule 14D-9 and any amendments thereto prior to the filing thereof with
the SEC. To the extent practicable, Parent, Sub and their counsel shall also
be given reasonable opportunity to review and comment on correspondence with
the SEC concerning the Schedule 14D-9 prior to the delivery thereof to the SEC.
In connection with the Offer, the Company shall promptly furnish, or cause its
transfer agent to furnish, Parent with mailing labels, security position
listings and all available listings or computer files containing the names and
addresses of the record holders of the Company Common Stock as of the latest
practicable date and shall furnish, or cause its transfer agent to furnish,
Parent with such information and assistance (including updated lists of
stockholders, mailing labels and lists of security positions) as Parent or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Company Common Stock. Subject to the requirements of
applicable law, and except for such actions as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer and
the Merger, Parent and Sub and each of their affiliates, associates, partners,
employees, agents and advisors shall hold in confidence the information
contained in such labels and lists, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated
for any reason, shall deliver promptly to the Company all copies of such
information then in their possession or control.
1.4 Directors. (a) Upon the purchase pursuant to the
Offer by Sub of such number of shares of Company Common Stock which represents
a majority of the outstanding shares of Company Common Stock (on a fully
diluted basis), and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number (but in
no event more than one less than the total number of directors on the Board of
Directors of the Company) as will give Parent, subject to compliance with
Section 14(f) of the Exchange Act, representation on the Board of Directors of
the Company equal to
5
<PAGE> 9
the product of (x) the number of directors on the Board of Directors of the
Company (giving effect to any increase in the number of directors pursuant to
this Section 1.4) and (y) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number
being, the "Board Percentage"), and the Company shall, upon request by Parent
and subject to applicable law, promptly satisfy the Board Percentage by (i)
increasing the size of the Board of Directors of the Company or (ii) using its
best efforts to secure the resignations of such number of directors as is
necessary to enable Parent's designees to be elected to the Board of Directors
of the Company and shall cause Parent's designees promptly to be so elected,
provided that no such action shall be taken which would result in there being,
prior to the consummation of the Merger, less than two directors of the Company
that are not affiliated with Parent. At the request of Parent, the Company
shall take, at the Company's expense, all lawful action necessary to effect any
such election, including, without limitation, mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information has previously been provided to
the Company's stockholders in the Schedule 14D-9. Parent will supply to the
Company in writing and be solely responsible for any information with respect
to itself and its nominees, directors and affiliates required by Section 14(f)
of the Exchange Act and Rule 14f-1 thereunder.
(b) Following the election or appointment of Parent's
designees pursuant to this Section 1.4 and prior to the Effective Time of the
Merger, any amendment or termination of this Agreement, extension for the
performance or waiver of the obligations or other acts of Parent or Sub or
waiver of the Company's rights thereunder shall require the concurrence of a
majority of directors of the Company then in office who are Continuing
Directors. The term "Continuing Director" shall mean (i) each member of the
board of directors on the date hereof who voted to approve this Agreement and
(ii) any successor to any Continuing Director that was recommended to succeed
such Continuing Director by a majority of the Continuing Directors then on the
board of directors.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, Sub
shall be merged with and into the Company at the Effective Time. At the
Effective Time, the separate corporate
6
<PAGE> 10
existence of Sub shall cease, and the Company shall continue as the surviving
corporation and a direct wholly owned subsidiary of Parent (Sub and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company is sometimes hereinafter referred to as the
"Surviving Corporation"), and shall continue under the name "ERO, Inc.".
2.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
shall take place at 10:00 a.m., New York time, on the second business day after
satisfaction and/or waiver of all of the conditions set forth in Article VII
(the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, New York 10153, unless another date, time or place is agreed
to in writing by the parties hereto.
2.3 Effective Time of the Merger. Subject to the
provisions of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, as provided in the DGCL,
as soon as practicable on or after the Closing Date. The Merger shall become
effective upon such filing or at such time thereafter as is provided in the
Certificate of Merger as the Company and Sub shall agree (the "Effective
Time").
2.4 Effects of the Merger. (a) The Merger shall have the
effects as set forth in the applicable provisions of the DGCL.
(b) The directors of Sub and the officers of the Company
immediately prior to the Effective Time shall, from and after the Effective
Time, be the initial directors and officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified, or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company shall
be amended and restated in its entirety as set forth on Exhibit B hereto, and,
from and after the Effective Time, such amended and restated Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
DGCL.
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(d) The Bylaws of the Company shall be amended and
restated in their entirety as set forth on Exhibit C hereto and, from and after
the Effective Time, such amended and restated Bylaws shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by applicable law,
the Certificate of Incorporation or the Bylaws.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of shares
of Company Common Stock or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock
of Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock.
Each share of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company and all shares of Company Common Stock
and other shares of capital stock of the Company owned by Parent or Sub shall
be canceled and retired and shall cease to exist and no consideration shall be
delivered or deliverable in exchange therefor.
3.2 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Sub, the Company or
the holders of any of the shares thereof:
(a)(i) Subject to the other provisions of this Section 3.2,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (excluding shares owned, directly or indirectly, by the
Company or by Parent, Sub or any other Subsidiary of Parent and Dissenting
Shares (as defined in Section 3.6)) shall be converted into the right to
receive the per share amount actually paid in the Offer, payable to the holder
thereof in cash, without any interest thereon (the amount so paid in the Offer,
in cash, is herein referred to as the "Merger Consideration"), upon surrender
and exchange of the Certificate (as defined in Section 3.3) representing such
share of Company Common Stock. As used in this Agreement, the word
"Subsidiary", with respect to any party,
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means any corporation, partnership, joint venture or other organization,
whether incorporated or unincorporated, of which: (i) such party or any other
Subsidiary of such party is a general partner; (ii) voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation, partnership, joint venture or other organization
is held by such party or by any one or more of its Subsidiaries, or by such
party and any one or more of its Subsidiaries; or (iii) at least 25% of the
equity, other securities or other interests is, directly or indirectly, owned
or controlled by such party or by any one or more of its Subsidiaries, or by
such party and any one or more of its Subsidiaries.
(ii) All such shares of Company Common
Stock, when converted as provided in Section 3.2(a)(i), no longer shall be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each Certificate previously evidencing such Shares shall thereafter
represent only the right to receive the Merger Consideration. The holders of
Certificates previously evidencing Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to the Company
Common Stock except as otherwise provided herein or by law and, upon the
surrender of Certificates in accordance with the provisions of Section 3.3,
shall only represent the right to receive for their Shares, the Merger
Consideration, without any interest thereon.
3.3 Payment for Shares. (a) Paying Agent. Prior to
the Effective Time, Parent shall appoint a United States bank or trust company
reasonably acceptable to the Company to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration, and Parent shall cause the
Surviving Corporation to deposit with the Paying Agent in a separate fund
established for the benefit of the holders of shares of Company Common Stock,
for payment in accordance with this Article III, through the Paying Agent (the
"Payment Fund"), immediately available funds in amounts necessary to make the
payments pursuant to Section 3.2(a)(i) and this Section 3.3 to holders (other
than the Company or Parent, Sub or any other Subsidiary of Parent, or holders
of Dissenting Shares). The Paying Agent shall, pursuant to irrevocable
instructions, pay the Merger Consideration out of the Payment Fund.
If for any reason (including losses) the Payment Fund is
inadequate to pay the amounts to which holders of shares of Company Common
Stock shall be entitled under this Section 3.3, Parent shall take all steps
necessary to enable or cause the Surviving Corporation to deposit in trust
additional cash with
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the Paying Agent sufficient to make all payments required under this Agreement,
and Parent and the Surviving Corporation shall in any event be liable for
payment thereof. The Payment Fund shall not be used for any purpose except as
expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable
after the Effective Time, the Surviving Corporation shall instruct the Paying
Agent to mail to each holder of record (other than the Company or Parent, Sub
or any other Subsidiary of Parent) of a Certificate or Certificates which,
immediately prior to the Effective Time, evidenced outstanding shares of
Company Common Stock (the "Certificates"), (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent, and shall be in such form and have such other
provisions as the Surviving Corporation reasonably may specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in respect thereof cash in an amount equal to the product of (x) the number of
shares of Company Common Stock represented by such Certificate and (y) the
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on the Merger Consideration
payable upon the surrender of any Certificate. If payment is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the surrendered Certificate or established to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 3.3(b), each
Certificate (other than Certificates representing Shares owned by the Company
or Parent, Sub or any other Subsidiary of Parent) shall be deemed at any time
after the Effective Time to represent for all purposes only the right to
receive the Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of
the Payment Fund which remains undistributed to the holders of Company Common
Stock for 270 days after the Effective
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Time shall be delivered to the Surviving Corporation, upon demand, and any
holders of Company Common Stock who have not theretofore complied with this
Article III and the instructions set forth in the letter of transmittal mailed
to such holder after the Effective Time shall thereafter look only to the
Surviving Corporation for payment of the Merger Consideration to which they are
entitled. All interest accrued in respect of the Payment Fund shall inure to
the benefit of and be paid to the Surviving Corporation.
(d) No Liability. None of Parent, the Company or the
Surviving Corporation shall be liable to any holder of shares of Company Common
Stock for any cash from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
3.4 Stock Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of shares of Company Common Stock thereafter
on the records of the Company. On or after the Effective Time, any
certificates presented to the Paying Agent or Parent for any reason, except
notation thereon that a stockholder has elected to exercise his rights to
appraisal pursuant to the DGCL, shall be converted into the Merger
Consideration as provided in this Article III.
3.5 Stock Option Plans. At the Effective Time, each
holder of a then outstanding option to purchase Shares under any of the
Company's 1988 Key Employee Stock Option Plan, 1992 Key Employee Stock Option
Plan and 1992 Directors' Stock Option Plan (collectively, the "Stock Option
Plans"), or otherwise set forth on Schedule 4.1(b), whether or not then
exercisable or vested (collectively, the "Options"), shall, in cancellation and
settlement thereof, receive for each Share subject to such Option an amount
(subject to any applicable withholding tax) in cash equal to the difference
between the amount per share actually paid in the Offer and the per Share
exercise price of such Option to the extent such difference is a positive
number (such amount being hereinafter referred to as, the "Option
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Exchange Act, any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act. Upon receipt of the Option
Consideration, the Option shall be canceled. The surrender of an Option to the
Company in exchange for the Option Consideration shall be deemed a release of
any and all rights the holder had or may have had in respect of such Option.
Prior to the expiration of the Offer, the Company shall use its reasonable
efforts to obtain all
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necessary consents or releases from holders of Options under the Stock Option
Plans and take all such other lawful action as may be reasonably necessary to
give effect to the transactions contemplated by this Section 3.5. The Stock
Option Plans shall terminate as of the Effective Time, and the provisions in
any other plan, program or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of the Company or any
Subsidiary thereof shall be canceled as of the Effective Time. Prior to the
expiration of the Offer, the Company shall use its reasonable efforts to take
all action necessary (including causing the Board of Directors of the Company
to take such actions as are allowed by the Stock Option Plans) to (i) ensure
that, following the Effective Time, no participant in the Stock Option Plans or
any other plans, programs or arrangements shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
Subsidiary thereof and (ii) terminate all such plans, programs and
arrangements.
3.6 Dissenting Shares. Notwithstanding any other
provisions of this Agreement to the contrary, shares of Company Common Stock
that are outstanding immediately prior to the Effective Time and which are held
by stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly appraisal for such
shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders instead shall be entitled
to receive payment of the appraised value of such shares of Company Common
Stock held by them in accordance with the provisions of such Section 262 of the
DGCL, except that all Dissenting Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn or otherwise lost
their rights to appraisal of such shares of Company Common Stock under such
Section 262 of the DGCL shall thereupon be deemed to have been converted into
and to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon surrender
in the manner provided in Section 3.3, of the Certificate or Certificates that,
immediately prior to the Effective Time, evidenced such shares of Company
Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The
Company represents and warrants to Parent and Sub as follows:
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(a) Organization, Standing and Power. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and is duly qualified to
do business as a foreign corporation and in good standing to conduct business
in each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not
reasonably be expected to (i) have a Material Adverse Effect (as defined below)
with respect to the Company or (ii) materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement. The
Company has heretofore made available to Parent complete and correct copies of
its and its Subsidiaries' respective Certificates of Incorporation and Bylaws.
All Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization are identified on Schedule 4.1(a). As used in
this Agreement: a "Material Adverse Effect" shall mean, with respect to any
party, any events, changes or effects which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the business,
results of operations or financial condition of such party and its
Subsidiaries, taken as a whole; provided, however, that the matters disclosed
on Exhibit D hereto shall not be considered in determining whether one or more
events, changes or effects could reasonably be expected to have a Material
Adverse Effect on the Company.
(b) Capital Structure. As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 Shares and
9,947,700 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of the date hereof: (i) 10,274,300 Shares are issued and
outstanding; (ii) no shares of Preferred Stock are issued and outstanding; and
(iii) 1,458,000 Shares are reserved for issuance pursuant to Options
outstanding under the Stock Option Plans. Except for the issuance of Shares
pursuant to the exercise of outstanding Options, there are no employment,
executive termination or similar agreements providing for the issuance of
Shares. As of the date hereof, 120,000 Shares are held by the Company and no
Shares are held by Subsidiaries of the Company. No bonds, debentures, notes or
other instruments or evidence of indebtedness having the right to vote (or
convertible into, or exercisable or exchangeable for, securities having the
right to vote) on any matters on which the Company stockholders may vote
("Company Voting Debt") were issued or outstanding. All outstanding Shares are
validly issued, fully paid and
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nonassessable and are not subject to preemptive or other similar rights.
Except as set forth on Schedule 4.1(b), all outstanding shares of capital stock
of the Subsidiaries of the Company are owned by the Company or a direct or
indirect Subsidiary of the Company, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth in this
Section 4.1(b), there are outstanding: (i) no shares of capital stock, Company
Voting Debt or other voting securities of the Company; (ii) no securities of
the Company or any Subsidiary of the Company convertible into, or exchangeable
or exercisable for, shares of capital stock, Company Voting Debt or other
voting securities of the Company or any Subsidiary of the Company; and (iii) no
options, warrants, calls, rights (including preemptive rights), commitments or
agreements to which the Company or any Subsidiary of the Company is a party or
by which it is bound, in any case obligating the Company or any Subsidiary of
the Company to issue, deliver, sell, purchase, redeem or acquire, or cause to
be issued, delivered, sold, purchased, redeemed or acquired, additional shares
of capital stock or any Company Voting Debt or other voting securities of the
Company or of any Subsidiary of the Company, or obligating the Company or any
Subsidiary of the Company to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth on Schedule
4.1(b), since December 31, 1996, the Company has not (i) granted any options,
warrants or rights to purchase shares of Company Common Stock or (ii) amended
or repriced any Option or any of the Stock Option Plans. Set forth on Schedule
4.1(b) is a list of all outstanding options, warrants and rights to purchase
shares of Company Common Stock and the exercise prices relating thereto.
Except as disclosed in the Company SEC Documents (as defined below), there are
not as of the date hereof and there will not be at the Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting of
any shares of the capital stock of the Company which will limit in any way the
solicitation of proxies by or on behalf of the Company from, or the casting of
votes by, the stockholders of the Company with respect to the Merger. There
are no restrictions on the Company to vote the stock of any of its
Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power
and authority to enter into this Agreement and, subject to the Company
Stockholder Approval (as defined in Section 4.1(c)(iii)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
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subject, if required with respect to consummation of the Merger, to the Company
Stockholder Approval. This Agreement has been duly executed and delivered by
the Company and, subject, if required with respect to consummation of the
Merger, to the Company Stockholder Approval, and assuming that this Agreement
constitutes the valid and binding agreement of Parent and Sub, constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
(ii) Except as set forth on Schedule 4.1(c)(ii),
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company will not conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration (including pursuant to any put right) of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest or other encumbrance on assets or property, or right of first refusal
with respect to any asset or property (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss, creation or right of
first refusal, a "Violation"), pursuant to, (A) any provision of the
Certificate of Incorporation or Bylaws of the Company or any of its
Subsidiaries or (B) except as to which requisite waivers or consents have been
obtained and assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph (iii) of this Section 4.1(c)
are duly and timely obtained or made and, if required, the Company Stockholder
Approval has been obtained, result in any Violation of (1) any loan or credit
agreement, note, mortgage, deed of trust, indenture, lease, Benefit Plan (as
defined in Section 4.1(i)), Company Permit (as defined in Section 4.1(f)), or
any other agreement, obligation, instrument, concession, franchise, or license
or (2) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or their respective
properties or assets (collectively, "Laws"), except in the case of clause (1)
and (2) for any Violations that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company. The
Board of Directors of the Company has taken all actions necessary under the
Company's Amended and Restated Certificate of Incorporation, including
approving the transactions contemplated by this Agreement, to ensure that
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Section 1 of Article Nine of the Company's Amended and Restated Certificate of
Incorporation does not, and will not, apply to the transactions contemplated in
this Agreement. The Board of Directors of the Company has taken all actions
necessary under the DGCL, including approving the transactions contemplated by
this Agreement and the Stockholders Agreement, to ensure that Section 203 of
the DGCL does not, and will not, apply to the transactions contemplated in this
Agreement or the Stockholders Agreement.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, notice to, or permit from any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"), is required by
or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for: (A) the
filing of a pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting period
thereunder; (B) the filing with the SEC of (x) a proxy statement (if required
by applicable law) in definitive form relating to a meeting of the holders of
Company Common Stock to approve the Merger (such proxy statement as amended or
supplemented from time to time being hereinafter referred to as the "Proxy
Statement"), (y) the Schedule 14D-9 in connection with the Offer, and (z) such
reports under and such other compliance with the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby; (C) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company
does business; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; (E) such filings and
approvals as may be required by any foreign pre-merger notification,
securities, corporate or other law, rule or regulation (including the
Investment Canada Act); (F) such filings in connection with any state or local
tax which is attributable to the beneficial ownership of the Company's or its
Subsidiaries' real property, if any (collectively, the "Gains and Transfer
Taxes"); (G) such other filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the Merger or the
transactions contemplated by this Agreement; (H) the approval of this Agreement
and the Merger by the holders of a majority of the
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outstanding Shares ("Company Stockholder Approval") and (I) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings, notices or permits the failure of which to be obtained or made could
not reasonably be expected to have a Material Adverse Effect on the Company.
(d) SEC Documents. The Company has made available to
Parent a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by the Company with the SEC
since January 1, 1995 and prior to the date of this Agreement (the "Company SEC
Documents"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the Company SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as disclosed
on Schedule 4.1(d), the financial statements of the Company included in the
Company SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present in accordance with
applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, which will not be material,
either individually or in the aggregate) the consolidated financial position of
the Company and its consolidated Subsidiaries as of their respective dates and
the consolidated results of operations and the consolidated cash flows of the
Company and its consolidated Subsidiaries for the periods presented therein.
(e) Information Supplied. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) any of the Offer Documents will, at the time
the Offer Documents are first published, sent or given to holders of Company
Common Stock, and at any time they are amended or supplemented, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made,
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not misleading, and (ii) the Proxy Statement will, on the date it is first
mailed to the holders of the Company Common Stock or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the expiration of the Offer or the
Effective Time, any event with respect to the Company or any of its
Subsidiaries, or with respect to other information supplied by the Company
specifically for inclusion in the Offer Documents or the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
the Offer Documents or the Proxy Statement, as the case may be, such event
shall be so described, and such amendment or supplement shall be promptly filed
with the SEC and, as required by law, disseminated to the stockholders of the
Company. The Proxy Statement, insofar as it relates to the Company or its
Subsidiaries or other information supplied by the Company specifically for
inclusion therein will comply as to form, in all material respects, with the
provisions of the Exchange Act or the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to (i) the information supplied or to be supplied by Parent or Sub
for inclusion in the Offer Documents or the Proxy Statement or (ii) except as
provided in the immediately following sentence, any projections,
forward-looking statements or similar information provided to Parent or Sub
that is not of a historical nature. The budget prepared by the Company and
attached to Schedule 4.1(e) hereto was prepared in good faith based upon
reasonable assumptions.
(f) Compliance with Applicable Laws. The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except where
the failure to hold any such Company Permits could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. The Company and its Subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. A list of the material Company Permits is set
forth on Schedule 4.1(f). Except as disclosed in Schedule 4.1(f), the
businesses of the Company and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity except
for any such violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company. As of
the date of this Agreement, no investigation or
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review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the Company, has been
threatened which could reasonably be expected to have a Material Adverse Effect
on the Company.
(g) Litigation. Except as set forth on Schedule 4.1(g),
there is no suit, action or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary of the Company
("Company Litigation"), nor is there any material judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company or any Subsidiary of the Company ("Company Order"). In addition,
except as expressly set forth on Schedule 4.1(g) as having such effect, none of
the claims and judgments pending, or to the knowledge of the Company,
threatened pursuant to all Company Litigation and Company Orders, could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
(h) Taxes. Except as set forth on Schedule 4.1(h) hereto:
(i) All Tax Returns required to be filed by or
with respect to the Company and each of its Subsidiaries have been duly
and timely filed (taking into account all valid extensions of filing
dates), except where the failure to file such Tax Returns would not
have a Material Adverse Effect on the Company, and all such Tax Returns
are true, correct and complete in all material respects. The Company
and each of its Subsidiaries has duly and timely paid (or there has
been paid on its behalf) all Taxes that are due, except to the extent
that the failure to pay such Taxes would not have a Material Adverse
Effect the Company and except for Taxes being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established in the Company's audited financial statements for the year
ended December 31, 1996 in accordance with generally accepted
accounting principles. With respect to any period for which Taxes are
not yet due with respect to the Company or any Subsidiary, the Company
and each of its Subsidiaries has made due and sufficient current
accruals for such Taxes in accordance with GAAP in the most recent
financial statements contained in the Company SEC Documents. The
Company and each of its Subsidiaries has made (or there has been made
on its behalf) all required estimated Tax payments sufficient to avoid
any material underpayment penalties. The Company and each of its
Subsidiaries has withheld and paid all material Taxes required by all
applicable laws to be withheld or paid in
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connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(ii) There are no outstanding agreements, waivers,
or arrangements extending the statutory period of limitation applicable
to any claim for, or the period for the collection or assessment of,
material Taxes due from or with respect to the Company or any of its
Subsidiaries for any taxable period. No audit or other proceeding by
any court, governmental or regulatory authority, or similar person is
pending or, to the knowledge of the Company, threatened in regard to
any material Taxes due from or with respect to the Company or any of
the Subsidiaries or any material Tax Return filed by or with respect to
the Company or any Subsidiary other than normal and routine audits by
nonfederal governmental authorities. Neither the Company nor any
Subsidiary of the Company has received notice that any assessment of
Taxes is proposed against the Company or any of its Subsidiaries or any
of their assets which, if ultimately paid by the Company or any
Subsidiary of the Company would have a Material Adverse Effect on the
Company.
(iii) No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or
filed by or with respect to the Company or any of its Subsidiaries or
any of their assets. None of the Company or any of its Subsidiaries
has agreed to make any adjustment pursuant to Section 481(a) of the
Code (or any predecessor provision) by reason of any change in any
accounting method, and there is no application pending with any taxing
authority requesting permission for any changes in any accounting
method of the Company or any of its Subsidiaries which, in each
respective case, will or would reasonably cause the Company or any of
is Subsidiaries to include any material adjustment in taxable income
for any taxable period (or portion thereof) ending after the Closing
Date.
(iv) None of the Company or any of its
Subsidiaries is a party to, is bound by, or has any obligation under,
any Tax sharing agreement, Tax allocation agreement or similar contract
other than any agreement to which the Company and its Subsidiaries are
the sole parties.
(v) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be
deductible by the Company or any of its Subsidiaries by reason of
Section 280G of the Code.
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(vi) The term "Code" shall mean the Internal
Revenue Code of 1986, as amended. The term "Taxes" shall mean all
taxes, charges, fees, levies, or other similar assessments or
liabilities, including without limitation (a) income, gross receipts,
ad valorem, premium, excise, real property, personal property, sales,
use, transfer, withholding, employment, payroll, and franchise taxes
imposed by the United States of America, or by any state, local, or
foreign government, or any subdivision, agency, or other similar person
of the United States or any such government; and (b) any interest,
fines, penalties, assessments, or additions to taxes resulting from,
attributable to, or incurred in connection with any Tax or any contest,
dispute, or refund thereof. The term "Tax Returns" shall mean any
report, return, or statement required to be supplied to a taxing
authority in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 4.1(i)(i) sets forth a complete and
correct list of:
(A) all "employee benefit plans", as defined in
Section 3(3) of ERISA, maintained by the Company or
any of its Subsidiaries to which Company or any of its
Subsidiaries has any obligation or liability,
contingent or otherwise ("Benefit Plans"); and
(B) all employment or consulting agreements, and
all bonus or other incentive compensation, deferred
compensation, salary continuation, disability, stock
award, stock option, stock purchase or other material
employee benefit policies or arrangements which the
Company or any of its Subsidiaries maintains or to
which the Company or any of its Subsidiaries has any
obligation or liability (contingent or otherwise) (the
"Employee Arrangements").
(ii) With respect to each Benefit Plan and
Employee Arrangement, a complete and correct copy of each of the
following documents (if applicable) has been made available to
Purchaser: (i) the most recent plan and related trust documents, and
all amendments thereto; (ii) the most recent summary plan description,
and all related summaries of material modifications thereto; (iii) the
most recent Form 5500 (including schedules and attachments); (iv) the
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<PAGE> 25
most recent IRS determination letter; and (v) the most recent actuarial
reports.
(iii) To the Company's knowledge, the Company and
its Subsidiaries do not currently have and have not during the
preceding six years had any obligation or liability (contingent or
otherwise) under Title IV of ERISA.
(iv) The Benefit Plans and their related trusts
intended to qualify under Sections 401(a) and 501(a) of the Code,
respectively, are qualified under such sections.
(v) All contributions or other payments required
to have been made by the Company or any of its Subsidiaries to or under
any Benefit Plan or Employee Arrangement by applicable law or the terms
of such Benefit Plan or Employee Arrangement (or any agreement relating
thereto) have been timely and properly made or are properly accrued on
the Company's audited financial statements for the year ended December
31, 1996 in accordance with generally accepted accounting principles.
(vi) The Benefit Plans and Employee Arrangements
have been maintained and administered in all material respects in
accordance with their terms and applicable laws.
(vii) Except as disclosed in Schedule 4.1(i)(vii),
there are no pending or, to the best knowledge of the Company,
threatened actions, claims or proceedings against or relating to any
Benefit Plan or Employee Arrangement other than routine benefit claims
by persons entitled to benefits thereunder and other than actions,
claims or proceedings which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on the
Company.
(viii) Except as disclosed in Schedule
4.1(i)(viii), the Company and its Subsidiaries do not maintain or have
an obligation to contribute to retiree life or retiree health plans
which provide for continuing benefits or coverage for current or former
officers, directors or employees of the Company or any of its
Subsidiaries except (i) as may be required under Part 6 of Title I of
ERISA) and at the sole expense of the participant or the participant's
beneficiary or (ii) a medical expense reimbursement account plan
pursuant to Section 125 of the Code.
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(j) Absence of Certain Changes or Events. Except as set
forth on Exhibit D or Schedule 4.1(j) or as contemplated by this Agreement,
since December 31, 1996, the business of the Company and its Subsidiaries has
been carried on only in the ordinary and usual course and no event or events
has or have occurred that (either individually or in the aggregate) has had, or
reasonably could be expected to have, a Material Adverse Effect on the Company.
(k) No Undisclosed Material Liabilities. Except as
specifically and individually set forth on Schedule 4.1(k) or the other
schedules hereto (specific reference to which shall be made on Schedule
4.1(k)), there are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, that are material to the Company and its Subsidiaries considered as
a whole other than: (i) liabilities reflected on the Company's audited
financial statements (together with the related notes thereto) filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (as
filed with the SEC); and (ii) liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has
received the opinion of the Financial Advisor dated April 10, 1997, to the
effect that, as of the date thereof, the Offer Consideration to be received by
the holders of Company Common Stock in the Offer and the Merger Consideration
to be received by the holders of Company Common Stock in the Merger is fair
from a financial point of view to such holders, a signed, true and complete
copy of which opinion shall be delivered to Parent, and such opinion has not
been withdrawn or modified. True and complete copies of all agreements and
understandings between the Company or any of its affiliates and the Financial
Advisor relating to the transactions contemplated by this Agreement are
attached hereto as Schedule 4.1(l).
(m) Vote Required. In the event that Section 253 of the
DGCL is inapplicable and unavailable to effectuate the Merger, the affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock is the only vote of the holders of any class or series of the Company's
capital stock necessary (under applicable law or otherwise) to approve the
Merger and this Agreement and the transactions contemplated hereby.
(n) Labor Matters. Except to the extent as such could not
reasonably be expected to have a Material Adverse Effect on the Company or as
set forth on Schedule 4.1(n):
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(i) Neither the Company nor any of its
Subsidiaries is a party to any labor or collective bargaining
agreement, and no employees of Company or any of its Subsidiaries are
represented by any labor organization. Within the preceding three
years, there have been no representation or certification proceedings,
or petitions seeking a representation proceeding, pending or, to the
knowledge of the Company, threatened to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. Within the preceding three years, to the knowledge of
Company, there have been no organizing activities involving Company or
any of its Subsidiaries with respect to any group of employees of
Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances or
other material labor disputes pending or, to the knowledge of the
Company, threatened against or involving Company or any of its
Subsidiaries. There are no unfair labor practice charges, grievances
or complaints pending or, to the knowledge of Company, threatened by or
on behalf of any employee or group of employees of Company or any of
its Subsidiaries.
(iii) There are no complaints, charges or claims
against Company or any of its Subsidiaries pending or, to the knowledge
of Company, threatened to be brought or filed with any governmental
authority, arbitrator or court based on, arising out of, in connection
with, or otherwise relating to the employment or termination of
employment of any individual by Company or any of its Subsidiaries.
(iv) Each of the Company and its Subsidiaries is
in material compliance with all laws, regulations and orders relating
to the employment of labor, including all such laws, regulations and
orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the
collection and payment of withholding and/or social security taxes and
any similar tax.
(v) Since July 31, 1996, there has been no "mass
layoff" or "plant closing" (as defined by the Worker Adjustment
Retraining and Notification Act of 1988, as amended ("WARN Act") with
respect to the Company or any of its Subsidiaries.
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(o) Intangible Property. Each of the Company and its
Subsidiaries owns or has a right to use each trademark, trade name, patent,
service mark, brand mark, brand name, computer program, database, industrial
design and copyright owned or used in connection with the operation of its
businesses, including any registrations thereof and pending applications
therefor, and each license or other contract relating thereto (collectively,
the "Company Intangible Property"), free and clear of any and all liens, claims
or encumbrances, except where the failure to own or have a right to use such
property could not reasonably be expected to have a Material Adverse Effect on
the Company. To the Company's knowledge, Schedule 4.1(o) hereto sets forth a
complete list of the Company Intangible Property. Except to the extent that
such could not reasonably be expected to have a Material Adverse Effect on the
Company, the use of the Company Intangible Property by the Company or its
Subsidiaries does not conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor of
any other person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means
any and all losses, liabilities, obligations, damages, fines,
penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants
and the reasonable costs of investigation and feasibility
studies and the reasonable costs to clean up, remove, treat,
or in any other way address any Hazardous Materials) arising
with respect to any violation of or liability arising pursuant
to or under any Environmental Law.
(B) "Environmental Law" means any applicable law
regulating or prohibiting Releases of Hazardous Materials into
any part of the natural environment, or pertaining to the
protection of natural resources, the environment and public
and employee health and safety from Hazardous Materials
including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act
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(49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean
Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air
Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 7401 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section
136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.) ("OSHA") and the regulations
promulgated pursuant thereto, and any such applicable state
or local statutes, including, without limitation, the
Industrial Site Recovery Act ("IRSA"), and the regulations
promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(C) "Hazardous Material" means any substance,
material or waste which is regulated with respect to its toxic
or otherwise hazardous character by any public or governmental
authority in the jurisdictions in which the applicable party
or its Subsidiaries conducts business, or the United States,
including, without limitation, any material or substance which
is defined as a "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law and
shall also include, without limitation, petroleum, petroleum
products, asbestos, polychlorinated biphenyls and radioactive
materials;
(D) "Release" means any release, spill, effluent,
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching, or migration into the
environment; and
(E) "Remedial Action" means all actions,
including, without limitation, any capital expenditures,
required by a governmental entity or required under any
Environmental Law, or voluntarily undertaken to (I) clean up,
remove, treat, or in any other way ameliorate or address any
Hazardous Materials or other substance in the environment;
(II) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public health or welfare
or the environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining
or relating to a Release; or
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(IV) bring the applicable party into compliance with any
Environmental Law.
(ii) Except as set forth on Schedule
4.1(p) hereto: (A) The operations of the Company and its
Subsidiaries have been and, as of the Closing Date, will be,
in compliance in all respects with all Environmental Laws
except for any such noncompliance which could not reasonably
be expected to result in a Material Adverse Effect on the
Company;
(B) The Company and its Subsidiaries have
obtained and will, as of the Closing Date, maintain all
permits required under applicable Environmental Laws for the
continued operations of their respective businesses, except
such permits the lack of which would not materially impair the
ability of the Company and its Subsidiaries to continue
operations;
(C) The Company and its Subsidiaries are not
subject to any outstanding material written orders from, or
material written agreements with, any Governmental Entity or
other person respecting (A) violations or liability pursuant
to Environmental Laws, (B) Remedial Action or (C) any Release
or threatened Release of a Hazardous Material;
(D) The Company and its Subsidiaries have not
received any written communication alleging, with respect to
any such party, the material violation of or material
liability under any Environmental Law, which violation or
liability is outstanding;
(E) Neither the Company nor any of its
Subsidiaries has any contingent liability in connection with
the Release of any Hazardous Material into the environment
(whether on-site or off- site) which would be reasonably
likely to result in the Company and its Subsidiaries incurring
Environmental Costs and Liabilities which could reasonably be
expected to result in a Material Adverse Effect on the
Company;
(F) The operations of the Company or its
Subsidiaries do not involve the transportation, treatment,
storage or disposal of hazardous waste, as defined and
regulated under permit requirements set forth in 40 C.F.R.
Parts 260-270 (in effect as of the date of this Agreement) or
any state equivalent;
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(G) To the knowledge of the Company, there is not
now nor has there been in the past, on or in any property of
the Company or its Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments containing
Hazardous Materials, (B) any asbestos-containing materials, or
(C) any polychlorinated biphenyls in regulated quantities; and
(H) No judicial or administrative proceedings or
governmental investigations are pending or, to the knowledge
of the Company, threatened against the Company or any of its
Subsidiaries alleging the violation of or seeking to impose
liability pursuant to any Environmental Law, except for any
such proceedings or investigations that could not reasonably
be expected to result in a Material Adverse Effect on the
Company.
(iii) This Section 4.1(p) sets forth the
sole and exclusive representations and warranties of the
Company relating to Environmental Matters, including, without
limitation, any matters arising under Environmental Laws.
(q) Real Property.
(i) Schedule 4.1(q)(i) sets forth all of the real
property owned in fee by the Company and its Subsidiaries. Each of the
Company and its Subsidiaries has good and marketable title to each
parcel of real property owned by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests, except (1) those
described in the Company SEC Documents, (2) those reflected or reserved
against in the audited balance sheet of the Company dated as of
December 31, 1996, and (3) to the extent that such could not reasonably
be expected to have a Material Adverse Effect on the Company, (A) taxes
and general and special assessments not in default and payable without
penalty and interest, (B) mechanics and similar statutory liens arising
or incurred in the ordinary course of business for amounts that are not
delinquent, (C) any zoning, building, and land use regulation imposed
by any Governmental Entity, and (D) any covenant, restriction, or
easement expressly set forth in the title documents governing such real
property filed with the appropriate Governmental Entity.
(ii) Schedule 4.1(q)(ii) sets forth each lease,
sublease or other agreement (collectively, the "Real Property Leases")
under which the Company or any of its
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Subsidiaries uses or occupies or has the right to use or occupy, now or
in the future, any real property. Each Real Property Lease is valid,
binding and in full force and effect, all rent and other sums and
charges payable by the Company and its Subsidiaries as tenants
thereunder are current, no termination event or condition or uncured
default of a material nature on the part of the Company or any
Subsidiary of the Company exists under any Real Property Lease. Each
of the Company and its Subsidiaries has a good and valid leasehold
interest in each parcel of real property leased by it free and clear of
all mortgages, pledges, liens, encumbrances and security interests,
except (i) those disclosed in the Company's SEC Documents, (ii) those
reflected or reserved against in the balance sheet of the Company dated
as of December 31, 1996, (iii) taxes and general and special
assessments not in default and payable without penalty and interest and
(iv) those which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the
Company.
(r) Board Recommendation. As of the date hereof, the
Board of Directors of the Company, at a meeting duly called and held, has by
the vote of those directors present (who constituted 100% of the directors then
in office) (i) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, taken together, are fair to and in
the best interests of the stockholders of the Company and has approved the
same, and (ii) resolved to recommend that the holders of the shares of Company
Common Stock approve this Agreement and the transactions contemplated herein,
including the Merger (if required), and accept the Offer and tender their
shares of Company Common Stock pursuant thereto.
(s) Material Contracts. The Company has made available to
Parent (i) true and complete copies of all written contracts, agreements,
commitments, arrangements, leases (including with respect to personal
property), policies and other instruments to which it or any of its
Subsidiaries is a party or by which it or any such Subsidiary is bound which
(A) require payments to be made in excess of $250,000 per year for goods and/or
services, (B) require payments to be made in excess of $100,000 with respect to
any licenses granted to the Company or any of its Subsidiaries, or (C) do not
by their terms expire and are not subject to termination within 60 days from
the date of the execution and delivery thereof (collectively, "Material
Contracts"), and (ii) a written description of each Material Contract of which
the Company is aware that has not been reduced to writing; provided, however,
that blanket purchase orders or similar arrangements shall not be considered
Material Contracts
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<PAGE> 33
for purposes of this Agreement. Each of the Material Contracts is listed on
Schedule 4.1(s). Neither the Company nor any of its Subsidiaries is, or has
received any written notice that any other party is, in default in any respect
under any such Material Contract, except for those defaults which could not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company; and, to the Company's
knowledge, there has not occurred any event or events that with the lapse of
time or the giving of notice or both would constitute such a material default,
except for those defaults which could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company.
(t) Related Party Transactions. Except as set forth on
Schedule 4.1(t) or as disclosed in the Company SEC Documents, no director,
officer, "affiliate" or "associate" (as such terms are defined in Rule 12b-2
under the Exchange Act) of the Company or any of its Subsidiaries (i) has
borrowed any monies from or has outstanding any indebtedness or other similar
obligations to the Company or any of its Subsidiaries, or (ii) is otherwise a
party to any contract, arrangement or understanding with the Company or any of
its Subsidiaries.
(u) Indebtedness. Except as set forth on Schedule 4.1(u)
hereto or in the Company's audited financial statements as of December 31,
1996, on the date hereof neither the Company nor any of its Subsidiaries has
any outstanding indebtedness for borrowed money or representing the deferred
purchase price of property or services or similar liabilities or obligations,
including any guarantee in respect thereof ("Indebtedness"), or is a party to
any agreement, arrangement or understanding providing for the creation,
incurrence or assumption thereof.
(v) Liens. Neither the Company nor any of its
Subsidiaries has granted, created, or suffered to exist with respect to any of
its assets, any mortgage, pledge, charge, hypothecation, collateral assignment,
lien (statutory or otherwise), encumbrance or security agreement of any kind or
nature whatsoever, except (1) those described in the Company SEC Documents, (2)
those reflected or reserved against in the audited balance sheet of the Company
dated as of December 31, 1996, and (3) to the extent that such could not
reasonably be expected to have a Material Adverse Effect on the Company, (A)
taxes and general and special assessments not in default and payable without
penalty and interest, (B) mechanics and similar statutory liens arising or
incurred in the ordinary course of business for amounts that are not
delinquent, (C) any zoning, building, and
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land use regulation imposed by any Governmental Entity, and (D) any covenant,
restriction, or easement expressly set forth in the title documents governing
real property of the Company or any of its Subsidiaries and filed with the
appropriate Governmental Entity.
(w) Customers and Suppliers. Schedule 4.1(w) sets forth
(a) a list of the ten largest customers of the Company and its Subsidiaries
based on sales during the fiscal year ended December 31, 1996, showing the
approximate total sales to each such customer during such fiscal year and (b) a
list of the ten largest suppliers of the Company and its Subsidiaries based on
purchases during the fiscal year ended December 31, 1996, showing the
approximate total purchases from each such supplier during such fiscal year.
Except as described on Schedule 4.1(w), to the Company's knowledge there has
not been any adverse change in the business relationship of the Company or any
Subsidiary of the Company with any customer or supplier named in Schedule
4.1(w) which could reasonably be expected to have a Material Adverse Change on
the Company.
4.2 Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted, and is duly qualified to do business as a
foreign corporation and in good standing to conduct business in each
jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not have
a Material Adverse Effect with respect to Parent. Parent and Sub have
heretofore made available to the Company complete and correct copies of their
respective Certificates of Incorporation and Bylaws.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has
been duly executed and delivered by each of Parent and Sub and
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assuming this Agreement constitutes the valid and binding agreement of
the Company, constitutes a valid and binding obligation of Parent and
Sub enforceable in accordance with its terms and conditions except that
the enforcement hereof may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(ii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by each of
Parent and Sub will not result in any Violation pursuant to any
provision of the respective Articles or Certificates of Incorporation
or Bylaws of Parent or Sub or, except as to which requisite waivers or
consents have been obtained and assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
paragraph (iii) of this Section 4.2(b) are duly and timely obtained or
made, and, if required, the Company Stockholder Approval has been
obtained, result in any Violation of any loan or credit agreement,
note, mortgage, indenture, lease, or other agreement, obligation,
instrument, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub
or their respective properties or assets, which could have a Material
Adverse Effect with respect to Parent.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, notice to, or permit
from any Governmental Entity, is required by or with respect to Parent
or Sub in connection with the execution and delivery of this Agreement
by each of Parent and Sub or the consummation by each of Parent or Sub
of the transactions contemplated hereby, except for: (A) filings under
the HSR Act; (B) the filing with the SEC of (x) the Schedule 14D-1 in
connection with the commencement and consummation of the Offer and (y)
such reports under and such other compliance with the Exchange Act and
the rules and regulations thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby; (C) the
filing of the Certificate of Merger with the Secretary of State of the
State of Delaware; (D) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws; (E) such
filings and approvals as may be required by any foreign pre-merger
notification, securities, corporate or other law,
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rule or regulation; (F) such filings in connection with any Gains and
Transfer Taxes; and (G) such other such filings and consents as may be
required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval
necessitated by the Merger or the transactions contemplated by this
Agreement.
(c) Information Supplied. None of the information
supplied or to be supplied by Parent or Sub for inclusion or incorporation by
reference in (i) the Schedule 14D-9 will, at the time the Schedule 14D-9 is
filed with the SEC, and at any time it is amended or supplemented, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading, and (ii) the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If, at any time prior to the Effective Time, any
event with respect to Parent or Sub, or with respect to information supplied by
Parent or Sub for inclusion in the Schedule 14D-9 or the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described to the Company.
(d) Board Recommendation. The Board of Directors of the
Parent, at a meeting duly called and held, has by the vote of those directors
present determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, taken together, are fair to and in
the best interests of Parent and has approved the same.
(e) Financing. Parent and Sub have delivered to the
Company a true and complete copy of (i) a letter of commitment obtained by
Parent from Credit Suisse First Boston to provide debt financing for the
transactions contemplated hereby pursuant to a senior credit facility; (ii) a
letter of commitment obtained by Parent from Credit Suisse First Boston with
respect to senior subordinated debt financing for the transactions contemplated
hereby pursuant to the sale by Parent of senior subordinated notes; (iii) a
letter of commitment obtained by Hedstrom Holdings, Inc., the sole stockholder
of Parent ("Holdings"), from Credit Suisse First Boston with respect to senior
debt financing for the transactions contemplated hereby pursuant to the sale by
Holdings of senior notes; and (iv) from Hicks Muse Equity Fund
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II, L.P. to provide certain equity financing pursuant to the sale by Holdings
of shares of its common stock (collectively, the "Financing Commitments").
Executed copies of the Financing Commitments are attached hereto as Exhibit
4.2(e). Assuming that the financing contemplated by the Financing Commitments
is consummated in accordance with the terms thereof, the funds to be borrowed
and/or provided thereunder by Parent and Holdings will provide sufficient funds
to pay the Offer Consideration, the Merger Consideration and all related fees
and expenses. As of the date of this Agreement, Parent is not aware of any
facts or circumstances that create a reasonable basis for Parent to believe
that Parent and Holdings will not be able to obtain financing in accordance
with the terms of the Financing Commitments. Parent agrees to promptly notify
the Company if the statements in the immediately preceding sentence are no
longer true and correct. Parent and Sub agree with the Company that they will
not waive, release, modify, rescind, terminate or otherwise amend any of the
material terms or conditions in the commitment letters referred to in this
Section 4.2(e), without the prior written consent of the Company.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the
date of this Agreement and continuing until the Effective Time, the Company
agrees as to the Company and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, or to the extent that Parent shall
otherwise consent in writing):
(a) Ordinary Course. Each of the Company and its
Subsidiaries shall carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and shall use
all reasonable efforts to preserve intact its present business organization,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it.
(b) Dividends; Changes in Stock. The Company shall not,
nor shall it permit any of its Subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital
stock; (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock; or (iii) repurchase
or otherwise acquire, or permit any Subsidiary to purchase or
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otherwise acquire, any shares of its capital stock, except (A) as contemplated
by Section 3.5 of this Agreement and (B) as required by the terms of its
securities outstanding or any employee benefit plan in effect on the date
hereof.
(c) Issuance of Securities. The Company shall not, nor
shall it permit any of its Subsidiaries to, (i) grant any options, warrants or
rights, to purchase shares of Company Common Stock, (ii) except as contemplated
by Section 3.5 of this Agreement, amend the terms of or reprice any Option or
amend the terms of any of the Stock Option Plans, or (iii) issue, deliver or
sell, or authorize or propose to issue, deliver or sell, any shares of its
capital stock of any class or series, any Company Voting Debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Company Voting Debt or convertible securities, other than the issuance
of Shares upon the exercise of Options or Warrants that are outstanding on the
date hereof.
(d) Governing Documents. The Company shall not amend or
propose to amend its Certificate of Incorporation or Bylaws.
(e) No Solicitation. From and after the date hereof until
the termination of this Agreement, neither the Company or any of its
Subsidiaries, nor any of their respective officers, directors, representatives,
agents or affiliates (including, without limitation, any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries)
(such officers, directors, employees, representatives, agents, affiliates,
investment bankers, attorneys and accountants being referred to herein,
collectively, as "Representatives"), will, and the Company will use its
reasonable best efforts to cause the employees of the Company and its
Subsidiaries not to, directly or indirectly, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or for the
purpose of obtaining an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, and neither the Company nor any of its Subsidiaries will
authorize or permit any of its Representatives to take any such action, and the
Company shall notify Parent orally (within one business day) and in writing (as
promptly as practicable) of all of the relevant details relating to, and all
material aspects of, all inquiries and proposals which it or any of its
Subsidiaries or any of their respective Representatives may receive relating to
any of such matters and, if such inquiry
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or proposal is in writing, the Company shall deliver to Parent a copy of such
inquiry or proposal as promptly as practicable; provided, however, that nothing
contained in this Section 5.1(e) shall prohibit the Board of Directors of the
Company from:
(i) furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited written, bona fide Acquisition Proposal (provided that such
person or entity has the necessary funds or commitments to provide the
funds to effect such Acquisition Proposal; provided further, however,
that the Company shall have two business days from the date it receives
such Acquisition Proposal to determine whether such person or entity
has such funds or commitments) if, and only to the extent that, (A) the
Board of Directors of the Company, after consultation with and based
upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith
that such action is advisable for the Board of Directors of the Company
to comply with its fiduciary duties to stockholders under applicable
law, (B) prior to taking such action, the Company (x) provides
reasonable prior notice to Parent to the effect that it is taking such
action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, and (C) the
Company shall , to the extent consistent with the Board of Directors
fiduciary duties to stockholders under applicable law, promptly and
continuously advise Parent as to all of the relevant details relating
to, and all material aspects, of any such discussions or negotiations;
(ii) failing to make or reaffirm, withdrawing,
adversely modifying or taking a public position materially inconsistent
with its recommendation referred to in Section 4.1(r) (which may
include making any statement required by Rule 14e-2 under the Exchange
Act) if there exists an Acquisition Proposal and the Board of Directors
of the Company, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), determines in good faith that such action is
advisable for the Board of Directors of the Company to comply with its
fiduciary duties to holders of Shares under applicable law; or
(iii) making a "stop-look-and-listen" communication
with respect to an Acquisition Proposal, the Offer or this Agreement of
the nature contemplated in, and otherwise in compliance with, Rule
14d-9 under the Exchange Act as a result of receiving an Acquisition
Proposal.
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For purposes of this Agreement, "Acquisition Proposal" shall mean any of the
following (other than the transactions among the Company, Parent and Sub
contemplated hereunder) involving the Company or any of its Subsidiaries: (i)
any merger, consolidation, share exchange, recapitalization, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 10% or more of the assets
(computed based on the fair market value of such assets as determined by the
Board of Directors of the Company in good faith) of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) merge or consolidate with, or acquire
any equity interest in, any corporation, partnership, association or other
business organization, or enter into an agreement with respect thereto or (ii)
acquire or agree to acquire any assets of any corporation, partnership,
association or other business organization or division thereof, except for the
purchase of inventory and supplies in the ordinary course of business or the
acquisition by the Company or any Subsidiary of equity interests in any
customer or supplier of the Company in satisfaction of outstanding claims
against such party in bankruptcy proceedings consistent with past practice.
(g) No Dispositions. Other than sales of inventory or
sales or returns of obselete or surplus equipment in the ordinary course of
business consistent with past practice, the Company shall not, nor shall it
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose
of, or agree to sell, lease (whether such lease is an operating or capital
lease), encumber or otherwise dispose of, any of its assets (including, without
limitation, any capital stock or other ownership interest of any Subsidiary of
the Company).
(h) Governmental Filings. The Company shall promptly
provide Parent (or its counsel) with copies of all filings made by the Company
with the SEC or any other state or federal Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. The Company shall not authorize,
recommend, propose or announce an intention to adopt a
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plan of complete or partial liquidation or dissolution of the Company or any of
its Subsidiaries.
(j) Other Actions.
(i) Except as expressly permitted by the terms of
this Agreement, the Company will not knowingly or intentionally take or
agree or commit to take, nor will it permit any of its Subsidiaries to
take or agree or commit to take, any action that is reasonably likely
to result in any of the Company's representations or warranties
hereunder being untrue in any material respect or in any of the
Company's covenants hereunder or any of the conditions to the Merger
not being satisfied in all material respects.
(ii) Parent will not knowingly or intentionally
take or agree or commit to take, nor will it permit Holdings or any of
the Subsidiaries of Parent to take or agree or commit to take, any
action to prohibit or prevent the financing sources of Parent and
Holdings from providing the debt and equity financing contemplated by
the Financing Commitments.
(k) Certain Employee Matters. The Company and its
Subsidiaries shall not (without the prior written consent of Parent): (i)
grant any increases in the compensation of any of its directors, officers or
key employees; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or contemplated to be paid prior to the
Effective Time by any of the existing Benefit Plans or Employee Arrangements as
in effect on the date hereof to any such director, officer or key employee,
whether past or present; (iii) enter into any new, or materially amend any
existing, employment or severance or termination agreement with any such
director, officer or key employee; or (iv) except as may be required to comply
with applicable law, become obligated under any new Benefit Plan or Employee
Arrangement, which was not in existence on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such amendment would
have the effect of materially enhancing any benefits thereunder.
(l) Indebtedness; Agreements.
(i) Except for indebtedness incurred by the
Company from time to time for working capital purposes in the ordinary
course of business under that certain Second Amended and Restated
Credit Agreement, dated as of December 14, 1995 among the Company, the
financial institutions party
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thereto and the First National Bank of Chicago, as agent (the "Company
Credit Agreement"), indebtedness incurred to fund capital expenditures
permitted under Section 5.1(n) of this Agreement and entering into
leases for personal property in the ordinary course of business
consistent with past practice, the Company shall not, nor shall the
Company permit any of its Subsidiaries to, without the prior written
consent of Parent (which shall not be unreasonably withheld), assume or
incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of others or enter into
any lease (whether such lease is an operating or capital lease) or
create any mortgages, liens, security interests or other encumbrances
on the property of the Company or any of its Subsidiaries in connection
with any indebtedness thereof, or enter into any "keep well" or other
agreement or arrangement to maintain the financial condition of another
person.
(ii) Without the prior written consent of Parent
(which shall not be unreasonably withheld), the Company shall not, nor
shall the Company permit any of its Subsidiaries to, (A) enter into any
contracts involving aggregate annual payments not in excess of
$250,000, except for license agreements entered into in the ordinary
course of the Company's business consistent with past practice, or (b)
modify, rescind, terminate, waive, release or otherwise amend in any
material respect any of the terms or provisions of any Material
Contract in any manner that is material and adverse to the Company or
the respective Subsidiary of the Company party thereto.
(m) Accounting. The Company shall not take any action,
other than in the ordinary course of business, consistent with past practice or
as required by the SEC or by law, with respect to accounting policies,
procedures and practices.
(n) Capital Expenditures. Except for the capital
expenditures set forth on Schedule 5.1(n), the Company and its Subsidiaries
shall not incur any capital expenditures in excess of $100,000.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company
Stockholders Meeting; Merger without a Company Stockholders Meeting.
(a) The Company and Parent will, as soon as practicable
following the acceptance for payment of and payment for shares of the Company
Common Stock by Sub in the Offer, prepare and file the Proxy Statement with the
SEC. The Company will use all commercially reasonable efforts to respond to
all SEC comments with respect to the Proxy Statement and to cause the Proxy
Statement to be mailed to the Company's stockholders at the earliest
practicable date.
(b) The Company will, as soon as practicable following the
acceptance for payment of and payment for shares of the Company Common Stock by
Sub in the Offer, duly call, give notice of, convene and hold a meeting of the
Company's stockholders for the purpose of approving this Agreement and the
transactions contemplated hereby. At such stockholders meeting, Parent shall
cause all of the shares of Company Common Stock then owned by Parent and Sub to
be voted in favor of the Merger.
(c) Notwithstanding the foregoing clauses (a) and (b), in
the event that Parent and Sub shall acquire at least 90% of the outstanding
shares of Company Common Stock in the Offer, the parties hereto agree, at the
request of Sub, to take all necessary and appropriate action to cause the
Merger to become effective, as soon as practicable after the expiration of the
Offer, without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
(d) Sub shall promptly submit this Agreement and the
transactions contemplated hereby for approval and adoption by Parent, as its
sole stockholder, by written consent.
6.2 Access to Information. Upon reasonable notice, each
of the Company or Parent, as the case may be, shall (and shall cause each of
its Subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other party (including, in the case of Parent
and Sub, potential financing sources and their employees, accountants, counsel
and other representatives), access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, such party shall (and shall
cause each of its Subsidiaries to) furnish promptly to the other party, (a) a
copy
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of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to SEC requirements and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. The Confidentiality Agreement, dated as of
December 10, 1996, between Parent and the Company (the "Confidentiality
Agreement") shall apply with respect to information furnished thereunder or
hereunder and any other activities contemplated thereby.
6.3 [Intentionally Omitted].
6.4 Fees and Expenses. (a) Except as otherwise
provided in this Section 6.4 and except with respect to claims for damages
incurred as a result of the breach of this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense.
(b) The Company agrees to pay Parent or Parent's designee
a fee in immediately available funds equal to $3,000,000 upon the termination
of this Agreement under Section 8.1(d) or Section 8.1(e), if any of the events
set forth in either clause (i) or clause (ii) below occurs (each, a "Trigger
Event"):
(i) the Board of Directors of the Company shall have (A)
withdrawn or adversely modified, or taken a public position materially
inconsistent with, its approval or recommendation of the Offer, the
Merger, this Agreement or the Stockholders Agreement, or (B) failed to
reaffirm its approval or recommendation of the Offer, the Merger and
this Agreement under the circumstances set forth in Section 8.1(e);
provided that a Company action permitted by Section 5.1(e)(iii) hereof
shall not, by itself, constitute a Trigger Event; or
(ii) an Acquisition Proposal has been recommended or
accepted by the Company or the Company shall have entered into an
agreement (other than a confidentiality agreement as contemplated by
Section 5.1(e)) with respect to an Acquisition Proposal.
(c) Parent agrees to pay to the Company a fee in
immediately available funds equal to $3,000,000 upon the termination of this
Agreement under Section 8.1(f) in the event that the Offer expires or is
withdrawn, abandoned or terminated if the sole reason for such expiration,
withdrawal, abandonment or termination is the failure of the condition
described in item (iii) on Exhibit A hereto.
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(d) Any amounts due under this Section 6.4 that are not
paid when due shall bear interest at the prime rate from the date due through
and including the date paid.
6.5 Brokers or Finders. (a) The Company represents, as
to itself, its Subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finders fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except the Financial Advisor, whose fees and expenses will be paid by the
Company in accordance with the Company's agreements with such firm (copies of
which have been delivered by the Company to Parent prior to the date of this
Agreement).
(b) Parent represents, as to itself, its Subsidiaries and
its affiliates, that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finders fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except for Hicks, Muse, Tate & Furst
Incorporated, whose fees and expenses will be paid by Parent in accordance with
the Parent's agreements with such firm (copies of which have been made
available to the Company prior to the date of this Agreement).
6.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company shall, and from and after the Effective Time, the Surviving
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer, director, employee or agent of the Company or any
of its Subsidiaries(the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out
of the fact that such person is or was a director, officer, employee or agent
of the Company or any of its Subsidiaries whether pertaining to any matter
existing or occurring at or prior to the Effective Time or any acts or
omissions occurring or existing at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case
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to the full extent a corporation is permitted under the DGCL to indemnify its
own directors or officers as the case may be (and the Company and the
Surviving Corporation, as the case may be, shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain the Company's regularly engaged
independent legal counsel or counsel satisfactory to them and reasonably
satisfactory to the Company (or them and reasonably satisfactory to the
Surviving Corporation after the Effective Time) and the Company (or after the
Effective Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; and (ii) the Company (or after the Effective Time, the
Surviving Corporation) will use all reasonable best efforts to assist in the
vigorous defense of any such matter, provided that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 6.6, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation)
(but the failure so to notify shall not relieve a party from any liability
which it may have under this Section 6.6 except to the extent such failure
materially prejudices such party's position with respect to such claims), and
shall deliver to the Company (or after the Effective Time, the Surviving
Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties in which case such additional counsel as
may be required (as shall be reasonably determined by the Indemnified Parties
and the Company or the Surviving Corporation, as the case may be) may be
retained by the Indemnified Parties at the cost and expense of the Company (or
Surviving Corporation). The Company and Sub agree that the foregoing rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified
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Liabilities asserted or made within such period shall continue until the
disposition of such Indemnified Liabilities. Furthermore, the provisions with
respect to indemnification set forth in the certificate of incorporation of the
Surviving Corporation shall not be amended for a period of six years following
the Effective Time if such amendment would materially and adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Company in respect of
actions or omissions occurring at or prior to the Effective Time.
(b) Parent and Sub hereby unconditionally waive and release
the Indemnified Parties from and agrees to indemnify, defend and hold harmless
the Indemnified Parties from and against any and all claims, demands, causes of
action, liabilities, costs or expenses, whether arising under contract,
statute, common law or otherwise, with respect to environmental matters
(including without limitation any of the foregoing arising under CERCLA or any
other Environmental Laws).
(c) For a period of six years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company and its Subsidiaries (provided that Parent may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the
Indemnified Parties) with respect to matters arising before and acts or
omissions occurring or existing at or prior to the Effective Time including the
transactions contemplated by this Agreement, provided that Parent shall not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount. The last
annual premium paid by the Company was $85,000.
(d) The provisions of this Section 6.6 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his
heirs and his personal representatives and shall be binding on all successors
and assigns of Sub, the Company and the Surviving Corporation.
6.7 Commercially Reasonable Efforts. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable, under
applicable laws and regulations or otherwise, to consummate and make effective
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the transactions contemplated by this Agreement and the Stockholders Agreement,
subject, as applicable, to the Company Stockholder Approval, including
cooperating fully with the other party, including by provision of information
and making of all necessary filings in connection with, among other things,
approvals under the HSR Act. The Company will use its reasonable efforts to
assist Parent, at Parent's expense, in obtaining any consent from third parties
necessary to allow the Company to continue operating its business as presently
conducted as a result of the consummation of the transactions contemplated
hereby. In case at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take
all such necessary action. Without limiting the generality of the foregoing,
the Company agrees to cooperate with Parent's and Sub's efforts to secure the
financing contemplated by the Financing Commitments, such cooperation to
include providing such information to Parent's and Sub's financing sources as
Parent or Sub may reasonably request and making available to such financing
sources senior officers and such other employees of the Company as Parent and
Sub may reasonably request to assist in the preparation of one or more offering
documents and other appropriate marketing materials and to otherwise
participate in such marketing and sales efforts relating to the Financing
Commitments as Parent and Sub may reasonably request upon reasonable notice and
consistent with such officers' and employees' other business responsibilities
to the Company; provided, that the Company shall incur no liability hereunder
as a result of any participation by any officer or employee in such financing
efforts.
6.8 Conduct of Business of Sub. During the period of time
from the date of this Agreement to the Effective Time, Sub shall not engage in
any activities of any nature except as provided in or contemplated by this
Agreement.
6.9 Publicity. The parties will consult with each other
and will mutually agree upon any press release or public announcement
pertaining to the Offer and the Merger and shall not issue any such press
release or make any such public announcement prior to such consultation and
agreement, except as may be required by applicable law, in which case the party
proposing to issue such press release or make such public announcement shall
use reasonable efforts to consult in good faith with the other party before
issuing any such press release or making any such public announcement.
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6.10 Withholding Rights. Sub and the Surviving
Corporation, as applicable, shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Sub or the Surviving
Corporation, as applicable, is required to deduct and withhold with respect to
the making of such payment under the Code or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Sub or the
Surviving Corporation, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by Sub
or the Surviving Corporation, as applicable.
6.11 Continuation of Employee Benefits. Until at least
December 31, 1997, Parent shall maintain or cause to be maintained employee
benefits and programs for retirees, directors, officers and employees of the
Company and its Subsidiaries that are no less favorable in the aggregate than
those set forth on Schedule 4.1(i) taking into account that the Company will be
a private company without stock options and the like; provided, however, that
Parent shall not be obligated to continue (i) the Company's Nonqualified
Deferred Compensation Plan and the Company agrees that it shall cause such plan
to be terminated prior to the consummation of the Offer or (ii) any individual
employment agreement. On or after January 1, 1998, the retirees, directors,
officers and employees of the Company and its Subsidiaries shall be eligible
for employee benefits, plans and programs (including but not limited to
incentive compensation, deferred compensation, pension, life insurance,
medical, profit sharing (including 401(k)), severance salary continuation and
fringe benefits) which are no less favorable in the aggregate than those
generally available to similarly situated retirees, directors, officers and
employees of the Parent and its significant Subsidiaries. For purposes of
eligibility to participate in and vesting in all benefits provided to retirees,
directors, officers and employees, the retirees, directors, officers and
employees of the Company and its Subsidiaries will be credited with their years
of service with prior employers to the extent service with prior employers is
taken into account under plans of the Company. Upon termination of any medical
plan of the Company, individuals who were directors, officers or employees of
the Company or its Subsidiaries at the Effective Time shall become eligible to
participate in the medical plan of Parent, provided that no condition that was
eligible for coverage under any medical plan of the Company at the time of such
termination shall be excluded from coverage under the medical plan of Parent as
a pre-existing condition. Amounts paid before the Effective Time by retirees,
46
<PAGE> 50
directors, officers and employees of the Company under any medical plans of the
Company shall after the Effective Time be taken into account in applying
deductible and out-of-pocket limits applicable under the medical plan of Parent
provided as of the Effective Time to the same extent as if such amounts had
been paid under such medical plan of Parent.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the affirmative vote of the holders of
a majority of the outstanding Shares entitled to vote thereon if such vote is
required by applicable law; provided that the Parent and Sub shall vote all
Shares purchased pursuant to the Offer or the Stockholders Agreement in favor
of the Merger.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired, and no restrictive order or other requirements shall
have been placed on the Company, Parent, Sub or the Surviving Corporation in
connection therewith.
(c) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall use
all commercially reasonable efforts to have any such decree, ruling, injunction
or order vacated.
(d) Statutes. No statute, rule, order, decree or
regulation shall have been enacted or promulgated by any government or
governmental agency or authority which prohibits the consummation of the
Merger.
(e) Payment for Shares. Sub shall have accepted for
payment and paid for the shares of Company Common Stock tendered in the Offer
such that, after such acceptance and payment, Parent and its affiliates shall
own, at consummation of the Offer, a majority of the outstanding shares of the
Company Common Stock on
47
<PAGE> 51
a fully diluted basis; provided that this condition shall be deemed to have
been satisfied if Sub fails to accept for payment and pay for Shares pursuant
to the Offer in violation of the terms and conditions of the Offer.
7.2 Conditions to Obligation of Parent and Sub. The
obligations of Parent and Sub to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions, any or all
of which may be waived in whole or in part by Parent and Sub:
(a) Financing. Holdings and Parent shall have received
the debt and equity financing for the transactions contemplated hereby on terms
substantially as outlined in the Financing Commitments.
(b) Dissenting Shares. No more than ten percent (10%) of
the shares of Company Common Stock outstanding immediately prior to the
Effective Time shall be Dissenting Shares.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company or by Parent:
(a) by mutual written consent of the Company and Parent,
or by mutual action of their respective Boards of Directors;
(b) by either the Company or Parent (i) if any permanent
injunction or other order of a court or other competent authority preventing
the consummation of the Offer or the Merger shall have become final and non-
appealable, or (ii) so long as such party is not then in material breach of its
obligations hereunder, if there has been a breach of any representation,
warranty, covenant or agreement (determined without giving effect to any
"Material Adverse Effect", "materiality" or similar qualifications contained
therein) on the part of the other set forth in this Agreement which breach
(other than a breach of any covenant or agreement set forth in Article I,
Section 4.2(e) or Section 5.1(e)) has not been cured within ten calendar days
following receipt by the breaching party of notice of such breach, unless such
breach could not, individually or in the aggregate with other breaches, be
reasonably expected to (A) have
48
<PAGE> 52
a Material Adverse Effect on the Company or (B) materially adversely affect the
ability of the parties hereto to consummate the transactions contemplated
hereby;
(c) by either the Company or Parent, so long as such party
is not then in material breach of its obligations hereunder, if the Merger
shall not have been consummated on or before the 135th calendar day following
the consummation of the Offer; provided, that the right to terminate this
Agreement under this Section 8.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date;
(d) by Parent in the event that a Trigger Event has
occurred under Section 6.4(b) prior to the consummation of the Offer;
(e) by Parent in the event an Acquisition Proposal has
been made to the Company prior to the expiration of the Offer and the Company
shall fail to publicly reaffirm its approval or recommendation of the Offer,
the Merger, this Agreement and the Stockholders Agreement on or before the
earlier to occur of (i) the tenth business day following the date on which such
Acquisition Proposal shall have been made or (ii) the third business day prior
to the latest possible expiration date of the Offer hereunder;
(f) by either the Company or Parent, if the Offer
terminates, is withdrawn, abandoned or expires by reason of the failure to
satisfy any condition set forth in Exhibit A hereto;
(g) by the Company, if the Offer shall have expired or
shall have been withdrawn, abandoned or terminated without any shares of
Company Common Stock being purchased by Sub thereunder on or prior to the 60th
calendar day after the date of commencement of the Offer pursuant to Section
1.2 hereof;
(h) by the Company, if (i) the Board of Directors of the
Company shall take any of the actions permitted by Section 5.1(e)(ii) of this
Agreement and (ii) the Company shall have paid a termination fee to Parent or
Parent's designee in the amount of $3,000,000; provided, however, that if the
excess of (A) the sum of (1) the average balance of the Company's cash on hand
for the ten day period preceding the date the Company seeks to terminate this
Agreement under this paragraph (h) plus (2) the average available capacity
under the Company Credit Agreement (as defined in Section 5.1(l)) over the ten
day period preceding the date the Company wishes to terminate this Agreement
under this
49
<PAGE> 53
paragraph (h) over (B) $2,000,000 (such excess being referred to hereinafter as
the "Available Cash"), is less than $3,000,000, then in lieu of having paid the
$3,000,000 termination fee, the Company shall have (x) paid the entire amount
of the Available Cash to Parent or Parent's designee and (y) delivered to
Parent a written commitment by the Company (in a form satisfactory to Parent),
unconditionally guaranteed by a financially responsible and reputable entity
(as determined by Parent in its sole discretion), acknowledging the Company's
obligation to pay the difference between the $3,000,000 termination fee and the
amount of Available Cash paid by the Company to Parent or Parent's designee in
connection with the termination of this Agreement (together with interest at
the prime rate accruing from the date on which payment of the termination fee
contemplated by this paragraph (h) would have been due and payable) on the
earlier of (i) such date as the Company shall have additional Available Cash
sufficient to pay such difference, (ii) the closing of the tender offer
relating to the Acquisition Proposal with respect to which the Company
terminated this Agreement (the "Competing Offer"), (iii) the expiration of the
Competing Offer, or (iv) the date which is 60 calendar days after the date on
which the Offer was commenced; or
(i) by the Company if Sub shall not have commenced the
Offer within 10 business days after the execution and delivery of this
Agreement by Parent and Sub.
8.2 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
affiliates, officers, directors or shareholders except (i) with respect to this
Section 8.2, the second sentence of Section 6.2, and Section 6.4, and (ii) that
no such termination shall relieve any party from liability for a material
breach hereof. In addition, in the event that this Agreement is validly
terminated, Parent and Sub agree that, immediately following such termination
(and, in the event Parent is entitled to be paid a fee in connection with such
termination pursuant to Section 6.4(b) or Section 8.1(h) hereof, immediately
following receipt by Parent of such fee) Parent and Sub shall terminate the
Offer and not purchase any Shares pursuant to the Offer or otherwise, and
Parent further agrees that following such termination, it shall continue to be
bound by all of the terms and conditions contained in the Confidentiality
Agreement dated December 10, 1996 between Parent and the Company.
50
<PAGE> 54
8.3 Amendment. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of Parent,
Sub and the Company at any time prior to the Effective Date with respect to any
of the terms contained herein; provided, however, that, after the consummation
of the Offer, no term or condition contained in this Agreement shall be amended
or modified in any manner adverse to the holders of the Company Common Stock
(including, without limitation, by reducing the amount of or changing the form
of the Merger Consideration).
8.4 Extension; Waiver. Subject to Section 1.4(b), at any
time prior to the Effective Time, the parties hereto, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that, after the consummation of
the Offer, no term or condition contained in this Agreement shall be amended,
modified or waived in any manner adverse to the holders of the Company Common
Stock. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
acceptance for payment of, and the payment for the Shares by Sub in the Offer
or the expiration of the Offer. None of the covenants and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the covenants and agreements contained
in Article III, Section 6.6 and Section 6.11 hereof and any other covenant or
agreement that contemplates performance after the Effective Date. The
Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreement shall apply to
all information and material delivered by any party hereunder.
51
<PAGE> 55
9.2 Notices. Any notice or communication required or
permitted hereunder shall be in writing and either delivered personally,
telegraphed or telecopied or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given, dated and received when so delivered
personally, telegraphed or telecopied or, if mailed, five business days after
the date of mailing to the following address or telecopy number, or to such
other address or addresses as such person may subsequently designate by notice
given hereunder:
(a) if to Parent or Sub, to:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attn: David Crowley
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
with copies to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Attn: Alan B. Menkes
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr.
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: Glenn D. West
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
52
<PAGE> 56
(b) if to the Company, to:
ERO, Inc.
585 Slawin Court
Mount Prospect, Illinois
Attn: Mark Renfree
Telephone: (847) 803-9200
Telecopy: (847) 803-1971
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kurt von Moltke
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
9.3 Interpretation. When a reference is made in this
Agreement to Articles or Sections, such reference shall be to an Article or
Section of this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the word "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
9.4 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.5 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership. This Agreement (together with the Confidentiality Agreement, the
Stockholders Agreement and any other documents and instruments referred to
herein) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter hereof and, except as provided in Section 6.6, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
53
<PAGE> 57
9.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
9.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder (i)
to any newly-formed direct wholly-owned Subsidiary of Parent or Sub or (ii) in
the form of a collateral assignment to any institutional lender who provides
funds to Purchaser for the consummation of the transactions contemplated
hereby. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
[Remainder of page intentionally left blank]
54
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PARENT:
------
HEDSTROM CORPORATION
By: /s/ ANDREW S. ROSEN
------------------------------------------
Name: Andrew S. Rosen
----------------------------------------
Title: Vice President
---------------------------------------
SUB:
---
HC ACQUISITION CORP.
By: /s/ ANDREW S. ROSEN
------------------------------------------
Name: Andrew S. Rosen
----------------------------------------
Title: Vice President
---------------------------------------
COMPANY:
-------
ERO, INC.
By: /s/ D. R. Ryan
------------------------------------------
Name: D. R. Ryan
----------------------------------------
Title: Chairman, CEO & President
---------------------------------------
<PAGE> 59
EXHIBIT A
The capitalized terms used in this Exhibit A shall have the
respective meanings given to such terms in the Agreement and Plan of Merger,
dated as of April 10, 1997 (the "Merger Agreement"), by and among Hedstrom
Corporation, a Delaware corporation ("Parent"), HC Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and ERO,
Inc., a Delaware corporation (the "Company"), to which this Exhibit A is
attached.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Sub shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares promptly
after expiration or termination of the Offer), to pay for any Shares tendered,
and may postpone the acceptance for payment or, subject to the restriction
referred to above, payment for any Shares tendered, and may amend or terminate
the Offer (whether or not any Shares have theretofore been purchased or paid
for), if (i) there have not been validly tendered and not withdrawn prior to
the time the Offer shall otherwise expire a number of Shares which constitutes
a majority of the Shares outstanding on a fully-diluted basis on the date of
purchase ("on a fully-diluted basis" having the following meaning, as of any
date: the number of Shares outstanding, together with Shares the Company may
be required, now or in the future, to issue pursuant to options, warrants, or
other obligations outstanding at that date); (ii) any applicable waiting
periods under the HSR Act shall not have expired or been terminated prior to
the expiration of the Offer; (iii) the debt financing sources for Parent and
Holdings shall not have provided the applicable debt financing to Parent and
Holdings pursuant to the Financing Commitments; or (iv) at any time on or after
the date of the Merger Agreement and before acceptance for payment of, or
payment for, such Shares any of the following events shall have occurred:
(A) there shall be pending, as of the expiration of the Offer
or at any time thereafter, any litigation that seeks to (1) challenge
the acquisition by Parent, Sub or any of their respective affiliates or
Subsidiaries of Shares pursuant to the Offer or restrain, prohibit or
delay the making or consummation of the Offer or the Merger, (2) make
the purchase of or payment for some or all of the Shares pursuant to
the Offer or the Merger illegal, (3) impose
A-1
<PAGE> 60
limitations on the ability of Parent, Sub, or any of their respective
affiliates or Subsidiaries effectively to acquire or hold, or to
require Parent, Sub, the Company or any of their respective affiliates
or Subsidiaries to dispose of or hold separate, any material portion of
their assets or business, (4) impose material limitations on the
ability of Parent, Sub, the Company or any of their respective
affiliates or Subsidiaries to continue to conduct, own or operate, as
heretofore conducted, owned or operated, all or any material portion of
their businesses or assets; (5) impose or result in material
limitations on the ability of Parent, Sub or any of their respective
affiliates or Subsidiaries to exercise full rights of ownership of the
Shares purchased by them, including, without limitation, the right to
vote the Shares purchased by them on all matters properly presented to
the stockholders of the Company; or (6) prohibit or restrict in a
material manner the financing of the Offer;
(B) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, any Law, or
there shall have been issued any decree, order or injunction, that
results in any of the consequences referred to in subsection (A) above;
(C) except as set forth on Exhibit D or Schedule 4.1(j) to
the Merger Agreement, any event or events shall have occurred that,
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect on the Company;
(D) there shall have occurred (1) any general suspension of
trading in, or limitation on prices for, securities on any national
securities exchange or in the over-the-counter market in the United
States for a period in excess of 48 hours, (2) the declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States, (3) the commencement of a war, armed hostilities or
other international or national calamity, directly or indirectly
involving the United States, (4) any limitations (whether or not
mandatory) imposed by any governmental authority on the nature or
extension of credit or further extension of credit by banks or other
lending institutions, or (5) in the case of clauses (3) and (4) of this
paragraph (D), a material acceleration or worsening thereof;
A-2
<PAGE> 61
(E) the representations and warranties of the Company
contained in the Merger Agreement (without giving effect to any
"Material Adverse Effect", "materiality" or similar qualifications
contained therein) shall not be true and correct in all respects as of
the date of consummation of the Offer as though made on and as of such
date except (1) for changes specifically permitted by the Merger
Agreement, (2) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as
of such date, and (3) for breaches or inaccuracies which, individually
or in the aggregate, could not reasonably be expected to (a) have a
Material Adverse Effect on the Company or (b) materially adversely
affect the ability of the parties hereto to consummate the transactions
contemplated hereby;
(F) the obligations of the Company contained in the Merger
Agreement (without giving effect to any "Material Adverse Effect",
"materiality" or similar qualifications contained therein) to be
performed at or prior to the consummation of the Offer shall not have
been performed or complied with in all respects by the Company prior to
the consummation of the Offer except for failures to perform or comply
which, individually or in the aggregate, could not reasonably be
expected to (a) have a Material Adverse Effect on the Company or (b)
materially adversely affect the ability of the parties hereto to
consummate the transactions contemplated hereby;
(G) the Merger Agreement shall have been terminated in
accordance with its terms;
(H) prior to the purchase of Shares pursuant to the Offer, an
Acquisition Proposal for the Company exists and the Board shall have
withdrawn or materially modified or changed (including by amendment of
the Schedule 14D-9) in a manner adverse to Sub its recommendation of
the Offer, the Merger Agreement or the Merger; or
(I) it shall have been publicly disclosed or Parent or Sub
shall have otherwise learned that any person, entity or "group" (as
defined in Section 13(d)(3) of the Exchange Act, other than Parent or
its affiliates or Subsidiaries, or any group of which any of such
persons or entities is a member, or any party to the Stockholders
Agreement, shall have acquired beneficial ownership (determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than
20% of any class or series of capital stock of the Company (including,
without limitation, the Shares), through the
A-3
<PAGE> 62
acquisition of stock, the formation of a group or otherwise, or shall
have been granted an option, right or warrant (conditional or
otherwise) to acquire beneficial ownership of more than 20% of any
class or series of capital stock of the Company (including, without
limitation, the Shares).
The foregoing conditions are for the sole benefit of Sub and
its affiliates and may be asserted by Sub regardless of the circumstances
(including, without limitation, any action or inaction by Sub or any of its
affiliates) giving rise to any such condition or may be waived by Sub, in whole
or in part, from time to time in its sole discretion, except as otherwise
provided in the Agreement. The failure by Sub at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by Sub concerning any of the events
described herein shall be final and binding.
A-4
<PAGE> 63
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Term: Page:
- ---- ----
<S> <C>
Agreement 1
Acquisition Proposal 37
Benefit Plans 21
Board Percentage 6
CERCLA 26
Certificate of Merger 7
Certificates 10
Closing 7
Closing Date 7
Code 21, 45
Company 1
Company Common Stock 1
Company Intangible Property 25
Company Litigation 19
Company Order 19
Company Permits 18
Company SEC Documents 17
Company Stockholder Approval 16
Company Voting Debt 13
Confidentiality Agreement 40
Constituent Corporations 7
Continuing Directors 6
DGCL 4
Dissenting Shares 12
Effective Time 7
Employee Arrangements 21
Environmental Costs and Liabilities 25
Environmental Law 25
Exchange Act 2
Financial Advisor 4
Financing Commitments 34
GAAP 17
Gains and Transfer Taxes 16
Governmental Entity 16
Hazardous Material 26
HSR Act 16
Indebtedness 30
Indemnified Liabilities 42
Indemnified Parties 42
Injunction 46
IRSA 26
Laws 15
Material Adverse Effect 13
Material Contracts 29
Merger 1
</TABLE>
A-5
<PAGE> 64
<TABLE>
<CAPTION>
TERM: PAGE:
- ---- ----
<S> <C>
Merger Consideration 8
Offer 2
Offer Consideration 2
Offer Documents 3
On a fully-diluted basis 2
Option Consideration 11
Options 11
OSHA 26
Parent 1
Paying Agent 9
Payment Fund 9
Preferred Stock 13
Proxy Statement 16
Real Property Leases 28
Release 26
Remedial Action 26
Representatives 35
Schedule 14D-1 3
Schedule 14D-9 4
SEC 2
Securities Act 17
Shares 1
Stock Option Plans 11
Stockholders Agreement 1
Sub 1
Subsidiary 8
Surviving Corporation 7
Tax Returns 21
Taxes 21
Trigger Event 41
Violation 15
WARN Act 25
</TABLE>
A-6
<PAGE> 65
EXHIBIT D
Amav returns in the first quarter of 1997.
Impact close-outs in the first quarter of 1997.
Estimated first quarter results on the following schedule.
The Company's business is highly cyclical in nature with substantially all of
the Company's net income produced in the third and fourth quarters.
<PAGE> 66
(ERO, INC. LETTERHEAD)
CONFIDENTIAL
March 27, 1997
TO: ERO, Inc. Board of Directors;
Thomas M. Gasner Arthur S. Nicholas
Robert J. Lipsig Bruce V. Rauner
Lee M. Mitchell D. R. Ryan
FROM: Mark D. Renfree
RE: FIRST QUARTER FLASH REPORT
Gentlemen:
Our preliminary look at the first quarter results indicates the following:
<TABLE>
<CAPTION>
Forecast Budget Prior Year
-------- ------ ----------
<S> <C> <C> <C>
- - Sales $19.6 $21.6 $18.9
- - Margins 6.5 7.2 5.6
% 33.1% 33.3% 29.8%
- - Operating Expenses 8.0 8.8 7.6
- - EBIT (1.5) (1.6) (1.9)
- - Net Income (2.1) (2.1) (2.2)
- - EPS $(.20) $(.20) $(.21)
Analyst EPS Estimate $(.20)
</TABLE>
<PAGE> 67
ERO, INC.
Page 2
First Quarter Flash Report
SALES: ERO Industries - will outperform budget and prior year on strong
Slumber Shoppe sales. Water Sports in line with expectations.
AMAV - sales decline driven by: on-time holiday season
deliveries have eliminated traditional carryover of backlog into
first quarter; $1 million special arts and crafts promo for
Walmart in 1996 not repeated; and first quarter returns of bulk
toys higher than anticipated.
PRISS PRINTS - strong performance continues with sales expected
to outperform budget and prior year. February revenues of $1.9
million, largest month ever.
IMPACT - should surpass last year but fall short of budget this
quarter. Strong order position for second quarter.
MARGINS: Manufacturing and purchase price variances at Hazelhurst have
generated $450,000 in favorable variances vs. a budget of
$150,000 unfavorable variances.
OPERATING Up from last year but under budget as a result of sales
EXPENSES: shortfall. ERO Industries and AMAV posting significant savings
to budget.
NET INCOME: $(.20) per share - loss will be on line with analyst estimate.
<PAGE> 68
ERO, INC. 3/27/97
1997 PROJECTION 5:24 PM
INCOME STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1997 1996
PROJECTED BUDGET ACTUAL
--------- ------ ------
<S> <C> <C> <C>
SALES - SLUMBER SHOPPE $3,131 $2,400 $1,199
SALES - WATER SPORTS 5,920 5,900 5,374
SALES - OTHER (INCLUDES INTERNATIONAL) 220 338 303
SALES - AMAV INDUSTRIES, INC. 5,721 7,500 6,435
SALES - IMPACT, INC. 614 1,517 487
SALES - PRISS PRINTS, INC. 3,744 3,569 2,947
SALES - ERO CANADA, INC. 229 332 138
------------------------------------
NET SALES 19,579 21,556 18,883
COST OF SALES 13,098 14,359 13,284
------------------------------------
GROSS PROFIT 6,481 7,196 5,619
33.10% 33.38% 29.76%
S, G, & A EXPENSE 6,000 8,845 7,552
------------------------------------
OPERATING EARNINGS (1,519) (1,649) (1,933)
-7.78% -7.65% -10.24%
INTEREST EXPENSE 2,000 1,875 1,846
------------------------------------
INCOME BEFORE TAXES (3,519) (3,524) (3,779)
INCOME TAX PROVISION (1,442) (1,444) (1,551)
------------------------------------
NET INCOME ($2,077) ($2,080) ($2,228)
====================================
NET INCOME PER SHARE ($0.20) ($0.20) ($0.21)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (IN THOUSANDS) 10,650 10,500 10,364
ANALYST ESTIMATE ($0.20)
</TABLE>
<PAGE> 69
ERO, INC. 3/27/97
1997 PROJECTION 5:27 PM
INCOME STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
----------------------------------------------------
JANUARY FEBRUARY MARCH TOTAL
1997 1997 1997 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES - SLUMBER SHOPPE $686 $395 $1,550 $3,131
SALES - WATER SPORTS 2,100 1,745 2,075 5,920
SALES - OTHER (43) 143 120 220
SALES - AMAV INDUSTRIES, INC. 2,518 1,703 1,500 5,721
SALES - IMPACT, INC. 238 176 200 614
SALES - PRISS PRINTS, INC. 581 1,863 1,300 3,744
SALES - ERO CANADA, INC. 49 60 100 229
---------------------------------------------------------------------
TOTAL SALES 6,129 6,605 6,845 19,579
COST OF SALES @ STANDARD 4,327 4,589 4,640 13,556
---------------------------------------------------------------------
GROSS PROFIT @ STANDARD 1,802 2,016 2,205 6,023
29.4% 30.5% 32.2% 30.8%
VARIANCES (51) (280) (127) (458)
---------------------------------------------------------------------
NET GROSS PROFIT 1,853 2,296 2,331 6,481
30.2% 34.8% 34.1% 33.1%
ROYALTIES AND GUARANTEES 312 479 504 1,295
---------------------------------------------------------------------
TOTAL CONTRIBUTION TO PROFIT 1,541 1,817 1,828 5,186
---------------------------------------------------------------------
25.1% 27.5% 26.7% 26.5%
COMMISSIONS 86 153 150 389
SALES AND MARKETING EXPENSE 1,075 1,160 1,061 3,296
GENERAL & ADMINISTRATIVE 889 786 813 2,488
ALLOCATED G&A - - - -
---------------------------------------------------------------------
TOTAL S, G & A EXPENSE 2,050 2,099 2,025 6,174
---------------------------------------------------------------------
OPERATING EARNINGS (509) (282) (197) (987)
-8.3% -4.3% -2.9%
PURCHASE ACCOUNTING 190 190 190 570
INTEREST EXPENSE (INCOME) 721 628 651 2,000
MISCELLANEOUS EXPENSE (INCOME) (19) (22) 3 (38)
---------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES (1,401) (1,078) (1,041) (3,519)
INCOME TAX PROVISION (BENEFIT) (575) (441) (426) (1,442)
---------------------------------------------------------------------
NET INCOME (LOSS) ($826) ($637) ($615) ($2,077)
=====================================================================
NET INCOME (LOSS) PER SHARE ($0.08) ($0.06) ($0.06) ($0.20)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (IN THOUSANDS) 10,316 10,316 10,650 10,650
</TABLE>
<PAGE> 70
ERO Industries, Inc. 27-Mar-97
1997 Projection 05:27 PM
Profit & Loss Statements
(Dollars In Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-----------------------------
Jan Feb Mar Total
--------------------------------------
<S> <C> <C> <C> <C>
Slumber $737 $930 $1,565 $3,232
Water Sports 2,132 1,896 2,180 6,208
Other (126) (43) - (169)
--------------------------------------
Total Net Sales 2,743 2,783 3,745 9,271
--------------------------------------
Slumber 269 181 569 1,019
Water Sports 519 527 582 1,628
Other (144) (56) - (200)
--------------------------------------
Total GM 644 652 1,151 2,447
--------------------------------------
Slumber 36.5% 19.5% 35.4% 38.0%
Water Sports 24.3% 27.8% 26.7% 24.8%
Other 114.3% 130.2% 100.0% 100.0%
--------------------------------------
Total GM % 23.5% 23.4% 30.7% 34.2%
--------------------------------------
Variances (Fav)/Unfav 7 (276) (117) (386)
--------------------------------------
Net Gross Profit 637 928 1,268 2,833
--------------------------------------
23.2% 33.3% 33.9% 30.6%
Royalties & Guarantees 180 217 284 681
--------------------------------------
6.6% 7.8% 7.6% 7.3%
Net Contribution 457 711 985 2,153
--------------------------------------
Commissions 51 84 110 245
Sales & Marketing 330 392 392 1,114
G&A Allocation 225 225 225 675
--------------------------------------
Total G&A 606 701 727 2,034
--------------------------------------
% 22.1% 26.2% 19.4% 21.9%
Operating Income (149) 10 256 119
--------------------------------------
% -5.4% 0.4% 6.9% 1.3%
Interest Expense 246 213 185 644
Purchase Accounting 70 70 70 210
Misc. Expense/(Income) 8 12 - 20
--------------------------------------
Income Before Taxes (473) (285) 3 (755)
Income Taxes (194) (117) 1 (310)
--------------------------------------
Net Income ($279) ($158) $2 ($445)
======================================
Earnings per Share ($0.03) ($0.02) $0.00 ($0.04)
</TABLE>
<PAGE> 71
AMAV Industries, Inc. 27-Mar-97
Profit & Loss Statements 05:24 PM
1997 Projection
(Dollars in Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-------------------------------
Jan Feb Mar Total
---------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $2,518 $1,703 $1,500 $5,721
Total GM 777 541 396 1,714
---------------------------------------
Total GM % 30.9% 31.8% 26.4% 30.0%
Variances (Fav)/Unfav - - - -
---------------------------------------
Net Gross Profit 777 541 396 1,714
30.9% 31.8% 26.4% 30.0%
Royalties & Guarantees - - - -
---------------------------------------
Net Contribution 777 541 398 1,714
30.9% 31.8% 26.4% 30.0%
Commissions 19 18 11 48
Sales & Marketing 248 233 233 714
G&A 349 340 340 1,029
G&A Allocation 75 75 75 225
---------------------------------------
Total G&A 691 666 659 2,016
---------------------------------------
% 27.4% 39.1% 43.9% 35.2%
Operating Income 86 (125) (263) (302)
---------------------------------------
% 3.4% -7.3% -17.5% -5.3%
Interest Expense 475 415 486 1,356
Purchase Accounting 94 94 94 282
Misc. Expense/(Income) (23) (38) - (61)
---------------------------------------
Income Before Taxes (480) (596) (823) (1,879)
Income Taxes (189) (244) (337) (770)
---------------------------------------
Net Income ($271) ($352) ($486) ($1,109)
=======================================
Earnings per Share ($0.03) ($0.03) ($0.05) ($0.11)
</TABLE>
<PAGE> 72
Impact, Inc. 27-Mar-97
Profit & Loss Statements 05:27 PM
1997 Projection
(Dollars in Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-------------------------------
Jan Feb Mar Total
---------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $238 $176 $200 $614
Total GM 87 (26) 50 111
---------------------------------------
Total GM % 36.6% -14.8% 25.0% 18.1%
Variances (Fav)/Unfav 43 19 48 110
---------------------------------------
Net Gross Profit 44 (45) 2 1
18.5% -25.6% 1.0% 0.2%
Royalties & Guarantees 54 44 24 122
---------------------------------------
Net Contribution (10) (89) (22) (121)
-4.2% -50.6% -11.2% -19.5%
Commissions 5 2 2 9
Sales & Marketing 307 262 265 834
G&A 0 0 0 -
G&A Allocation 29 29 29 87
---------------------------------------
Total G&A 341 293 296 930
---------------------------------------
% 143.3% 166.5% 148.1% 151.5%
Operating Income (351) (382) (319) (1,052)
---------------------------------------
% -147.5% -217.0% -159.5% -171.3%
Interest Expense - - - -
Purchase Accounting 21 21 21 63
Misc. Expense/(Income) 1 2 2 5
---------------------------------------
Income Before Taxes (373) (405) (342) (1,120)
Income Taxes (153) (166) (140) (459)
---------------------------------------
Net Income ($220) ($239) ($202) ($661)
=======================================
Earnings per Share ($0.02) ($0.02) ($0.02) ($0.06)
</TABLE>
<PAGE> 73
Priss Prints, Inc. 27-Mar-97
Profit & Loss Statements 05:27 PM
1997 Projection
(Dollars In Thousands)
<TABLE>
<CAPTION>
ACTUAL PROJECTION
-----------------------------
Jan Feb Mar Total
--------------------------------------
<S> <C> <C> <C> <C>
Total Net Sales $711 $1,898 $1,300 $3,909
Total GM 335 851 567 1,753
--------------------------------------
Total GM % 47.1% 44.8% 43.7% 44.9%
Variances (Fav)/Unfav (103) (34) (63) (200)
--------------------------------------
Net Gross Profit 438 885 630 1,953
61.6% 45.5% 48.5% 50.0%
Royalties & Guarantees 86 216 183 485
--------------------------------------
Net Contribution 352 669 447 1,468
49.5% 35.2% 34.4% 37.6%
Commissions 19 55 25 99
Sales & Marketing 169 254 153 576
G&A 0 0 0 0
G&A Allocation 25 25 25 75
--------------------------------------
Total G&A 213 334 203 750
--------------------------------------
% 63.6% 39.2% 35.8% 42.8%
Operating Income 139 335 244 718
--------------------------------------
% 41.5% 39.4% 43.0% 41.0%
Interest Expense - - - 0
Purchase Accounting 5 5 5 15
Misc. Expense/(Income) (1) 1 1 1
--------------------------------------
Income Before Taxes 135 329 238 702
Income Taxes 55 135 98 288
--------------------------------------
Net Income $80 $194 $140 $414
======================================
Earnings per Share $0.01 $0.02 $0.01 $0.04
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HEDSTROM HOLDINGS, INC.
Hedstrom Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Hedstrom Holdings, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on November 27, 1990.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of the Corporation is Hedstrom Holdings, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the registered agent of
the Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to
engage in any and all lawful acts and activity for which corporations may be
organized under the General Corporation Law of Delaware. The Corporation will
have perpetual existence.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 60,000,000 shares of capital stock, classified
as (i) 10,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"), and (ii) 50,000,000 shares of common stock, par value $.01
per share ("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
<PAGE> 2
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time
in one or more classes or series, the shares of each class or series to have
such designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and
in the resolution or resolutions providing for the issue of such class or
series adopted by the board of directors of the Corporation as hereafter
prescribed.
(b) Authority is hereby expressly granted to and vested
in the board of directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series, and with
respect to each class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(i) whether or not the class or series is to have
voting rights, full, special, or limited, or is to be without voting rights,
and whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes or
series of stock;
(ii) the number of shares to constitute the class
or series and the designations thereof;
(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the qualifications, limitations,
or restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or
series shall be redeemable at the option of the Corporation or the holders
thereof or upon the happening of any specified event, and, if redeemable, the
redemption price or prices (which may be payable in the form of cash, notes,
securities, or other property), and the time or times at which, and the terms
and conditions upon which, such shares shall be redeemable and the manner of
redemption;
(v) whether or not the shares of a class or
series shall be subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement, and, if
such retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are
payable in cash, stock of the Corporation, or other property, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or classes
or series of stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which such dividends
shall accumulate;
2
<PAGE> 3
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall be entitled to
receive upon the voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof or upon the
happening of any specified event, shall be convertible into or exchangeable
for, the shares of any other class or classes or of any other series of the
same or any other class or classes of stock, securities, or other property of
the Corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective
provisions with respect to any class or series as may to the board of directors
of the Corporation seem advisable.
(c) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The board of directors of the Corporation may
increase the number of shares of the Preferred Stock designated for any
existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The board of directors of the Corporation may decrease
the number of shares of the Preferred Stock designated for any existing class
or series by a resolution subtracting from such class or series authorized and
unissued shares of the Preferred Stock designated for such existing class or
series, and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall
have identical rights and privileges in every respect. The holders of shares
of Common Stock shall be entitled to vote upon all matters submitted to a vote
of the stockholders of the Corporation and shall be entitled to one vote for
each share of Common Stock held.
(b) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of shares of the Common Stock shall be entitled to receive such dividends
(payable in cash, stock, or otherwise) as may be declared thereon by the board
of directors at any time and from time to time out of any funds of the
Corporation legally available therefor.
3
<PAGE> 4
(c) In the event of any voluntary or involuntary
liquidation, dissolution, or winding-up of the Corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders
of shares of the Preferred Stock or any series thereof, the holders of shares
of the Common Stock shall be entitled to receive all of the remaining assets of
the Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them. A
liquidation, dissolution, or winding-up of the Corporation, as such terms are
used in this Paragraph (c), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange, or
conveyance of all or a part of the assets of the Corporation.
(d) Each of the Corporation's shares of Class A Common
Stock shall be reclassified into shares of the Corporation's Common Stock
authorized in this Restated Certificate of Incorporation.
3. General.
(a) Subject to the foregoing provisions of this
Certificate of Incorporation, the Corporation may issue shares of its Preferred
Stock and Common Stock from time to time for such consideration (not less than
the par value thereof) as may be fixed by the board of directors of the
Corporation, which is expressly authorized to fix the same in its absolute and
uncontrolled discretion subject to the foregoing conditions. Shares so issued
for which the consideration shall have been paid or delivered to the
Corporation shall be deemed fully paid stock and shall not be liable to any
further call or assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and
issue rights and options entitling their holders to purchase shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the board of directors of the Corporation. The board of directors
of the Corporation shall be empowered to set the exercise price, duration,
times for exercise, and other terms of such options or rights; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
FIFTH: Directors of the Corporation need not be elected by written
ballot unless the bylaws of the Corporation otherwise provide.
SIXTH: The directors of the Corporation shall have the power to
adopt, amend, and repeal the bylaws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one
or more of its directors, officers, or stockholders or between the Corporation
and any person (as used
4
<PAGE> 5
herein "person" means other corporation, partnership, association, firm, trust,
joint venture, political subdivision, or instrumentality) or other organization
in which one or more of its directors, officers, or stockholders are directors,
officers, or stockholders, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee which
authorizes the contract or transaction, or solely because his, her, or their
votes are counted for such purpose, if: (i) the material facts as to his or
her relationship or interest and as to the contract or transaction are
disclosed or are known to the board of directors or the committee, and the
board of directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved, or
ratified by the board of directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee which
authorizes the contract or transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this
Article Eighth is in effect. Any repeal or amendment of this Article Eighth
shall be prospective only and shall not limit the rights of any such director
or officer or the obligations of the Corporation with respect to any claim
arising from or related to the services of such director or officer in any of
the foregoing capacities prior to any such repeal or amendment to this Article
Eighth. Such right shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended. If a claim
for indemnification or advancement of expenses hereunder is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses
of prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not
5
<PAGE> 6
permitted under the Delaware General Corporation Law, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination
prior to the commencement of such action that indemnification of, or
advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible shall
be a defense to the action or create a presumption that such indemnification or
advancement is not permissible. In the event of the death of any person having
a right of indemnification under the foregoing provisions, such right shall
inure to the benefit of his or her heirs, executors, administrators, and
personal representatives. The rights conferred above shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, by-law, resolution of stockholders or directors, agreement, or
otherwise.
The Corporation may additionally indemnify any employee or agent of
the Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to such
an action, suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Ninth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article Ninth, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
Delaware General Corporation Law.
TENTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of Delaware.
6
<PAGE> 7
I, the undersigned, do make, file, and record this Restated
Certificate of Incorporation and do certify that this is my act and deed and
that the facts stated herein are true and, accordingly, I do hereunto set my
hand on this 27th day of October, 1995.
By: /s/ A. E. DITRI
--------------------------------
Name: Arnold E. Ditri
-------------------------------
Title: President
------------------------------
ATTEST:
By: /s/ ALAN PLOTKIN
------------------------------
Name: Alan Plotkin
----------------------------
Title: Secretary
---------------------------
7
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
HEDSTROM HOLDINGS, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Hedstrom Holdings, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
1. The name of the corporation is HEDSTROM HOLDINGS, INC.
2. The FOURTH Article of the Corporation's Restated
Certificate of Incorporation is hereby amended to read in its entirety as
follows:
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 150,000,000 shares
consisting of (a) 10,000,000 shares of a class designated as Preferred Stock,
par value $.01 per share ("Preferred Stock"), (b) 100,000,000 shares of a class
designated as Common Stock, par value $.01 per share ("Common Stock"), and (c)
40,000,000 shares of a class designated as Non-Voting Common Stock, par value
$.01 per share ("Non-Voting Common Stock").
The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock, the
Common Stock, and the Non-Voting Common Stock, are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time
in one or more classes or series, the shares of each class or series to have
such designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and
in the resolution or resolutions providing for the issue
<PAGE> 2
of such class or series adopted by the board of directors of the Corporation as
hereafter prescribed.
(b) Authority is hereby expressly granted to and vested
in the board of directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series, and with
respect to each class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(i) whether or not the class or series is to have
voting rights, full, special, or limited, or is to be without voting rights,
and whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes or
series of stock;
(ii) the number of shares to constitute the class
or series and the designations thereof;
(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the qualifications, limitations,
or restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or
series shall be redeemable at the option of the Corporation or the holders
thereof or upon the happening of any specified event, and, if redeemable, the
redemption price or prices (which may be payable in the form of cash, notes,
securities, or other property), and the time or times at which, and the terms
and conditions upon which, such shares shall be redeemable and the manner of
redemption;
(v) whether or not the shares of a class or
series shall be subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement, and, if
such retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are
payable in cash, stock of the Corporation, or other property, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or classes
or series of stock, whether or not such dividends
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<PAGE> 3
shall be cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall be entitled to
receive upon the voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof or upon the
happening of any specified event, shall be convertible into or exchangeable
for, the shares of any other class or classes or of any other series of the
same or any other class or classes of stock, securities, or other property of
the Corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective
provisions with respect to any class or series as may to the board of directors
of the Corporation seem advisable.
(c) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The board of directors of the Corporation may
increase the number of shares of the Preferred Stock designated for any
existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The board of directors of the Corporation may decrease
the number of shares of the Preferred Stock designated for any existing class
or series by a resolution subtracting from such class or series authorized and
unissued shares of the Preferred Stock designated for such existing class or
series, and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
2. Provisions Relating to the Common Stock and the
Non-Voting Common Stock.
(a) General. Except as otherwise provided herein,
or as otherwise provided by applicable law, all shares of Common Stock and
Non-Voting Common Stock shall have identical rights and privileges in every
respect.
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(b) Voting. The Common Stock will be fully voting stock
entitled to one vote per share with respect to all matters to be voted on by
the Corporation's stockholders. The Non-Voting Common Stock will have no
voting rights except as may be required under the General Corporation Law of
the State of Delaware. Except as expressly required under the General
Corporation Law of the State of Delaware, the Common Stock and the Non-Voting
Common Stock will vote together as a single class with respect to all matters
on which the holders of Non-Voting Common Stock shall be entitled to vote.
(c) Dividends. Subject to the prior rights and
preferences, if any, applicable to shares of the Preferred Stock or any class
or series thereof, the holders of Common Stock and Non-Voting Common Stock
shall be entitled to participate ratably, on a share-for share basis as if all
shares were of a single class, in (i) ordinary dividends payable in cash out of
the current earnings of the Corporation and (ii) dividends in shares of Common
Stock and Non-Voting Common Stock (or rights to subscribe for or purchase
shares of Common Stock and Non-Voting Common Stock, as applicable, or
securities or indebtedness convertible into shares of Common Stock and
Non-Voting Common Stock, as applicable); provided, however, that dividends
payable in shares of Common Stock (or rights to subscribe for or purchase
shares of Common Stock or securities or indebtedness convertible into shares of
Common Stock) shall be paid only on shares of Common Stock, and dividends
payable in shares of Non-Voting Common Stock (or rights to subscribe for or
purchase shares of Non-Voting Common Stock or securities or indebtedness
convertible into shares of Non-Voting Common Stock) shall be paid only on
shares of Non-Voting Common Stock.
(d) Conversion of Non-Voting Common Stock.
(A) Conversion Rights. Shares of Non-Voting
Common Stock may be converted into shares of Common Stock at the option of any
holder thereof at any time. For purposes of such conversion, each share of
Non-Voting Common Stock shall be convertible into one share of Common Stock.
(B) Conversion Procedure. Any holder of
Non-Voting Common Stock desiring to exercise such holder's option to convert
such Non-Voting Common Stock in accordance with the foregoing shall surrender
the certificate or certificates representing the Non-Voting Common Stock to be
converted, duly endorsed to the Corporation or in blank, at
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<PAGE> 5
the principal executive office of the Corporation, and shall give written
notice to the Corporation at such office that such holder elects to convert the
number of shares represented by such certificate or certificates, or a
specified number thereof. As promptly as practicable after the surrender for
conversion of any Non-Voting Common Stock, the Corporation shall execute and
deliver or cause to be executed and delivered to the holder of such Non-Voting
Common Stock certificates representing the shares of Common Stock issuable upon
such conversion. In case any certificate or certificates representing shares
of Non-Voting Common Stock shall be surrendered for conversion for only a part
of the shares represented thereby, the Corporation shall execute and deliver to
the holders of the certificate or certificates for shares of Non-Voting Common
Stock so surrendered a new certificate or certificates representing the shares
of Non-Voting Common Stock not converted, dated the same date as the
certificate or certificates representing the Common Stock. Shares of the
Non-Voting Common Stock converted pursuant to the aforesaid shall be deemed to
have been converted immediately prior to the close of business on the date such
shares are duly surrendered for conversion, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the recordholder or holders of such shares of
Common Stock as of such date.
(C) Adjustments for Dividends on Converted
Shares. Any dividends declared but not paid on the shares of Non-Voting Common
Stock prior to conversion thereof into Common Stock shall be paid, on the
payment date, to the holder or holders entitled thereto, notwithstanding such
conversion; provided, however, that such holder or holders shall not be
entitled to receive the corresponding dividends declared but not paid on the
shares of Common Stock issuable upon such conversion.
(D) Stock Splits and Stock Dividends. The
Corporation shall treat the Common Stock and Non-Voting Common Stock
identically in respect of any subdivisions or combinations (for example, if the
Corporation effects a two-for-one stock split with respect to the Common Stock,
it shall at the same time effect a two-for-one stock split with respect to the
Non-Voting Common Stock).
(E) Reservation of Shares. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for
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<PAGE> 6
the purpose of effecting the conversion of Non-Voting Common Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Non-Voting
Common Stock and shall take all such corporate action as may be necessary to
assure that such shares of Common Stock may be validly and legally issued upon
conversion of all of the outstanding shares of Non-Voting Common Stock; and if,
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of the Non-Voting Common Stock, the
Corporation shall take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(F) Status of Converted Shares. Shares of
Non-Voting Common Stock which have been issued and have been converted into
Common Stock, repurchased, or reacquired in any other manner by the Corporation
shall become authorized and unissued shares of Non-Voting Common Stock.
(e) Liquidation. The holders of the Common Stock and
Non-Voting Common Stock shall share ratably on a share-for-share basis in all
distributions of assets pursuant to any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation. For the purposes of this
subsection (e), neither the merger nor the consolidation of the Corporation
into or with another corporation or the merger or consolidation of any other
corporation into or with the Corporation, or the sale, transfer, or other
disposition of all or substantially all the assets of the Corporation, shall be
deemed to be a voluntary or involuntary liquidation, dissolution, or winding-up
of the Corporation.
3. General.
(a) Subject to the foregoing provisions of this
Certificate of Incorporation, the Corporation may issue shares of its Preferred
Stock, Common Stock and Non-Voting Common Stock from time to time for such
consideration (not less than the par value thereof) as may be fixed by the
board of directors of the Corporation, which is expressly authorized to fix the
same in its absolute and uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the consideration shall have been paid
or delivered to the Corporation shall be deemed fully paid stock and shall not
be liable to any further call or
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<PAGE> 7
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(b) The Corporation shall have authority to create and
issue rights and options entitling their holders to purchase shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the board of directors of the Corporation. The board of directors
of the Corporation shall be empowered to set the exercise price, duration,
times for exercise, and other terms of such options or rights; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
3. The foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment of Restated Certificate of Incorporation to be
executed on this 6th day of June, 1997.
HEDSTROM HOLDINGS, INC.
By: /s/ ALAN PLOTKIN
------------------------------------
Name: Alan Plotkin
Title: Secretary
8
<PAGE> 1
EXHIBIT 3.3
RESTATED BYLAWS
OF
HEDSTROM HOLDINGS, INC.
A Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE: OFFICES
1.1 Registered Office and Agent . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Required Vote; Withdrawal of Quorum . . . . . . . . . . . . . . . 3
2.8 Method of Voting; Proxies . . . . . . . . . . . . . . . . . . . . 3
2.9 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE THREE: DIRECTORS
3.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Number; Qualification; Election; Term . . . . . . . . . . . . . . 6
3.3 Change in Number . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Meetings of Directors . . . . . . . . . . . . . . . . . . . . . . 7
3.7 First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 Election of Officers . . . . . . . . . . . . . . . . . . . . . . 7
3.9 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
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3.15 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE FOUR: COMMITTEES
4.1 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Number; Qualification; Term . . . . . . . . . . . . . . . . . . . 9
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Committee Changes . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Alternate Members of Committees . . . . . . . . . . . . . . . . . 9
4.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . 10
4.9 Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.11 Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE FIVE: NOTICE
5.1 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office . . . . . . . . . . . . . . . . . 11
6.2 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 12
6.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.10 Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.12 Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
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7.2 Replacement of Lost or Destroyed Certificates . . . . . . . . . . 14
7.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Registered Stockholders . . . . . . . . . . . . . . . . . . . . . 14
7.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.6 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.7 Securities of Other Corporations . . . . . . . . . . . . . . . . 16
8.8 Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Action Without a Meeting . . . . . . . . . . . . . . . . . . . . 16
8.10 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . 17
8.11 Mortgages, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.13 References . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(iii)
<PAGE> 5
RESTATED BYLAWS
OF
HEDSTROM HOLDINGS, INC.
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of Hedstrom Holdings, Inc., a Delaware corporation
(the "Corporation"). In the event of a direct conflict between the provisions
of these bylaws and the mandatory provisions of the Delaware General
Corporation Law or the provisions of the certificate of incorporation of the
Corporation, such provisions of the Delaware General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation in the office of the Secretary of
State of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
<PAGE> 6
2.2 Special Meeting. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President, the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be
held at any place within or without the State of Delaware designated by the
board of directors. A special meeting of stockholders may be held at any place
within or without the State of Delaware designated in the notice of the meeting
or a duly executed waiver of notice of such meeting. Meetings of stockholders
shall be held at the principal office of the Corporation unless another place
is designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and
time of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person(s) calling the meeting, to each stockholder of record
entitled to vote at such meeting. If such notice is to be sent by mail, it
shall be directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy.
2.5 Voting List. At least ten days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the board of
directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and number of shares registered in the name of each stockholder.
For a period of ten days prior to such meeting, such list shall be kept on file
at a place within the city where the meeting is to
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be held, which place shall be specified in the notice of meeting or a duly
executed waiver of notice of such meeting or, if not so specified, at the place
where the meeting is to be held and shall be open to examination by any
stockholder during ordinary business hours. Such list shall be produced at
such meeting and kept at the meeting at all times during such meeting and may
be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders,
the stockholders entitled to vote thereat who are present, in person or by
proxy, or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other
than announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present
at any meeting, the vote of the holders of at least a majority of the
outstanding shares entitled to vote who are present, in person or by proxy,
shall decide any question brought before such meeting, unless the question is
one on which, by express provision of statute, the certificate of incorporation
of the Corporation, or these bylaws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question. The stockholders present at a duly constituted meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in
the certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy shall be valid after three years from the
date of its execution, unless otherwise provided in the
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<PAGE> 8
proxy. If no date is stated in a proxy, such proxy shall be presumed to have
been executed on the date of the meeting at which it is to be voted. Each
proxy shall be revocable unless expressly provided therein to be irrevocable
and coupled with an interest sufficient in law to support an irrevocable power
or unless otherwise made irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, for any such determination
of stockholders, such date in any case to be not more than 60 days and not less
than ten days prior to such meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(i) The record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be
at the close of business on the day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the board
of directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its
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principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office in the State of
Delaware, principal place of business, or such officer or agent shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the board of directors and prior action by the
board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office
has been filled, and, if not or if the Chairman of the Board is absent or
otherwise unable to act, the President shall preside at all meetings of
stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these bylaws or by some person
appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail
to appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
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ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation
shall be managed by the board of directors. Subject to the restrictions
imposed by law, the certificate of incorporation of the Corporation, or these
bylaws, the board of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of
directors which shall constitute the entire board of directors shall be not
less than one. The first board of directors shall consist of the number of
directors named in the certificate of incorporation of the Corporation or, if
no directors are so named, shall consist of the number of directors elected by
the incorporator(s) at an organizational meeting or by unanimous written
consent in lieu thereof. Thereafter, within the limits above specified, the
number of directors which shall constitute the entire board of directors shall
be determined by resolution of the board of directors or by resolution of the
stockholders at the annual meeting thereof or at a special meeting thereof
called for that purpose. Except as otherwise required by law, the certificate
of incorporation of the Corporation, or these bylaws, the directors shall be
elected at an annual meeting of stockholders at which a quorum is present.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy and entitled to vote on the election of
directors. Each director so chosen shall hold office until the first annual
meeting of stockholders held after his election and until his successor is
elected and qualified or, if earlier, until his death, resignation, or removal
from office. None of the directors need be a stockholder of the Corporation or
a resident of the State of Delaware. Each director must have attained the age
of majority.
3.3 Change in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these bylaws, at any meeting of
stockholders called expressly for that purpose, any director or the entire
board of directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote on the election of
directors; provided, however, that so long as stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
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3.5 Vacancies. Vacancies and newly-created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
the sole remaining director, and each director so chosen shall hold office
until the first annual meeting of stockholders held after his election and
until his successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. If there are no directors in office, an
election of directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly-created directorship, the
directors then in office shall constitute less than a majority of the whole
board of directors (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly-created directorships or to replace
the directors chosen by the directors then in office. Except as otherwise
provided in these bylaws, when one or more directors shall resign from the
board of directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in these bylaws with respect to the filling of
other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings
and may have an office and keep the books of the Corporation, except as
otherwise provided by statute, in such place or places within or without the
State of Delaware as the board of directors may from time to time determine or
as shall be specified in the notice of such meeting or duly executed waiver of
notice of such meeting.
3.7 First Meeting. Each newly elected board of directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of stockholders, and no notice of such meeting shall be
necessary.
3.8 Election of Officers. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors
shall be held at such times and places as shall be designated from time to time
by resolution of the board of directors. Notice of such regular meetings shall
not be required.
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3.10 Special Meetings. Special meetings of the board of directors
shall be held whenever called by the Chairman of the Board, the President, or
any director.
3.11 Notice. The Secretary shall give notice of each special
meeting to each director at least 24 hours before the meeting. Notice of any
such meeting need not be given to any director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting without protesting, prior to or at its commencement, the lack of notice
to him. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of
directors, a majority of the directors fixed in the manner provided in these
bylaws shall constitute a quorum for the transaction of business. If at any
meeting of the board of directors there be less than a quorum present, a
majority of those present or any director solely present may adjourn the
meeting from time to time without further notice. Unless the act of a greater
number is required by law, the certificate of incorporation of the Corporation,
or these bylaws, the act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the board of directors. At
any time that the certificate of incorporation of the Corporation provides that
directors elected by the holders of a class or series of stock shall have more
or less than one vote per director on any matter, every reference in these
bylaws to a majority or other proportion of directors shall refer to a majority
or other proportion of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business
shall be transacted in such order as from time to time the board of directors
may determine. The Chairman of the Board, if such office has been filled, and,
if not or if the Chairman of the Board is absent or otherwise unable to act,
the President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by
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certified or registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
3.15 Compensation. The board of directors shall have the authority
to fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution
adopted by a majority of the entire board of directors, designate one or more
committees.
4.2 Number; Qualification; Term. Each committee shall consist of
one or more directors appointed by resolution adopted by a majority of the
entire board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 Authority. Each committee, to the extent expressly provided
in the resolution establishing such committee, shall have and may exercise all
of the authority of the board of directors in the management of the business
and property of the Corporation except to the extent expressly restricted by
law, the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
4.5 Alternate Members of Committees. The board of directors may
designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee. If no alternate committee members have been so
appointed to a committee or each such alternate committee member is absent or
disqualified, the member or members of such committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may
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unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be
held without notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be
held whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a
majority of the number of members designated by the board of directors shall
constitute a quorum for the transaction of business. If a quorum is not
present at a meeting of any committee, a majority of the members present may
adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present. The act of a majority
of the members present at any meeting at which a quorum is in attendance shall
be the act of a committee, unless the act of a greater number is required by
law, the certificate of incorporation of the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its
proceedings to be prepared and shall report the same to the board of directors
upon the request of the board of directors. The minutes of the proceedings of
each committee shall be delivered to the Secretary of the Corporation for
placement in the minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the
board of directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such
director by law.
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ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation
of the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice
required or permitted to be given by telegram, telex, or telefax shall be
deemed to be delivered and given at the time transmitted with all charges
prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the
Corporation shall be a President, a Secretary, and such other officers as the
board of directors may from time to time elect or appoint, including a Chairman
of the Board, one or more Vice Presidents (with each Vice President to have
such descriptive title, if any, as the board of directors shall determine), and
a Treasurer. Each officer shall hold office until his successor shall have
been duly elected and shall have qualified, until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided. Any two
or more offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
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6.2 Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interest of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the
Corporation (by death, resignation, removal, or otherwise) may be filled by the
board of directors.
6.4 Authority. Officers shall have such authority and perform
such duties in the management of the Corporation as are provided in these
bylaws or as may be determined by resolution of the board of directors not
inconsistent with these bylaws.
6.5 Compensation. The compensation, if any, of officers and
agents shall be fixed from time to time by the board of directors; provided,
however, that the board of directors may delegate the power to determine the
compensation of any officer and agent (other than the officer to whom such
power is delegated) to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board, if elected
by the board of directors, shall have such powers and duties as may be
prescribed by the board of directors. Such officer shall preside at all
meetings of the stockholders and of the board of directors. Such officer may
sign all certificates for shares of stock of the Corporation.
6.7 President. The President shall be the chief executive officer
of the Corporation and, subject to the board of directors, he shall have
general executive charge, management, and control of the properties and
operations of the Corporation in the ordinary course of its business, with all
such powers with respect to such properties and operations as may be reasonably
incident to such responsibilities. If the board of directors has not elected a
Chairman of the Board or in the absence or inability to act of the Chairman of
the Board, the President shall exercise all of the powers and discharge all of
the duties of the Chairman of the Board. As between the Corporation and third
parties, any action taken by the President in the performance of the duties of
the Chairman of the Board shall be conclusive evidence that there is no
Chairman of the Board or that the Chairman of the Board is absent or unable to
act.
6.8 Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the President, and (in order of their seniority as determined by
the board of directors or, in the absence of such determination, as determined
by the length of time they have held the office of Vice President) shall
exercise the powers of the President during that officer's absence or inability
to act. As
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between the Corporation and third parties, any action taken by a Vice President
in the performance of the duties of the President shall be conclusive evidence
of the absence or inability to act of the President at the time such action was
taken.
6.9 Treasurer. The Treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate account of
receipts and disbursements, shall deposit all monies and valuable effects in
the name and to the credit of the Corporation in such depository or
depositories as may be designated by the board of directors, and shall perform
such other duties as may be prescribed by the board of directors, the Chairman
of the Board, or the President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have
such powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Treasurer) shall exercise the powers of the
Treasurer during that officer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with
the Chairman of the Board or the President all certificates for shares of stock
of the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which
shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours. He shall
in general perform all duties incident to the office of the Secretary, subject
to the control of the board of directors, the Chairman of the Board, and the
President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have
such powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
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ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of
the Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or
the President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all
signatures on the certificate may be a facsimile and may be sealed with the
seal of the Corporation or a facsimile thereof. If any officer, transfer
agent, or registrar who has signed, or whose facsimile signature has been
placed upon, a certificate has ceased to be such officer, transfer agent, or
registrar before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. The certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall
be transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the
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part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and
authority to provide that certificates representing shares of stock bear such
legends as the board of directors deems appropriate to assure that the
Corporation does not become liable for violations of federal or state
securities laws or other applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate
of incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out
of funds of the Corporation legally available therefor such reserve or reserves
as the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the board of
directors shall consider beneficial to the Corporation, and the board of
directors may modify or abolish any such reserve in the manner in which it was
created.
8.3 Books and Records. The Corporation shall keep correct and
complete books and records of account, shall keep minutes of the proceedings of
its stockholders and board of directors and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the board of directors; provided, that if such fiscal year is not
fixed by the board of directors and the selection of the fiscal year is not
expressly deferred by the board of directors, the fiscal year shall be the
calendar year.
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8.5 Seal. The seal of the Corporation shall be such as from time
to time may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the Chairman of the Board, the
President, or the Secretary. Such resignation shall take effect at the time
specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board,
the President, or any Vice President of the Corporation shall have the power
and authority to transfer, endorse for transfer, vote, consent, or take any
other action with respect to any securities of another issuer which may be held
or owned by the Corporation and to make, execute, and deliver any waiver,
proxy, or consent with respect to any such securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or
through a proxy), members of the board of directors, and members of a committee
of the board of directors may participate in and hold a meeting of such
stockholders, board of directors, or committee by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in
the certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting
of the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which the holders of all shares entitled to vote thereon were present and
voted and shall be delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated
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consent delivered in the manner required by this Section 8.9(a) to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office, principal place of business, or such officer or agent shall be by hand
or by certified or registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of
incorporation of the Corporation or by these bylaws, any action required or
permitted to be taken at a meeting of the board of directors, or of any
committee of the board of directors, may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, shall be
signed by all the directors or all the committee members, as the case may be,
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a vote of such directors or committee
members, as the case may be, and may be stated as such in any certificate or
document filed with the Secretary of State of the State of Delaware or in any
certificate delivered to any person. Such consent or consents shall be filed
with the minutes of proceedings of the board or committee, as the case may be.
8.10 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust,
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.12 Headings. The headings used in these bylaws have been
inserted for administrative convenience only and do not constitute matter to be
construed in interpretation.
8.13 References. Whenever herein the singular number is used, the
same shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed
or new bylaws may be adopted by the stockholders or by the board of directors
at any regular meeting
17
<PAGE> 22
of the stockholders or the board of directors or at any special meeting of the
stockholders or the board of directors if notice of such alteration, amendment,
repeal, or adoption of new bylaws be contained in the notice of such special
meeting.
The undersigned, being the Secretary of the Corporation, hereby
certifies that the foregoing bylaws were adopted by the consent of the sole
director of the Corporation as of October 27, 1995.
/s/ ANDREW S. ROSEN
----------------------------------------
Andrew S. Rosen
Assistant Secretary
18
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF INCORPORATION
OF
NEW HEDSTROM CORP.
- A Delaware Corporation -
FIRST: Name. The name of the Corporation is New Hedstrom Corp.
SECOND: Registered Office and Registered Agent. The address of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, Wilmington, Delaware 19805. The name of its registered agent at such
address is Corporation Service Company, New Castle County.
THIRD: Purpose. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware. The Corporation shall possess and may
exercise all the powers and privileges granted by the General Corporation Law
of the State of Delaware or by any other law or this Certificate of
Incorporation, together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the conduct, promotion or
attainment of the business or purposes of the Corporation set forth in the
preceding sentence hereof.
FOURTH: Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 100 shares of Common Stock, par
value $.10 per share.
FIFTH: Incorporator. The name and mailing address of the sole
incorporator of the Corporation are Barrett N. Pickett, c/o Richards & O'Neil,
885 Third Avenue, New York, New York 10022-4802.
SIXTH: Management of the Affairs of the Corporation. The following
provisions relate to the management of the business and the conduct of the
affairs of the Corporation and are inserted for the purpose of creating,
defining, limiting and regulating the powers of the Corporation and its
directors and stockholders:
(1) The election of directors may be conducted in any manner
provided in the By-laws of the Corporation, and need not be by written
ballot.
(2) The Board of Directors shall have the power to make, adopt,
alter, amend or repeal the By-laws of the Corporation.
<PAGE> 2
SEVENTH: Liability of Directors. No director of the Corporation shall
be liable to the Corporation or its stockholders for monetary damages for
breach of his fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware or (iv) for any transaction
from which the director derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is amended after the date hereof to
authorize corporate action further eliminating or limiting the liability of
directors, then the liability of each director of the Corporation shall
automatically be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended. Any repeal or
modification of the provisions of this Article SEVENTH shall not adversely
affect any right or protection of a director of the Corporation existing
pursuant to this Article SEVENTH at the time of such repeal or modification.
THE UNDERSIGNED, being the sole incorporator of the Corporation, for
the purpose of forming a corporation under the laws of the State of Delaware,
does hereby sign this Certificate of Incorporation this 19th day of November,
1990.
INCORPORATOR:
/s/ BARRETT N. PICKETT
------------------------
Barrett N. Pickett
-2-
<PAGE> 1
EXHIBIT 3.5
NEW HEDSTROM CORP.
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
Under Section 242 of the General Corporation Law
NEW HEDSTROM CORP, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The name of the Corporation is New Hedstrom Corp.
2. The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on November 20, 1990.
3. Article FIRST of the Certificate of Incorporation, setting forth the
name of the Corporation, is hereby amended to read in its entirety as follows:
"FIRST: Name. The name of the Corporation is Hedstrom Corporation."
4. This Certificate of Amendment of the Certificate of Incorporation
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by John H. Hurshman, its Vice President, and attested by
William A. Newman, its Secretary, as of the 10th day of January, 1991.
/s/ JOHN H. HURSHMAN
----------------------------
John H. Hurshman
Vice President
ATTEST:
/s/ WILLIAM A. NEWMAN
- ------------------------
William A. Newman
Secretary
<PAGE> 1
EXHIBIT 3.6
HEDSTORM CORPORATION
- A Delaware Corporation -
BY-LAWS
ARTICLE I
Meetings of Stockholders
Section 1.1. Annual Meetings. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business as
properly may come before such meeting shall be held each year on such date, and
at such time and place, within or without the State of Delaware, as may be
designated by the Board of Directors.
Section 1.2. Special Meetings. Special meetings of the stockholders
may be called by the Board of Directors, the President, any Vice President, or
any stockholder owning a majority of the issued and outstanding capital stock
entitled to vote of the Corporation, to be held on such date, and at such time
and place, within or without the State of Delaware, as whomever has called the
meeting shall direct.
Section 1.3. Notice of Meetings. Written notice, signed by the
President, and Vice President, the Secretary or an Assistant Secretary, of
every meeting of stockholders, stating the place, date and hour thereof, shall
be given either personally or by mail to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the meeting,
except as otherwise provided by law. The purpose or purposes for which the
meeting is called may, in the case of an annual meeting, and shall, in the case
of a special meeting, also be stated. If mailed, such notice shall be directed
to each stockholder at his or her address as it shall appear on the records of
the Corporation.
Section 1.4. Quorum. The presence at any meeting, in person or by
proxy, of the holders of record of a majority of the shares then issued and
outstanding and entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business, except as otherwise
provided by law.
Section 1.5. Adjournments. In the absence of a quorum, a majority
in interest of the stockholders entitled to vote, present in person or by
proxy at a meeting, or, if no stockholder entitled to vote is present in person
or by proxy, any officer entitled to preside at or act as secretary of such
meeting, may adjourn the meeting to another place, date or time.
<PAGE> 2
When a meeting is adjourned to another place, date or dime, written
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
Section 1.6. Organization. The President, and in his absence any
Vice President, and in the absence of all of them a chairman appointed by the
stockholders, shall act as chairman of all meetings of stockholders. The
Secretary, and in his absence any Assistant Secretary, shall act as secretary
at all meetings of stockholders, and, in the absence of both, the chairman of
the meeting shall appoint someone present to act as secretary.
Section 1.7. Voting. Every stockholder shall have one vote for
every share of stock entitled to vote which is registered in his or her name on
the record date for the meeting, except as otherwise provided herein or
required by law. Voting need not be by written ballot. Directors shall be
chosen by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Election of directors need not be by written ballot. Except as
otherwise provided by law, all other matters shall be determined by a majority
of the votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter.
Section 1.8. Proxies. Any stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
may authorize another person to act for him or her by proxy, provided that the
instrument authorizing such proxy to act shall have been executed in writing
(which shall include telegraphing, faxing or cabling) by the stockholder
himself or herself or by his or her duly authorized attorney, and provided
further that no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 1.9. Stockholder List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the
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<PAGE> 3
meeting, during ordinary business hours for a period of ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 1.10. Inspectors of Election. The Board of Directors may
appoint inspectors of election to serve at any election of directors and at
balloting on any other matter that may properly come before a meeting of
stockholders. If no such appointment shall be made, or if any of the
inspectors so appointed shall fail to attend or refuse or be unable to serve,
then such appointment may be made by the presiding officer at the meeting.
Section 1.11. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which (i) in the case of a meeting, shall not be
more than sixty or less than ten days before the date of such meeting, or (ii)
in the case of a written consent, shall not exceed by more than ten days or
precede the date upon which the resolution fixing the record date is
adopted by the Board, of (iii) in the case of any other action, shall not be
more than sixty days prior to such action. Only those stockholders of
record on the date so fixed shall be entitled to any of the foregoing rights,
notwithstanding the transfer of any stock on the books of the Corporation after
any such record date fixed by the Board of Directors.
ARTICLE II
Consent of Stockholders In Lieu of Meeting
Any action which might have been taken under these By-Laws by a vote of the
stockholders at an annual or special meeting thereof may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at
- 3 -
<PAGE> 4
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation as required by law. Prompt notice of the
corporate action without a meeting shall be given to those stockholders who
have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. Number. The number of directors which shall constitute
the whole Board of Directors shall be one or more directors, as fixed from
time to time by resolution of either the Board of Directors or stockholders
being subject to any later resolutions of either of them.
Section 3.2. Election and Term of Office. Directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 3.3 or Section 3.10. Each director (whether elected at an annual
meeting or to fill a vacancy or otherwise) shall continue in office until his
successor shall have been elected and qualified or until his earlier death,
resignation or removal in the manner hereinafter provided.
Section 3.3. Vacancies and Additional Directorships. If any vacancy
shall occur among the directors for any reason, including death, resignation or
removal, or as the result of an increase in the number of directorships, a
majority of the directors then in office or a sole remaining director, though
less than a quorum, may fill any such vacancy.
Section 3.4. Meetings. A meeting of the Board of Directors shall be
held for organization, for the election of officers and for the transaction of
such other business as may properly come before the meeting, within thirty days
after each annual election of directors.
(a) Regular Meetings. The Board of Directors by resolution may
provide for the holding of regular meetings and may fix the times and places at
which such meetings shall be held. Notice of regular meetings shall not be
required to be given, provided that whenever the time or place of regular
meetings shall be fixed or changed, notice of such action shall be mailed
promptly to each director who shall not have been present at the meeting at
which such action was taken, addressed to him at his residence or usual place
of business.
(b) Special Meetings. Special meetings of the Board of Directors
may be called by or at the direction of the Chairman, the Vice Chairman, the
President, any Vice President, or
- 4 -
<PAGE> 5
one-third of the directors then in office, except that when the Board of
Directors consists of one director, then the one director may call a special
meeting. Except as otherwise required by law, notice of each special meeting
shall be mailed to each director, addressed to him at his residence or usual
place of business, at least five days before the day on which the meeting is to
be held, or shall be sent to him at such place by facsimile, telegram, radio or
cable, or telephoned or delivered to him personally, not later than twenty-four
hours before the day on which the meeting is to be held. Such notice shall
state the time and place of such meeting but need not state the purpose
thereof, unless otherwise required by law, the Certificate of Incorporation of
the Corporation or these By-Laws.
(c) Waiver of notice. Notice of any meeting need not be given to
any director who shall attend such meeting in person or who shall waive notice
thereof, before or after such meeting, in a signed writing.
(d) Participation by Conference Call. Participation in a meeting
by any member or members of the Board by means of a conference telephone or
similar communications service allowing all persons participating to hear each
other at the same time shall constitute presence in person at a meeting.
Section 3.5. Quorum. At each meeting of the Board of Directors, the
presence of a majority of the total number of members of the Board of Directors
as constituted from time to time shall be necessary and sufficient to
constitute a quorum for the transaction of business. Except as otherwise
provided by law, the Certificate of Incorporation of the Corporation or these
By-Laws, a vote of the majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board.
Section 3.6. Adjournments. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. Notice of any adjournment of a meeting of the Board of Directors to
another time or place shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place are announced at
the meeting, to the other directors.
Section 3.7. Action of Board Without Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board consent thereto in writing and the
writing or writings are filed with the minutes of the proceedings of the Board.
- 5 -
<PAGE> 6
Section 3.8. Manner of Acting. A member of the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees of
the Board, or by any person as to matters such director reasonably believes are
within such person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Corporation.
Section 3.9. Resignation of Directors. Any director may resign at
any time by giving written notice of such resignation to the Board of
Directors, the President, any Vice President or the Secretary. Unless
otherwise specified in such notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or any such officer and the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.10. Removal of Directors. At any meeting of the
stockholders duly called as provided in these By-Laws, any director or
directors may be removed from office, either with or without cause, as provided
by law. At such meeting, a successor or successors may be elected by a
plurality of the votes cast, or if any such vacancy is not so filled, it may be
filled by the directors as provided in Section 3.3.
Section 3.11. Compensation of Directors. Directors shall receive
such reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
Committees of the Board
Section 4.1. Designation and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors
of the Corporation. Any such committee, to the extent provided in such
resolution and permitted by law, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; provided, however, that no such
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<PAGE> 7
committee shall have the power or authority to (i) amend the certificate of
incorporation, except as permitted by law, (ii) adopt an agreement of merger or
consolidation, (iii) recommend to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property or assets, (iv)
recommend to the stockholders a dissolution of the corporation, or a revocation
of a dissolution, or (v) amend the By-Laws. Any such committee, to the extent
provided in such resolution, shall have the power and authority to (i) declare
a dividend, (ii) authorize the issuance of stock, or (iii) adopt a certificate
of ownership and merger.
Section 4.2. Alternate Members and Vacancies. The Board of
Directors may designate one or more directors as alternate members of any
committee who, in the order specified by the Board of Directors, may replace
any absent or disqualified member at any meeting of the committee. If at a
meeting of any committee one or more of the members thereof should be absent or
disqualified, and if either the Board of Directors has not so designated any
alternate member or members or the number of absent or disqualified members
exceeds the number of alternate members who are present at such meeting, then
the member or members of such committees (including alternates) present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member. If any vacancy shall occur in
any committee by reason of death, resignation, disqualification, removal or
otherwise, the remaining member or members of such committee, so long as a
quorum is present, may continue to act until such vacancy is filled by the
Board of Directors.
Section 4.3. Term of Office. The term of office of the members of
each committee shall be as fixed from time to time by the Board of Directors,
subject to these By-Laws; provided, however, that any committee member who
ceases to be a member of the Board of Directors shall ipso facto cease to be a
committee member.
Section 4.4. Regular and Special Meetings. Each committee shall fix
its own rules of procedure, and shall meet where and as and upon such notice as
provided by such rules or by resolution of the Board of Directors.
Participation in a meeting by any member or members of any committee of
the Board by conference telephone or similar communications service allowing
all persons participating to hear each other at the same time shall constitute
presence in person at a meeting.
- 7 -
<PAGE> 8
Section 4.5. Quorum. At each meeting of any committee the presence
of a majority of its members then in office shall be necessary and sufficient
to constitute a quorum for the transaction of business, except that when a
committee consists of one member, then the one member shall constitute a quorum.
Section 4.6. Adjournments. In the absence of a quorum, and except
as provided in Section 4.2 of these By-Laws, a majority of the members of a
committee present at the time and place of any meeting of such committee may
adjourn the meeting from time to time.
Section 4.7. Action of Committee Without Meeting. Any action which
might have been taken under these By-Laws by vote of the directors at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all the members of the Board of Directors or such committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of the proceedings of the Board of Directors or such committee.
Section 4.8. Manner of Acting. A member of any committee designated
by the Board of Directors shall, in the performance of his duties, be fully
protected in relying in good faith upon the records of the Corporation and upon
such information, opinions, reports or statements presented to the Corporation
by any of the Corporation's officers or employees, or other committees of the
Board of Directors, or by any other person as to matters the member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
The act of a majority of the members present at any meeting at which a quorum
is present shall be the act of such committee. Each committee shall appoint a
secretary, who may be, but does not have to be, the Secretary of the
Corporation or an Assistant Secretary thereof. Each committee shall keep
regular minutes of its proceedings and all action by the committees of the
Board shall be reported to the Board from time to time as the Board directs.
Subject to the foregoing and other provisions of these By-Laws and except as
otherwise determined by the Board of Directors, each committee may make rules
for the conduct of its business.
Section 4.9. Resignations. Any member of a committee may resign at
any time by giving written notice of such resignation to the board of
Directors, the Chairman of the Board of Directors, the President, any Vice
President or the Secretary. Unless otherwise specified in such notice, such
resignation shall take effect upon receipt thereof by the Board of Directors
or any
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<PAGE> 9
such officer, and the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.10. Removal. Any member of any committee may be removed
with or without cause at any time by the Board of Directors.
Section 4.11. Compensation. Committee members may receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE V
Officers
Section 5.1. Officers. The officers of the Corporation shall be a
President, a Secretary, a Treasurer, a Chairman of the Board if elected by the
Board of Directors, one or more Vice Presidents if elected by the Board of
Directors, a Vice Chairman of the Board if elected by the Board of Directors,
and such other officers as may be appointed in accordance with the provisions
of Section 5.3.
Section 5.2. Election, Term of Office and Qualifications. Each
officer (except such officers as may be appointed in accordance with the
provisions of Section 5.3) shall be elected by a majority of the Board of
Directors present at any meeting at which such election is held. Unless
otherwise provided in the resolution of election, each officer (whether elected
at the first meeting of the Board of Directors after the annual meeting of
stockholders or to fill a vacancy or otherwise) shall hold his or her office
until the first meeting of the Board of Directors after the next annual meeting
of stockholders and until his successor shall have been elected and qualified,
or until his earlier death, resignation or removal.
Section 5.3. Subordinate Officers and Agents. The Board of
Directors from time to time may appoint other officers or agents (including one
or more Assistant Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers), to hold office for such period, have such authority
and perform such duties as are provided in these By-laws or as may be provided
in the resolutions appointing them. The Board of Directors may delegate to any
officer or agent the power to
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<PAGE> 10
appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities and duties.
Section 5.4. The Chairman of the Board. The Chairman of the Board
shall be elected by the Board of Directors. He shall preside at all meetings
of the Board of Directors and at all meetings of stockholders and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. Subject to the direction of the Board of Directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers and agents. He may sign, with any other
officer thereunto duly authorized, certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature), and may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts, agreements or
other instruments duly authorized by the Board of Directors, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent. From time to time he shall
report to the Board of Directors all matters within his knowledge which the
interests of the Corporation may require to be brought to their attention. He
shall have such other powers and perform such other duties as may from time to
time be prescribed by the Board of Directors or these By-laws.
Section 5.5. The President. If there is no Chairman of the Board,
or in the absence of the Chairman of the Board, the President shall be the
chief executive officer of the Corporation. The President shall, subject to the
authority of the Chairman of the Board, if there is one, have all of the powers
and duties granted to and imposed upon the Chairman of the Board. The President
is charged with the day to day supervision of the business, affairs and
property of the Corporation.
Section 5.6. The Vice President. At the request of the President,
or in his absence or disability, the Vice President designated by the Board of
Directors, shall perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
President. Any Vice President may also sign, with any other officer thereunto
duly authorized, certificates representing stock of the Corporation, the
issuance of which shall have been duly authorized (the signature to which may
be a facsimile signature), and may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts, agreements or other instruments
duly authorized by the Board of Directors, except in cases where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent. Each Vice President shall have such other
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<PAGE> 11
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors, the President or these By-laws.
Section 5.7. The Secretary. The Secretary shall
(a) record all the proceedings of the meetings of the
stockholders, the Board of Directors, and any committees in a book
or books to be kept for that purpose;
(b) cause all notices to be duly given in accordance with the
provisions of these By-laws and as required by law;
(c) whenever any committee shall be appointed in pursuance of
a resolution of the Board of Directors, furnish the chairman of such
committee with a copy of such resolution;
(d) be custodian of the records and of the seal of the
Corporation, and cause such seal to be affixed to or a facsimile to be
reproduced on all certificates representing stock of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation and under its seal shall have been
duly authorized;
(e) see that the lists, books, reports, statements,
certificates and other documents and records required by law are
properly kept and filed;
(f) have charge of the stock and transfer books of the
Corporation, and exhibit such stock and transfer books at all reasonable
times to such persons as are entitled by law to have access thereto;
(g) sign (unless the Treasurer or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation, the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
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<PAGE> 12
(h) in general, perform all duties
incident to the office of Secretary and have
such other powers, and perform such other
duties, as may from time to time be
prescribed by the Board of Directors, the
President or these By-laws.
Section 5.8. Assistant Secretaries. At the request of
the Secretary or in his absence or disability, the Assistant Secretary
designated by him (or in the absence of such designation, the Assistant
Secretary designated by the Board of Directors or the President) shall perform
all the duties of the Secretary, and, when so acting, shall have all the powers
of and be subject to all restrictions upon the Secretary. Each Assistant
Secretary shall have such other powers, and perform such other duties, as may
from time to time be prescribed by the Board of Directors, the President, the
Secretary or these By-laws.
Section 5.9. The Treasurer. The Treasurer shall
(a) have charge of and supervision over
and be responsible for the funds, securities,
receipts and disbursements of the Corporation;
(b) cause the moneys and other valuable
effects of the Corporation to be deposited in
the name and to the credit of the Corporation
in such banks or trust companies, or with such
bankers or other depositaries, as shall be
selected in accordance with Section 8.3 or to be
otherwise dealt with in such manner as the Board
of Directors may direct;
(c) cause the funds of the Corporation
to be disbursed by checks or drafts upon the
authorized depositaries of the Corporation,
and cause to be taken and preserved proper
vouchers for all moneys disbursed;
(d) render to the Board of Directors or
the President, whenever requested, a statement of
the financial condition of the Corporation and of all
of his or her transactions as Treasurer;
(e) cause to be kept at the Corporation's
principal office, correct books of account of all
its business and
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<PAGE> 13
transactions and such duplicate books of
account as he or she shall determine and upon
application, cause such books or duplicates
thereof to be exhibited to any director;
(f) be empowered, from time to time, to
require from the officers or agents of the
Corporation reports or statements giving such
information as he or she may desire with
respect to any and all financial transactions
of the Corporation;
(g) sign (unless the Secretary or an
Assistant Secretary or an Assistant Treasurer
shall sign) certificates representing stock
of the Corporation, the issuance of which
shall have been duly authorized (the signature
to which may be a facsimile signature); and
(h) in general, perform all duties
incident to the office of Treasurer and have
such other powers and perform such other duties
as may from time to time be prescribed by the
Board of Directors, the President or these By-laws.
Section 5.10. Assistant Treasurer. At the request of the
Treasurer or in his absence or disability, the Assistant Treasurer designated
by him (or in the absence of such designation, the Assistant Treasurer
designated by the Board of Directors or the President) shall perform all the
duties of the Treasurer, and, when so acting, shall have all the powers of and
be subject to all restrictions upon the Treasurer. Each Assistant Treasurer
shall have such other powers and perform such other duties as may from time to
time be prescribed by the Board of Directors, the President, the Treasurer or
these By-laws.
Section 5.11. Resignations. Any officer may resign at any
time by giving written notice of such resignation to the Board of Directors,
the President, a Vice President or the Secretary. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board of Directors or any such officer, and the acceptance of such
resignation shall not be necessary to make it effective.
Section 5.12. Removal. Any officer specifically designated
in Section 5.1 may be removed with or without cause at any meeting of the Board
of Directors by affirmative vote of a majority of the directors then in
office. Any officer or agent
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<PAGE> 14
appointed in accordance with the provisions of Section 5.3 may be removed with
or without cause at any meeting of the Board of Directors by affirmative vote
of a majority of the directors present at such meeting or at any time by any
superior officer or agent upon whom such power of removal shall have been
conferred by the Board of Directors.
Section 5.13. Vacancies. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these By-laws for
regular election or appointments to such office.
Section 5.14. Compensation. The salaries of the officers of the
Corporation shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person the power to fix the
salaries or other compensation of any officers or agents appointed in
accordance with the provisions of Section 5.3. No officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
Section 5.15. Bonding. The Corporation may secure the fidelity of
any or all of its officers or agents by bond or otherwise.
ARTICLE VI
Indemnification
The Corporation shall indemnify, in the manner and to the full extent
permitted by law, any person (or the estate of any person) who was or is a
party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative, or
otherwise, by reason of the fact that such person is or was a director,
officer, employee, fiduciary or agent of the Corporation as a director,
officer, trustee, fiduciary, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Unless otherwise
permitted by law, the indemnification provided for herein shall be made only as
authorized in the specific case upon a determination, in the manner provided by
law, that indemnification of the director, officer, employee or agent is proper
in the circumstances. The Corporation may, to the full extent permitted by law,
purchase and maintain insurance on behalf of any such person against any
liability which may be asserted against him or her and incurred by him or her
in any such capacity, or arising out of his or her
<PAGE> 15
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under law. To the full extent permitted by
law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, and, in the
manner provided by law, any such expenses may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding. The
indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person seeking indemnification from the
Corporation may be entitled under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
ARTICLE VII
Execution of Instruments and
Deposit of Corporate Funds
Section 7.1. Execution of Instruments Generally. The Chairman of
the Board, the President, any Vice President, the Secretary or the Treasurer,
subject to the approval of the Board of Directors, may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors may authorize any officer or officers, or
agent or agents, to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation, and such authorization
may be general or confined to specific instances.
Section 7.2 Borrowing. No loans or advances shall be obtained or
contracted for, by or on behalf of the Corporation and no negotiable paper
shall be issued in its name, unless and except as authorized by the Board of
Directors. Such authorization may be general or confined to specific
instances. Any officer or agent of the Corporation thereunto so authorized may
obtain loans and advances for the Corporation, and for such loans and advances
may make, execute and deliver promissory notes, bonds, or other evidences of
indebtedness of the Corporation. Any officer or agent of the Corporation so
authorized may pledge, hypothecate or transfer as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal property at any
time held by the Corporation, and to that end may endorse, assign and deliver
the same and do every act and thing necessary or proper in connection therewith.
<PAGE> 16
Section 7.3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to its credit in such banks or
trust companies or with such bankers or other depositaries as the Board of
Directors may select, or as may be selected by any officer or officers or agent
or agents authorized so to do by the Board of Directors. Endorsements for
deposit to the credit of the Corporation in any of its duly authorized
depositaries shall be made in such manner as the Board of Directors from time
to time may determine.
Section 7.4. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, and all notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers or agent or agents of the Corporation, and in such manner,
as from time to time shall be determined by the Board of Directors.
Section 7.5. Proxies. Proxies to vote with respect to shares of
Stock of other corporations owned by or standing in the name of the Corporation
may be executed and delivered from time to time on behalf of the Corporation by
the President or any Vice President or by any other person thereunto authorized
by the Board of Directors.
ARTICLE VIII
Stock
Section 8.1. Form and Execution of Certificates. The shares of the
Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors. The certificates shall be signed by, or in
the name of the Corporation by, the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or any Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any or
all the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 8.2. Regulations. The Board of Directors may make such
rules and regulations consistent with any governing statute as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock and concerning certificates of stock issued, transferred or registered in
lieu
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<PAGE> 17
or replacement of any lost, stolen, destroyed or mutilated certificates of
stock.
Section 8.3 Transfer Agent and Registrar. The Board of Directors
may appoint a transfer agent or transfer agents and a registrar or registrars
of transfers for any or all classes of the capital stock of the Corporation,
and may require stock certificates of any or all classes to bear the signature
of either or both.
ARTICLE IX
Corporate Seal
The corporate seal shall be circular in form and shall bear the name of
the Corporation and words and figures denoting its organization under the laws
of the State of Delaware and the year thereof and otherwise shall be in such
form as shall be approved from time to time by the Board of Directors.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of
January in each year or such other day as the Board of Directors may determine
by resolution.
ARTICLE XI
Amendments
In addition to the provisions, if any, in the Certificate of
Incorporation of the Corporation relating to amendment of the Corporation's
By-laws, all By-laws of the Corporation may be amended or repealed, and new
By-laws may be made, by a majority of the votes cast at any annual or special
stockholders' meeting by holders of outstanding shares of stock of the
Corporation entitled to vote thereon.
<PAGE> 1
EXHIBIT 3.7
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ERO, INC.
(A Delaware Corporation)
FIRST: The name of the Corporation is ERO, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the registered agent of
the Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000 shares, par value $0.01 per
share, designated Common Stock.
FIFTH: Directors of the Corporation need not be elected by written
ballot unless the bylaws of the Corporation otherwise provide.
SIXTH: The directors of the Corporation shall have the power to adopt,
amend, and repeal the bylaws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee
thereof, or the stockholders. Common or interested directors
<PAGE> 2
may be counted in determining the presence of a quorum at a meeting of the
board of directors or of a committee which authorizes the contract or
transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the General Corporation Law of Delaware, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this
Article Eighth is in effect. Any repeal or amendment of this Article Eighth
shall be prospective only and shall not limit the rights of any such director
or officer or the obligations of the Corporation with respect to any claim
arising from or related to the services of such director or officer in any of
the foregoing capacities prior to any such repeal or amendment to this Article
Eighth. Such right shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the General Corporation Law
of Delaware, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses
of prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under the
General Corporation Law of Delaware, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification or
advancement is not permissible shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible. In
the event of the death of any person having a right of indemnification under
the foregoing provisions, such right shall inure to the benefit of his or her
heirs, executors, administrators, and personal representatives. The rights
conferred above shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, bylaw, resolution of stockholders
or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
2
<PAGE> 3
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Ninth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article Ninth, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
General Corporation Law of Delaware.
TENTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of Delaware.
3
<PAGE> 1
EXHIBIT 3.8
AMENDED AND RESTATED
BYLAWS
OF
ERO, Inc.
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation (as amended to the date hereof, the "Certificate
of Incorporation") of Target, a Delaware corporation (the "Corporation"). In
the event of a direct conflict between the provisions of these bylaws and the
mandatory provisions of the Delaware General Corporation Law or the provisions
of the Certificate of Incorporation of the Corporation, such provisions of the
Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State
of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of
directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver
1
<PAGE> 2
of notice of such meeting. At such meeting, the stockholders shall elect
directors and transact such other business as may properly be brought before
the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President, the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within
or without the State of Delaware designated in the notice of the meeting or a
duly executed waiver of notice of such meeting. Meetings of stockholders shall
be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person(s) calling the meeting, to each stockholder of record
entitled to vote at such meeting. If such notice is to be sent by mail, it
shall be directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy.
2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the board of
directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and
2
<PAGE> 3
number of shares registered in the name of each stockholder. For a period of
ten days prior to such meeting, such list shall be kept on file at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of meeting or a duly executed waiver of notice of such meeting
or, if not so specified, at the place where the meeting is to be held and shall
be open to examination by any stockholder during ordinary business hours. Such
list shall be produced at such meeting and kept at the meeting at all times
during such meeting and may be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders,
the stockholders entitled to vote thereat who are present, in person or by
proxy, or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other
than announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide
any question brought before such meeting, unless the question is one on which,
by express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy
3
<PAGE> 4
shall be valid after three years from the date of its execution, unless
otherwise provided in the proxy. If no date is stated in a proxy, such proxy
shall be presumed to have been executed on the date of the meeting at which it
is to be voted. Each proxy shall be revocable unless expressly provided
therein to be irrevocable and coupled with an interest sufficient in law to
support an irrevocable power or unless otherwise made irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, for any such determination
of stockholders, such date in any case to be not more than 60 days and not less
than ten days prior to such meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a
new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the board
of directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its
4
<PAGE> 5
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office in the State of
Delaware, principal place of business, or such officer or agent shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the board of directors and prior action by the
board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders.
The Secretary shall keep the records of each meeting of stockholders. In the
absence or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or non-
acting officer under these bylaws or by some person appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
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ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors
which shall constitute the entire board of directors shall be not less than
one. The first board of directors shall consist of the number of directors
named in the certificate of incorporation of the Corporation or, if no
directors are so named, shall consist of the number of directors elected by the
incorporator(s) at an organizational meeting or by unanimous written consent in
lieu thereof. Thereafter, within the limits above specified, the number of
directors which shall constitute the entire board of directors shall be
determined by resolution of the board of directors or by resolution of the
stockholders at the annual meeting thereof or at a special meeting thereof
called for that purpose. Except as otherwise required by law, the certificate
of incorporation of the Corporation, or these bylaws, the directors shall be
elected at an annual meeting of stockholders at which a quorum is present.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy and entitled to vote on the election of
directors. Each director so chosen shall hold office until the first annual
meeting of stockholders held after his election and until his successor is
elected and qualified or, if earlier, until his death, resignation, or removal
from office. None of the directors need be a stockholder of the Corporation or
a resident of the State of Delaware. Each director must have attained the age
of majority.
3.3 Change in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire
board of directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote on the election of
directors; provided, however, that so long as stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then
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in office, though less than a quorum, or by the sole remaining director, and
each director so chosen shall hold office until the first annual meeting of
stockholders held after his election and until his successor is elected and
qualified or, if earlier, until his death, resignation, or removal from office.
If there are no directors in office, an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly-created directorship, the directors then in office shall constitute less
than a majority of the whole board of directors (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly-
created directorships or to replace the directors chosen by the directors then
in office. Except as otherwise provided in these bylaws, when one or more
directors shall resign from the board of directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
bylaws with respect to the filling of other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall
be held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall
not be required.
3.10 Special Meetings. Special meetings of the board of directors shall
be held whenever called by the Chairman of the Board, the President, or any
director.
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3.11 Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to
time without further notice. Unless the act of a greater number is required by
law, the certificate of incorporation of the Corporation, or these bylaws, the
act of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is present
at the meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by
certified or registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
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3.15 Compensation. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire
board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge
any committee.
4.5 Alternate Members of Committees. The board of directors may
designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee. If no alternate committee members have been so
appointed to a committee or each such alternate committee member is absent or
disqualified, the member or members of such committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member.
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4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a
meeting of any committee, a majority of the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the members
present at any meeting at which a quorum is in attendance shall be the act of a
committee, unless the act of a greater number is required by law, the
certificate of incorporation of the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the
request of the board of directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
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ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of
the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice
required or permitted to be given by telegram, telex, or telefax shall be
deemed to be delivered and given at the time transmitted with all charges
prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation
shall be a President, a Secretary, and such other officers as the board of
directors may from time to time elect or appoint, including a Chairman of the
Board, one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine), and a
Treasurer. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided. Any two
or more offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
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6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the
compensation of any officer and agent (other than the officer to whom such
power is delegated) to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 President. The President shall be the chief executive officer of
the Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as may be reasonably incident to
such responsibilities. If the board of directors has not elected a Chairman of
the Board or in the absence or inability to act of the Chairman of the Board,
the President shall exercise all of the powers and discharge all of the duties
of the Chairman of the Board. As between the Corporation and third parties,
any action taken by the President in the performance of the duties of the
Chairman of the Board shall be conclusive evidence that there is no Chairman of
the Board or that the Chairman of the Board is absent or unable to act.
6.8 Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the
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performance of the duties of the President shall be conclusive evidence of the
absence or inability to act of the President at the time such action was taken.
6.9 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as
may be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Treasurer) shall exercise the powers of the
Treasurer during that officer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with
the Chairman of the Board or the President all certificates for shares of stock
of the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which
shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours. He shall
in general perform all duties incident to the office of the Secretary, subject
to the control of the board of directors, the Chairman of the Board, and the
President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
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ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or
the President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all
signatures on the certificate may be a facsimile and may be sealed with the
seal of the Corporation or a facsimile thereof. If any officer, transfer
agent, or registrar who has signed, or whose facsimile signature has been
placed upon, a certificate has ceased to be such officer, transfer agent, or
registrar before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. The certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the
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part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority
to provide that certificates representing shares of stock bear such legends as
the board of directors deems appropriate to assure that the Corporation does
not become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the board of
directors shall consider beneficial to the Corporation, and the board of
directors may modify or abolish any such reserve in the manner in which it was
created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
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8.6 Resignations. Any director, committee member, or officer may resign
by so stating at any meeting of the board of directors or by giving written
notice to the board of directors, the Chairman of the Board, the President, or
the Secretary. Such resignation shall take effect at the time specified
therein or, if no time is specified therein, immediately upon its receipt.
Unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy,
or consent with respect to any such securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or through
a proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting
of the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which the holders of all shares entitled to vote thereon were present and
voted and shall be delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in
the manner required by this Section 8.9(a) to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which
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proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office, principal place of business, or such officer
or agent shall be by hand or by certified or registered mail, return receipt
requested.
(b) Unless otherwise restricted by the certificate of incorporation of
the Corporation or by these bylaws, any action required or permitted to be
taken at a meeting of the board of directors, or of any committee of the board
of directors, may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by all the
directors or all the committee members, as the case may be, entitled to vote
with respect to the subject matter thereof, and such consent shall have the
same force and effect as a vote of such directors or committee members, as the
case may be, and may be stated as such in any certificate or document filed
with the Secretary of State of the State of Delaware or in any certificate
delivered to any person. Such consent or consents shall be filed with the
minutes of proceedings of the board or committee, as the case may be.
8.10 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage,
or other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the board of directors at
any regular meeting of the stockholders or the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
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EXHIBIT 3.9
CERTIFICATE OF INCORPORATION
OF
ERO INDUSTRIES, INC.
ARTICLE ONE
The name of the corporation is ERO Industries, Inc.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is 229 South State Street, in the City of Dover, County of Kent 19901.
The name of the corporation's registered agent at such address is The Prentice-
Hall Corporation Systems, Inc.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the corporation has authority
to issue is 3,000,000 shares, all of which shall be Common Stock, $.01 par
value.
ARTICLE FIVE
The corporation shall have perpetual existence.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by statue,
the board of directors of the corporation is expressly authorized to make,
alter or repeal the By-laws of the corporation.
<PAGE> 2
ARTICLE SEVEN
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the By-
laws of the corporation. Election of directors need not be by written ballot
unless the By-laws of the corporation so provide.
ARTICLE EIGHT
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter by amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE EIGHT shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
of modification.
ARTICLE NINE
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE TENTH
The name and addresses of the incorporators are as follows:
B.A. Pennington 110 West Tenth Street
Wilmington, Delaware 19801
W.J. Reif 100 West Tenth Street
Wilmington, Delaware 19801
R.F. Andrews 100 West Tenth Street
Wilmington, Delaware 19801
-2-
<PAGE> 1
EXHIBIT 3.10
BY - LAWS
OF
ERO INDUSTRIES, INC.
a corporation organized and existing under and by virtue of the laws of the
State of Illinois.
ARTICLE I.
AUTHORIZED SHARES
Section 1: The authorized shares of the corporation shall consist of Three
Million (3,000,000) common shares of the par value of one dollar
($1.00), and One Hundred Thousand (100,000) preferred shares of
the par value of One Hundred dollars ($100.00).
ARTICLE II.
CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section 1: All certificates representing shares of the corporation shall be
signed by the chairman of the board, the president or a
vice-president and by the secretary or an assistant secretary and
sealed with the seal of the corporation.
Section 2: The certificates representing shares of the corporation shall be
numbered and shall be entered in the books of the corporation as
they are issued, or so long as there should be transfer agents
and/or registrars for the corporation authorized and appointed by
the board of directors, all records pertaining to the issuance,
transfer and registration of certificates shall be kept and
maintained by such transfer agents and/or registrars.
Section 3: Upon the surrender to the corporation or to its transfer agents
and/or registrars for cancellation of a certificate duly endorsed
by the registered holder thereof and accompanied by proper
evidence of succession, assignment or authority to transfer, a
new certificate shall be issued to the person entitled thereto,
the old certificate shall be cancelled, and the transaction
recorded upon the books of the corporation.
<PAGE> 2
Section 4: The board of directors of the corporation may close its stock
transfer books for a period not exceeding forty and not less than
ten days prior to the date of any meeting of shareholders, or the
date for the payment of any dividend or for the allotment of
rights, or the date when any exchange or reclassification of
shares shall be effective; or in lieu thereof, may fix in advance
a date, not exceeding forty and not less than ten days prior to
the date of any meeting of shareholders, or to the date for the
payment of any dividend or for the allotment of rights, or to the
date when any exchange or reclassification of shares shall be
effective, as the record date for the determination of
shareholders entitled to notice of, or to vote at, such meeting,
or shareholders entitled to receive payment of any such dividend
or to receive any such allotment of rights, or to exercise rights
in respect to any exchange or reclassification of shares; and the
shareholders of record on such date shall be the shareholders
entitled to notice of and to vote at, such meeting or to receive
payment of such dividend or to receive such allotment of rights
or to exercise such rights in the event of any exchange or
reclassification or shares, as the case may be. If the transfer
books are not closed and no record date is fixed by the board of
directors, the date on which notice of the meeting is mailed
shall be deemed to be the record date for the determination of
shareholders entitled to vote at such meeting. Transferees of
such which are transferred after the record date shall not be
entitled to notice of or to vote at such meeting.
Section 5: The corporation shall be entitled to treat the holder of record
of any share or shares as disclosed by the stock ledger or
transfer books of the corporation or its transfer agents as the
holder in fact thereof, and accordingly shall not be bound to
recognize any equitable or other claim or interest in such share
or shares on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly
provided by the laws of the State of Illinois.
Section 6: The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to
have been lost or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate to be lost or
destroyed, and the board of directors, when authorizing such
issuance of a new certificate or certificates, may in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or
certificates or his legal representative to advertise such fact
in such manner as it shall require and/or give the corporation a
bond of indemnity in such form and amount and with such sureties
as shall be deemed satisfactory by the board of directors.
-2-
<PAGE> 3
ARTICLE III.
SHAREHOLDERS
Section 1: All meetings of the shareholders shall be held at the registered
office of the corporation, unless another or different place,
whether within or without the State of Illinois, be specified in
the notice of any such meeting or in the written waiver of notice
of any such meeting, in which event any such meeting may be held
at the place specified in such notice or in such waiver.
Section 2: The annual meeting of the shareholders shall be held on the third
Wednesday in May of each year, commencing with the year 1969, if
the same is not a legal holiday, and if said date is a legal
holiday, then on the next business day following. At the annual
meeting of shareholders, the shareholders shall elect by a
plurality vote a Board of Directors and transact such other
business as may properly come before the meeting. In all
elections for directors every shareholder shall have the right to
vote, in person or by proxy, the number of shares owned by him,
for as many persons as there are directors to be elected, or to
cumulate said shares and give one candidate as many votes as the
number of directors multiplied by the number of his shares shall
equal, or to distribute them on the same principle among as many
candidates as he shall think fit.
Section 3: A majority of the outstanding shares of the corporation present
in person or represented by proxy shall constitute a quorum at
any meeting of shareholders. If, however, such majority shall not
be present or represented at any meeting of the shareholders, the
shareholders present in person or by proxy, provided they
represent at least one-third of the outstanding shares of the
corporation, shall have the power to adjourn the meeting from
time to time without notice other than announcement at the time
of the meeting, until the requisite number of shares shall be
present.
Section 4: At any adjourned meeting at which the requisite number of shares
shall be represented, any business may be transacted which might
have been transacted at the meeting as originally called.
Section 5: At each meeting of the shareholders every shareholder shall be
entitled to vote in person or by proxy appointed by an instrument
in writing subscribed by such shareholder or by his duly
authorized agent and delivered to the secretary or presiding
officer before or at the time of such meeting, and he shall have
one vote for each share registered in his name on the books of
the corporation.
-3-
<PAGE> 4
Section 6: Written or printed notice of the annual meeting or of any special
meeting, stating the place, day and hour or said meeting, and in
case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) days
nor more than (40) days before the date of the meeting, either
personally or by mail, by or at the direction of the chairman of
the board, the president or the secretary or the officer or
person calling the meeting, to each shareholder of record
entitled to vote at such meeting.
Section 7: Special meetings of the shareholders may be called by the
chairman of the board, the president, by the board or directors,
or by the holders of not less than one-fifth (1/5) of all
outstanding shares of the corporation. Special meetings of the
shareholders for the sole purpose of electing a director or
directors to fill a vacancy or vacancies shall be called by the
chairman of the board, the president or secretary at the request
in writing of any shareholder.
Section 8: The officer or agent having charge of the transfer book for
shares of the corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting arranged in
alphabetical order with the address of, and the number of shares
held by each, which list for a period of ten (10) days prior to
such meeting shall be kept on file at the registered office of
the corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting.
Section 9: Any action required to be taken at a meeting of shareholders may
be taken without a meeting if consent in writing, setting forth
the actions so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
Section 10: Voting on any question or in any election may be viva voce,
unless the presiding officer shall order, or any shareholder
shall demand, that the voting be by ballot.
-4-
<PAGE> 5
ARTICLE IV:
DIRECTORS
Section 1: The business and affairs of the corporation shall on and after
the annual meeting of the shareholders to be held during 1966,
be managed by its board of seven (7) directors, none of whom
need be residents of the State of Illinois or shareholders of
the corporation.
Section 2: The directors may hold their meetings, regular or special,
either within or without the State of Illinois, at such place
or places as they may from time to time determine.
Section 3: The annual meeting of the board of directors shall be held
immediately following the annual meeting of the shareholders.
At each annual meeting of shareholders the shareholders shall
elect directors to hold office until the next succeeding
annual meeting. Each director shall hold office for the term
for which he is elected, or until his successor shall have
been elected and qualified.
Section 4: The directors may establish one or more offices and keep the
books of the corporation except such as are required by law to
be kept within the state or at the registered office of the
corporation within or without the State of Illinois, at such
place or places as they may from time to time determine.
Section 5: In addition to the powers and authorities by these by-laws
expressly conferred upon them the board of directors may
exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the
articles of incorporation of this corporation or by these
by-laws directed or required to be exercised or done by the
shareholders.
Section 6: Regular meetings of the board of directors may be held without
notice at such time and place, either within or without the
State of Illinois, as shall be from time to time determined by
a majority of the board of directors.
Section 7: Special meetings of the board of directors may be called by the
chairman of the board or the president on two (2) days' notice
to each director, either personally or by mail or by telegram.
Special meetings shall be called by the chairman of the board,
the president or secretary in like manner and on like notice
on the written request of one director. Neither the business
to be transacted at, nor the
<PAGE> 6
purpose of any regular or special meeting of the board of
directors need be specified in the notice or waiver of notice
of such meeting.
Section 8: At all meetings of the board of directors a majority of the
directors shall be necessary and sufficient to constitute a
quorum for the transaction of business of the corporation, and
the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of
directors, except as may be otherwise provided by the articles
of incorporation or by these by-laws.
Section 9: Any vacancy occurring in the board of directors and any
directorship to be filled by reason of an increase in the
number of directors shall be filled by election at an annual
meeting or at a special meeting of shareholders called for
that purpose. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
Section 10: Directors, as such, shall not receive any stated salary for
their services, but by resolution of the board of directors, a
fixed sum and expenses for attendance, if any, may be allowed
for attendance at each regular or special meeting of the board
of directors, provided that nothing herein contained shall be
construed to preclude any director from serving the
corporation in any other capacity and receive compensation
therefor.
ARTICLE V.
OFFICERS
Section 1: The officers of the corporation shall be a chairman of the
board, a vice chairman of the board, a president, one or more
vice presidents, a secretary and a treasurer.
Section 2: Any two of the aforesaid offices may be filled by the same
person with the exception of the offices of chairman of the
board and secretary, and president and secretary.
Section 3: The board of directors at its annual meeting after each annual
meeting of the shareholders shall elect a chairman of the
board, a vice chairman, a president, one or more vice
presidents, a secretary and a treasurer, who need not be
members of the board of directors, nor shareholders of the
corporation, nor residents of the State of Illinois.
-6-
<PAGE> 7
Section 4: The board of directors may appoint or elect such other
officers and agents, including one or more assistant
secretaries and one or more assistant treasurers, as it shall
deem necessary, such officers and agents to have such authority
and perform such duties as from time to time shall be
prescribed by the board of directors.
Section 5: The officers of the corporation shall hold office until the
next annual meeting of the board of directors or until their
successors are chosen and qualify in their stead.
Section 6: Notwithstanding the provisions of Section 5 of this article,
any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in
its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the persons so removed.
Section 7: If any office becomes vacant for any reason, the vacancy shall
be filled by the board of directors.
Section 8: The salaries of all officers of the corporation shall be fixed
by the board of directors.
Section 9: The chairman of the board of directors shall be the chief
executive officer of the corporation. He shall preside at all
meetings of the board of directors and shall see that orders
and resolutions of the board of directors are carried into
effect; he shall be ex officio a member of all standing
committees; except where by law the signature of the president
is required, the chairman of the board shall have the power to
execute on behalf of the corporation bonds, mortgages,
certificates for shares and all other documents, whether or not
under the seal of the corporation; he shall vote all shares of
stock of any other corporation standing in the name of this
corporation; shall have general powers of supervision and
management and shall be the final arbitrator of all differences
between officers of the corporation and his decision as to any
matter affecting the corporation shall be final and binding as
between the officers of the corporation, subject only to the
board of directors of the corporation.
Section 9.A: The vice chairman of the board shall have such duties as may be
prescribed from time to time by the board of directors of the
corporation or as may be designated by the president of the
corporation.
<PAGE> 8
Section 10: The president of the corporation shall have the active
management of the business of the corporation under the general
supervision of the chairman of the board; he shall preside at
all meetings of the shareholders and, in the absence of the
chairman of the board, he shall preside at all meetings of the
board of directors; he shall see that all orders and
resolutions of the board of directors are carried into effect
and shall have the same powers as the chairman of the board to
execute on behalf of the corporation, bonds, mortgages,
certificates for shares and all other documents, whether or not
under the seal of the corporation, and in addition shall have
the power to execute documents where by law the signature of
the president is required; and in the absence of the chairman
of the board, he shall have such powers as are vested in such
office, including the power to vote all shares of stock of any
other corporation standing in the name of the corporation, and
may exercise any other powers vested in said chairman of the
board; he shall be ex officio a member of all standing
committees, and shall have such other powers usually vested in
the president of a corporation, subject to those powers
delegated to the chairman of the board by these by-laws, and
further subject to the right of the board of directors to
delegate powers to other officers of the corporation, except
those powers which may be exclusively conferred by statute upon
the office of president.
Section 11: The vice-presidents, in the order of their seniority, in the
absence of the president, or in case of the disability of the
president, shall perform the functions of the office of
president.
Section 12: The secretary shall attend all sessions of the board of
directors and all sessions of the shareholders, and act as the
clerk thereof, and record all votes and the minutes of all the
proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required;
he shall sign certificates for shares; he shall see that all
notices are duly given in accordance with the provisions of
these by-laws or as required by law, and shall perform such
other duties as may be prescribed by the board of directors or
president, under those supervision he shall be; he shall keep
in safe custody the corporate records and the seal of the
corporation, and, in all proper cases, he shall affix the seal
of the corporation to any instrument requiring the same; he
shall be ex officio a member of all standing committees.
Section 13: The assistant secretaries in the order of their seniority
shall, in the event of the absence or disability of the
secretary, perform the duties and exercise the powers of the
secretary, and shall perform such other duties as the board of
directors shall prescribe.
<PAGE> 9
Section 14: The treasurer subject to supervision and direction of the
president, shall have the custody of the corporate funds and
securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation, in
such depositaries as may be designated by the board of
directors; upon failure of the board of directors to designate
such depositaries, then in such depositaries as may be
designated by the president.
Section 15: The assistant treasurers in the order of their seniority shall,
in the event of the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer,
and shall perform such other duties as the board of directors
shall prescribe.
ARTICLE VI.
OFFICES AND RECORDS
Section 1: The corporation may have offices at such places either within
or without the State of Illinois, as the board of directors may
from time to time appoint or as the business of the corporation
may require.
Section 2: The corporation shall keep at its registered office or
principal place of business in Illinois, or at the office of a
transfer agent or registrar in Illinois, a record of its
shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by
each.
Section 3: The corporation shall also keep correct and complete books and
records of accounts and shall also keep minutes of the
proceedings of its shareholders and board of directors.
ARTICLE VII.
INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Section 1: The corporation shall, to the full extent specifically
permitted by the Illinois Business Corporation Act as amended
from time to time or, in the absence of any specific provision
in the Illinois Business Corporation Act, to the full extent
permitted by Section 145 of the Delaware General Corporation Law
(which is hereby incorporated by reference as though
specifically repeated in this by-law) as amended from time to
time, indemnify all present and form directors and officers whom
it may indemnify pursuant thereto, subject to the same terms and
conditions as provided therein. The indemnification authorized
hereby shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under or
through any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in the official
capacity of those seeking indemnification and as to action in
another capacity while holding such office, and shall continue
as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and
administrators of such persons. If any provision of this by-law
or the application of any provision of any person or set of
facts shall be declared to be illegal, unenforceable or contrary
to public policy, this by-law shall continue in full force and
effect as to all other provisions or all other applications of
its provisions, as the case may be (it being intended that the
scope of indemnification permitted hereunder shall be as broad
and all-inclusive as permitted by law). This by-law shall not
preclude or affect the right of the corporation in a specific
case, upon a determination in accordance with the provisions of
the Illinois Business Corporation Act or Section 145 of the
Delaware General Corporation Law, as the case may be, to
indemnify any person other than a present or former director or
officer of the corporation. The corporation may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of the Illinois Business
Corporation Act or Section 145 of the Delaware General
Corporation Law, as the case may be.
<PAGE> 10
ARTICLE VIII.
MISCELLANEOUS
Section 1: All checks or demands for money or notes of the corporation
shall be signed by such officer or officers as the board of
directors may from time to time designate, and in the absence
of such designation, by the chairman of the board, the
president or vice-president.
Section 2: The fiscal year of the corporation shall begin with the first
day of February of each year and shall end with the last day of
January of the following year.
Section 3: Whenever any notice whatever is required to be given under the
provisions of the laws of the State of Illinois or under the
provisions of the articles of incorporation of the corporation
or under these by-laws, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE IX.
AMENDMENTS
Section 1: The directors, by a majority vote, may at any regular or at any
special meeting alter, amend or repeal these by-laws or any of
them if notice of such purpose be set forth in the notice of
the meeting.
<PAGE> 1
EXHIBIT 3.11
<TABLE>
<S> <C> <C>
Form BCA-2.10 ARTICLES OF INCORPORATION
===============================================================================================================
(Rev. Jan. 1991)
SUBMIT IN DUPLICATE
George H. Ryan
Secretary of State FILED PAID --------------------------
Department of Business Services This space for use by
Springfield, IL 62756 JAN 21 1992 JAN 22 1992 Secretary of State
Telephone (217) 782-6961
- ------------------------------------ GEORGE H. RYAN Date 1-21-92
Payment must be made by certified SECRETARY OF STATE Franchise Tax $ 25
check, cashier's check, Illinois Filing Fee $ 75
attorney's check, Illinois C.P.A's Approved [ILLEGIBLE] 100
check or money order, payable to
"Secretary of State."
===============================================================================================================
</TABLE>
1. CORPORATE NAME: ERO Marketing, Inc.
-----------------------------------------------------------
- --------------------------------------------------------------------------------
(The corporate name must contain the word "corporation", "company",
"incorporated", "limited", or an abbreviation thereof.)
================================================================================
2. Initial Registered Agent: Robert J. Lipsig
-------------------------------------------------
First Name Middle Initial Last Name
Initial Registered Office: 8130 North Lehigh
-------------------------------------------------
Number Street Suite #
Morton Grove 60053-2614 Cook
-------------------------------------------------
City Zip Code County
================================================================================
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
To transact any or all lawful activities and businesses which are
authorized by the Illinois Business Corporation Act of 1983, and to
purchase or otherwise acquire, hold, use, own, mortgage, sell, convey,
lease or otherwise dispose of and deal in real and personal property of
every class and description or any interest therein.
================================================================================
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
<TABLE>
<CAPTION>
Par Value Number of Shares Number of Shares Consideration to be
Class per Share Authorized Proposed to be issued Received Therefor
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common $ NPV 10,000 1,000 $ 1,000
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
TOTAL $ 1,000
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
(over)
<PAGE> 2
================================================================================
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation: _____________________
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or
until their successors are elected and qualify:
<TABLE>
<CAPTION>
Name Residential Address
------------------------------------------------------------
<S> <C>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
================================================================================
<TABLE>
<S> <C> <C>
6. OPTIONAL: (a) It is estimated that the value of all property to be owned by the
corporation for the following year wherever located will be: $ ____________
(b) It is estimated that the value of the property to be located within
the State of Illinois during the following year will be: $ ____________
(c) It is estimated that the gross amount of business that will be
transacted by the corporation during the following year will be: $ ____________
(d) It is estimated that the gross amount of business that will be
transacted from places of business in the State of Illinois during
the following year will be: $ ____________
</TABLE>
================================================================================
7. OPTIONAL: OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation, e.g., authorizing
preemptive rights, denying cumulative voting, regulating internal
affairs, voting majority requirements, fixing a duration other
than perpetual, etc.
================================================================================
8. NAMES(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated January 17, 1992
SIGNATURE AND NAME ADDRESS
1. /s/ DIANNE M. CHIAPPETTI 1. 30 South Wacker Drive
--------------------------------- ------------------------------------
Signature Street
Dianne M. Chiappetti Chicago, IL 60606
--------------------------------- ------------------------------------
(Type or Print Name) City/Town State Zip Code
2. 2.
--------------------------------- ------------------------------------
Signature Street
--------------------------------- ------------------------------------
(Type or Print Name) City/Town State Zip Code
3. 3.
--------------------------------- ------------------------------------
Signature Street
--------------------------------- ------------------------------------
(Type or Print Name) City/Town State Zip Code
(Signatures must be in ink on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown and the execution shall be by its
President or Vice President and verified by him and attested by its Secretary or
Assistant Secretary.
================================================================================
FEE SCHEDULE
o The initial franchise tax is assessed at the rate of 15/100 of 1 percent
($1.50 per $1,000) on the paid-in capital represented in this state, with a
minimum of $25 and a maximum of $1,000,000.
o The filing fee is $75.
o The minimum total due (franchise tax + filing fee) is $100.
(Applies when the Consideration to be Received as set forth in Item 4 does
not exceed $16,667).
o The Department of Business Services in Springfield will provide assistance in
calculating the total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-6961
<PAGE> 1
EXHIBIT 3.12
ERO MARKETING, INC. BY-LAWS
Article 1
CORPORATE OFFICES
Section 1.1 Principal Corporate Office. The principal corporate office of
ERO MARKETING, INC. in Illinois shall be located in the City of Morton Grove,
County of Cook, or at such other place as the Board of Directors may determine
by resolution from time to time. The Corporation may have such other offices,
either within or without the State of Illinois, as the Board of Directors may
designate or the Corporation's business may require from time to time. [BCA
Section 3.10(j)]
Section 1.2 Registered Office in Illinois. The Registered Office of the
Corporation required by the Illinois Business Corporation Act of 1983 ("BCA")
to be maintained in the State of Illinois may be, but need not be, the same as
the principal corporate office or its principal place of business in the State
of Illinois, but shall in any event be identical with the business office of
the Corporation's Registered Agent in Illinois. [BCA Section 5.05] The address
of the Registered Office in Illinois may be changed from time to time by the
Board of Directors or by such Registered Agent. [BCA Sections 5.10, 5.20]
Article 2
SHAREHOLDERS
Section 2.1 Annual Meeting. Except as the Board of Directors of the
Corporation may otherwise provide by resolution duly adopted pursuant to the
authority granted hereby, the Annual Meeting of Shareholders of the Corporation
shall be held each year on the second Tuesday of January (beginning with the
year 1993, commencing at the hour of 10:00 A.M., for the purpose of electing
Directors and for the transaction of such other business as may properly come
before the Meeting. If the day fixed for the Annual Meeting shall be a legal
holiday, such Meeting shall be held on the next succeeding business day. [BCA
Section 7.05]
Section 2.2 Special Meetings. Special Meetings of the Shareholders may be
called by the President, by the Board of Directors, or by the holders of not
less than one-fifth of all the outstanding shares of the Corporation entitled
to vote on the matter for which the Special Meeting is called. [BCA Section
7.05]
Section 2.3 Place of Meeting. The Board of Directors may by resolution
designate any place, either within or without the State of Illinois, as the
place of meeting for any Annual Meeting of Shareholders or for any Special
Meeting called by the Board of Directors or by the President, and may designate
any place within
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the State of Illinois for any Special Meeting called by Shareholders. A waiver
of notice signed by all Shareholders may designate any place, either within or
without the State of Illinois, as the place for the holding of any Meeting. If
no designation of a meeting place is made, or if a Special Meeting be otherwise
called, the place of meeting shall be the Registered Office of the Corporation
in the State of Illinois, except as otherwise provided in Section 2.5 of these
By-Laws. [BCA Section 7.05]
Section 2.4 Notice of Meeting. Written notice stating the place, day and
hour of the Meeting, and, in the case of a Special Meeting, the purpose or
purposes for which the Meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the Meeting, or, in the
case of a merger, consolidation, share exchange, dissolution, or sale, lease or
exchange of assets requiring Shareholder approval, not less than twenty (20)
nor more than sixty (60) days before the date of the Meeting, either personally
or by mail, by or at the direction of the President, or the Secretary, or the
Officer or persons calling the meeting, to each Shareholder of record entitled
to vote at such Meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the Shareholder at his
or her address as it appears on the records of the Corporation, with postage
thereon prepaid. [BCA Section 7.15]
Section 2.5 Meeting Of All Shareholders. If all of the Shareholders shall
meet at any time and place, either within or without the State of Illinois, and
consent to the holding of a Meeting at such time and place, such Meeting shall
be valid without call or notice, and at such Meeting any corporate action may
be taken. [BCA Section 7.20]
Section 2.6 Fixing of Record Date. For the purpose of determining
Shareholders entitled to notice of or to vote at any Meeting of Shareholders,
or Shareholders entitled to receive payment of any dividend or distribution,
or in order to make a determination of Shareholders for any other proper
purpose, the Board of Directors of the Corporation may fix in advance a date as
the record date for any such determination of Shareholders, such date in any
case to be not more than sixty (60) days immediately preceding the date of the
Meeting, payment or other transaction, and, for a Meeting of Shareholders, not
less than ten (10) days, or in the case of a merger, consolidation, share
exchange, dissolution, or sale, lease or exchange of assets requiring
Shareholder approval, not less than twenty (20) days, immediately preceding
such Meeting. if no record date is fixed for the determination of Shareholders
entitled to notice of or to vote at a Meeting of Shareholders, or Shareholders
entitled to receive payment of a dividend or other distribution, the date on
which notice of the Meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend or
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distribution is adopted, as the case may be, shall be the record date for such
determination of Shareholders. When a determination of Shareholders entitled to
vote at any Meeting of Shareholders has been made as provided in this Section
2.6, such determination shall apply to any adjournment thereof. [BCA Section
7.25]
Section 2.7 Voting Lists. The Officer or agent having charge of the
transfer books and records for shares of the Corporation shall make, within
twenty (20) days after the record date for a Meeting of Shareholders or ten
(10) days before such Meeting, whichever is earlier, a complete list of the
Shareholders entitled to vote at such Meeting, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten (10) days prior to such Meeting, shall be kept on file at the
Registered Office of the Corporation and shall be subject to inspection by any
Shareholder, and to copying at the Shareholder's expense, at any time during
usual business hours. Such list shall also be produced and kept open at the
time and place of the Meeting and shall be subject to the inspection of any
Shareholder during the whole time of the Meeting. The original share ledger or
transfer book, or a duplicate thereof kept in Illinois, shall be prima facie
evidence as to who are the Shareholders entitled to examine such list or share
ledger or transfer book, or to vote at any Meeting of Shareholders. Failure to
comply with the requirements of this Section 2.7 shall not affect the validity
of any action taken at such Meeting. An Officer or agent having charge of the
transfer books or records who shall fail to prepare the list of Shareholders,
or keep the same on file for a period of ten (10) days, or produce and keep the
same open for inspection at the Meeting, as provided in this Section 2.7, shall
he liable to any Shareholder suffering damage on account of such failure, to
the extent of such damage as provided by law. [BCA Section 7.30]
Section 2.8 Quorum of Shareholders. A majority of the outstanding shares
of the Corporation entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum for consideration of such matter at a meeting
of Shareholders. If a quorum is present, the affirmative, vote of the majority
of the shares represented at the Meeting and entitled to vote on a matter shall
be the act of the Shareholders, unless the vote of a greater number or voting
by classes is required by the Illinois Business Corporation Act of 1983, by the
Corporation's Articles of Incorporation, or by these By-Laws. [BCA Section
7.60]
Section 2.9 Proxies. A Shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it
to the person so appointed. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the
proxy. Every proxy continues in
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full force and effect until revoked by the person executing it prior to the
vote pursuant thereto, except as otherwise provided in this Section 2.9 and in
Section 7.50 of the Illinois Business Corporation Act of 1983. Such revocation
may be effected by a writing delivered to the Corporation stating that the
proxy is revoked or by a subsequent proxy executed by, or by attendance at the
Meeting and voting in person by, the person executing the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of any postmark dates on envelopes in which they are mailed. An
appointment of a proxy is revocable by the Shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest in the shares or in the Corporation generally. Unless the
appointment of a proxy contains an express limitation on the proxy's authority,
the Corporation may accept the proxy's vote or other action as that of the
Shareholder making the appointment. [BCA Section 7.50]
Section 2.10 Voting of Shares. Each outstanding share of the Corporation
shall be entitled to one vote in each matter submitted to a vote by the
Shareholders, except as the Illinois Business Corporation Act of 1983 and the
Corporation's Articles of Incorporation may otherwise limit or deny voting
rights or provide special voting rights as to any class or classes or series of
shares. [BCA Section 7.40]
Section 2.11 Voting of Shares by Certain Holders. Shares of its own stock
belonging to this Corporation shall not be voted, directly or indirectly, at
any Meeting and shall not be counted in determining the total of outstanding
shares at any given time, but shares of the Corporation held by the Corporation
in a fiduciary capacity may be voted and shall be counted in determining the
total number of outstanding shares entitled to vote at any given time.
Shares registered in the name of another corporation, domestic or foreign,
may be voted by any Officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation. The Corporation may treat the president or other person holding
the position of chief executive officer of such other corporation as authorized
to vote such shares, together with any other person indicated and any other
holder of an office indicated by the corporate Shareholder to the Corporation
as a person or office authorized to vote such shares. Such persons and offices
indicated shall be registered by the Corporation on the transfer books for
shares and included in any voting list prepared in accordance with Section 2.7
of these By-Laws.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator,
executor or court appointed guardian, either in
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<PAGE> 5
person or by proxy without a transfer of such shares into the name of such
administrator, executor or court appointed guardian. Shares registered in the
name of a trustee may be voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority so to
do is contained in an appropriate order of the court by which such receiver was
appointed.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
[BCA Section 7.45]
Section 2.12 Voting by Ballot; Inspectors. Voting by Shareholders on any
matter or in any election may be viva voce unless the Chairman of the Meeting
shall order, or any Shareholder entitled to vote thereon shall demand, that
voting be by ballot.
At any Meeting of Shareholders, the Chairman of the Meeting may, or upon
the request of any Shareholder shall, appoint one or more persons as
inspectors for such Meeting. Such inspectors shall ascertain and report the
number of shares represented at the Meeting, based upon their determination of
the validity and effect of proxies; count all votes and report the results; and
do such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the Shareholders. Each report of an inspector
shall be in writing and signed by him or her or by a majority of them if there
be more than one inspector acting at such Meeting. If there is more than one
inspector, the report of a majority shall be the report of the inspectors. The
report of the inspector or inspectors on the number of shares represented at
the Meeting and the results of the voting shall be prima facie evidence
thereof. [BCA Section 7.35]
Section 2.13 Informal Action by Shareholders. Any action required to be
taken at any Annual or Special Meeting of Shareholders of the Corporation, or
any other action which may be taken at at Meeting of the Shareholders, may be
taken without a Meeting and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed (i) by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting or (ii) by all of the Shareholders
entitled to vote with respect to the subject matter thereof. If such consent is
signed by less than all of the Shareholders entitled to vote, then such consent
shall become effective only if, at least five (5) days prior
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to the execution of the consent, a notice of the proposed action is delivered
in writing to all of the Shareholders entitled to vote with respect to the
subject matter thereof and, after the effective date of the consent, prompt
notice of the taking of the action without a meeting by less than unanimous
written consent shall be delivered in writing to those Shareholders who have
not consented in writing. [BCA Section 7.10]
Article 3
DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. [BCA
Section 8.05]
Section 3.2 Number, Tenure and Qualification. The number of Directors of
the Corporation shall be five. Each Director shall serve until the next Annual
Meeting of Shareholders or until his or her successor shall have been elected
and qualified. Directors need not be residents of Illinois or Shareholders of
the Corporation.
A Director may resign at any time by giving written notice no the Board of
Directors, its Chairman, or to the President or Secretary of the Corporation. A
resignation is effective when the notice is given unless the notice specifies a
future date. The pending vacancy may be filled before the effective date, but
the successor shall not take office until the effective date. [BCA Sections
8.01, 8.10]
Section 3.3 Regular Meetings. A Regular Meeting of the Board of Directors
shall be held without other notice than this By-Law, immediately after, and at
the same place as, the Annual Meeting of Shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Illinois, for the holding of additional Regular Meetings without other
notice than such resolution. [BCA Sections 8.20, 8.25]
Section 3.4 Special Meetings. Special Meetings of the Board of Directors
may be called by or at the request of the President or any two Directors. The
person or persons authorized to call Special Meetings of the Board of Directors
may fix any place, either within or without the State of Illinois, as the place
for holding any Special Meeting of the Board of Directors called by them. [BCA
Sections 8.20, 8.25]
Section 3.5 Notice. Notice of any Special Meeting shall be given at least
three days previous thereto by written notice delivered personally or by
telegram or mailgram to each Director at his or her business address, or given
at least five (5) days
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previous thereto if mailed. If mailed, such notice shall be deemed to be
delivered on the second day following the date on which it was deposited in the
United States mail so addressed, with proper postage thereon prepaid. If notice
be given by telegram or mailgram, such notice shall be deemed to be delivered
when the telegram or mailgram is delivered to the telegraph company. Any
Director may waive notice of any Meeting by executing a written waiver of
notice. The attendance of a Director at any Meeting shall constitute a waiver
of notice of such Meeting, except where a Director attends a Meeting for the
express purpose of objecting to the transaction of any business because the
Meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any Regular or Special Meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
Meeting. [BCA Section 8.25]
Section 3.6 Quorum. A majority of the number of Directors fixed by these
By-Laws shall constitute a quorum for transaction of business at any Meeting of
the Board of Directors, provided, that if less than a majority of such number
of Directors is present at said Meeting, a majority of the Directors present
may adjourn the Meeting from time to time without further notice. [BCA Section
8.15(a)]
Section 3.7 Manner Of Action. The act of the majority of Directors present
at a Meeting at which a quorum is present shall be the act of the Board of
Directors. [BCA Section 8.15(c)]
Section 3.8 Vacancies. Any vacancy occurring in the Board of Directors and
any directorship to be filled by reason of an increase in the number of
Directors may be filled by election at an Annual Meeting or at a Special
Meeting of Shareholders called for that purpose. In the absence of a Special
Meeting of Shareholders, the Board of Directors may fill the vacancy, except as
otherwise specified in the Articles of Incorporation. A Director elected by the
Shareholders to fill a vacancy shall hold office for the balance of the term
for which he or she was elected. A Director appointed to fill a vacancy shall
serve until the next Meeting of Shareholders at which Directors are to be
elected. [BCA Section 8.30]
Section 3.9 Removal Of Directors. One or more of the Directors may be
removed, with or without cause, at a Meeting of Shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of Directors, except that:
(a) No Director shall be removed at a Meeting of Shareholders unless the
notice of such Meeting shall state that a purpose of the Meeting is to vote
upon the removal of one or more Directors named in the notice. Only the named
Director or Directors may be removed at such Meeting.
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<PAGE> 8
Section 3.10 Compensation. Except as otherwise provided in any written
agreement and except as otherwise set forth below, the Board of Directors, by
the affirmative vote of a majority of Directors then in office, and
irrespective of any personal interest of any of its members, shall have
authority to establish reasonable compensation of all Directors for services to
the Corporation as Directors, Officers or otherwise. [BCA Section 8.05(b)] By
resolution of the Board of Directors, the Directors may be paid their expenses,
if any, of attendance at each Meeting of the Board of Directors. In the event
the Internal Revenue Service shall determine any such compensation paid to a
Director to be unreasonable or excessive, such Director must repay to the
Corporation the excess over what is determined to be reasonable compensation,
with interest on such excess at the rate of nine percent (9%) per annum, within
ninety (90) days after notice from the Corporation.
Section 3.11 Presumption Of Assent. A Director of the Corporation who is
present at a Meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the Meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the Secretary of the Meeting before the adjournment
thereof or shall forward such dissent by registered or certified mail to the
Secretary of the Corporation immediately after the adjournment of the Meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action. [BCA Section 8.65(b)]
Section 3.12 Informal Action By Directors. Unless specifically prohibited
by the Articles of Incorporation or by these By-Laws, any action required to be
taken at a Meeting of the Board of Directors, or any other action which may be
taken at a Meeting of the Board of Directors or of a Committee thereof, may be
taken without a Meeting if a consent in writing, setting forth the action so
taken, is signed by all the Directors entitled to vote with respect to the
subject matter thereof, or by all the members of such Committee, as the case
may be. The consent shall be evidenced by one or more written approvals, each
of which sets forth the action taken and bears the signature of one or more
Directors. All the approvals evidencing the consent shall be delivered to the
Secretary to be filed in the corporate records. The action taken shall be
effective when all the Directors have approved the consent unless the consent
specifies a different effective date. Any such consent signed by all the
Directors or all the members of a Committee shall have the same effect as a
unanimous vote. [BCA Section 8.45]
Section 3.13 Participation By Conference Telephone. Members of the Board
of Directors or of any Committee of the Board of Directors may participate in
and act at any Meeting of the Board of
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<PAGE> 9
Directors or any Committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
Meeting can hear each other. Participation in such Meeting shall constitute
attendance and presence in person at the Meeting of the person or persons so
participating. [BCA Section 8.15(d)]
Section 3.14 Committees. A majority of the Directors may create one or
more Committees and appoint members of the Board of Directors to serve on such
Committee or Committees. Each Committee shall have two or more members, who
serve at the pleasure of the Board of Directors.
Unless the appointment by the Board of Directors requires a greater
number, a majority of any Committee shall constitute a quorum and a majority of
a quorum is necessary for Committee action. A Committee may act by unanimous
consent in writing without a meeting and, subject to the provisions of these
By-Laws or action by the Board of Directors, such Committee, by majority vote
of its members, shall determine the time and place of meetings and the notice
required therefor.
To the extent specified by the Board of Directors, each Committee may
exercise the authority of the Board of Directors under Section 3.1 of these
By-Laws; provided, however, that a Committee may not:
(a) authorize distributions;
(b) approve or recommend to Shareholders any act which is required to be
approved by Shareholders;
(c) fill vacancies on the Board of Directors or on any of its Committees;
(d) elect or remove Officers or fix the compensation of any member of the
Committee;
(e) adopt, amend or repeal these By-Laws;
(f) approve a plan of merger not requiring Shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a
general formula or method prescribed by the Board of Directors;
(h) authorize or approve the issuance or sale, or contract for sale, of
shares or determine the designation and relative rights, preferences and
limitations of a series of shares, except that the
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Board of Directors may direct a Committee to fix the specific terms of the
issuance or sale or contract for sale or the number of shares to be allocated
to particular employees under an employee benefit plan; or
(i) amend, alter, repeal or take action inconsistent with any resolution
or action of the Board of Directors when the resolution or action of the Board
of Directors provides by its terms that it shall not be amended, altered or
repealed by action of a Committee. [BCA Section 8.40]
Section 3.15 Director Conflict of Interest. If a transaction is fair to
the Corporation at the time it is authorized, approved or ratified, the fact
that a Director of the Corporation is directly or indirectly a party to the
transaction is not grounds for invalidating the transaction.
In a proceeding contesting the validity of a transaction described in the
preceding paragraph, the person asserting validity has the burden of proving
fairness unless:
(1) the material facts of the transaction and the Director's interest or
relationship were disclosed or known to the Board of Directors or a Committee
of the Board of Directors and the Board of Directors or Committee authorized,
approved or ratified the transaction by the affirmative votes of a majority of
disinterested Directors, even though the disinterested Directors be less than a
quorum; or
(2) the material facts of the transaction and the Director's interest or
relationship were disclosed or known to the Shareholders entitled to vote and
they authorized, approved or ratified the transaction without counting the vote
of any Shareholder who was an interested Director.
The presence of the Director, who is directly or indirectly a party to the
transaction described in the first paragraph of this section, or a Director who
is otherwise not disinterested, may be counted in determining whether a quorum
is present but may not be counted when the Board of Directors or a Committee of
the Board of Directors takes action on the transaction.
A Director is "indirectly" a party to a transaction if the other party to
the transaction is an entity in which the Director has a material financial
interest or of which the Director is an Officer, Director or General Partner.
[BCA Section 8.60]
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Article 4
OFFICERS
Section 4.1 Number. The Officers of the Corporation shall be a President,
one or more Vice Presidents (the number thereof to be determined by the Board
of Directors), a Secretary, and a Treasurer, and such Assistant Secretaries,
Assistant Treasurers or other officers as may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person. All
Officers and agents of the Corporation shall have such express authority and
perform such duties in the management of the property and affairs of the
Corporation as may be provided herein, or as may be determined by resolution of
the Board of Directors not inconsistent with these By-Laws, and such implied
authority as is recognized by the common law from time to time. [BCA Section
8.50]
Section 4.2 Election and Term of Office. The Officers of the Corporation
shall be elected by the Board of Directors at the first Meeting of the Board of
Directors and thereafter at each Annual Meeting of the Board of Directors. The
Board of Directors may create and fill new offices at Annual or Special
Meetings. If the election of Officers shall not be held at such Meeting, such
election shall he held as soon thereafter as is convenient. Each Officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified or until his or her death or until he or she shall resign or
shall have been removed in the manner hereinafter provided. Election or
appointment of an Officer or agent shall not of itself create contract rights.
[BCA Section 8.50]
Section 4.3 Removal. Any Officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. [BCA Section 8.55]
Section 4.4 Vacancies. A vacancy in any Office because of death,
resignation, removal, disqualification, or otherwise, or because of the
creation of an office, may be filled by the Board of Directors for the
unexpired portion of the term.
Section 4.5 The President. The President shall be the principal executive
Officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He or she shall preside at all Meetings of the
Shareholders and of the Board of Directors. He or she may sign, with the
Secretary or any other Officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors
has authorized to be executed on behalf of the
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<PAGE> 12
Corporation except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these By-Laws to some other
Officer or agent of the Corporation or to the President alone, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the Office of President and such other duties as
may be prescribed by the Board of Directors from time to time. [BCA Section
8.50]
Section 4.6 The Vice-Presidents. In the absence of the President or in the
event of his or her inability or refusal to act, the Vice-President (or in the
event there be more than one Vice President, the Vice-Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice-President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the Corporation, and shall perform such
other duties as from time to time may be assigned to him or her by the
President or by the Board of Directors. [BCA Section 8.50]
Section 4.7 The Secretary. The Secretary shall: (a) keep, or supervise and
be responsible for the keeping of, the minutes and records of all Meetings and
official actions of the Shareholders and of the Board of Directors, and any
Committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices of such Meetings are duly given or waivers of
notice obtained in accordance with the provisions of these By-Laws or as
required by law; (c) be custodian of the corporate records and of the seal of
the Corporation and see that the seal of the Corporation is affixed to all
certificates for shares prior to the issuance thereof and to all documents, the
execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these By-Laws; (d) keep a
register of the post office address of each Shareholder which shall be
furnished to the Secretary by such Shareholder; (e) sign with the President, or
a Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books and records of the Corporation;
(g) have the authority to certify the By-Laws, resolutions of the Board of
Directors and Committees thereof, and other documents of the Corporation as
true and correct copies thereof; and (h) in general perform all duties incident
to the Office of Secretary and such other duties as from time to time may be
assigned to him or her by the President or by the Board of Directors. [BCA
Section 8.50]
Section 4.8 The Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her duties in
sum and with such surety or
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sureties as the Board of Directors shall determine. He or she shall: (a) have
charge and custody of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with the provisions of Article 6 of these
By-Laws; and (b) in general perform all the duties incident to the Office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the President or by the Board of Directors. [BCA Section 8.50]
Section 4.9 Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries as thereunto authorized by the Board of Directors may sign with the
President or a Vice-President certificates for shares of the Corporation, the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties and exercise such authority as shall be assigned or granted to them by
the Secretary or the Treasurer, respectively, or by the President or the Board
of Directors. [BCA Section 8.50]
Section 4.10 Salaries. Except as otherwise provided in any written
employment agreement duly executed on behalf of the Corporation and except as
otherwise set forth below, the compensation (including salaries and benefits)
of the Officers shall be fixed from time no time by resolution of the Board of
Directors and no Officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation. [BCA
Section 8.50] In the event the Internal Revenue Service shall determine any
such compensation (including any fringe benefit) paid to an Officer to be
unreasonable or excessive, such Officer must repay to the Corporation the
excess over what is determined to be reasonable compensation, with interest on
such excess at the rate of nine percent (9%) per annum, within ninety (90) days
after notice from the Corporation.
Article 5
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
Section 5.1 Actions Other Than Actions By or in the Right of the
Corporation. The Corporation shall indemnify any of its Directors or Officers
and may indemnify any of its employees and agents who was or is a party, or is
threatened to be made a party
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to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she or it is or
was a Director, Officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) , judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner he or she or it reasonably believed to be in, or not
opposed to, the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her or
its conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she or it reasonably believed
to be in, or not opposed to, the best interests of the Corporation or, with
respect to any criminal action or proceeding, that the person had reasonable
cause to believe that his or her or its conduct was unlawful. [BCA Section
8.75(a)]
Section 5.2 Actions By or in the Right of the Corporation. The Corporation
may indemnify any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that such person is or was a Director, Officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit, if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed
to, the best interests of the Corporation, provided that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Corporation, unless, and only to the
extent that, the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. [BCA
Section 8.75(b)]
Section 5.3 Indemnification in Event of Successful Defense. To the extent
that a Director, Officer, employee or agent of the
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Corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in Sections 5.1 or 5.2, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection therewith. [BCA Section 8.75(c)]
Section 5.4 Procedures for Indemnification. Any indemnification under
Sections 5.1 and 5.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case, upon a determination that
indemnification of the Director, Officer, employee or agent is proper in the
circumstances because he or she or it has met the applicable standard of
conduct set forth in said Sections. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of Directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or even if obtainable, if a quorum of disinterested Directors
so directs, by independent legal counsel in a written opinion, or (c) by the
Shareholders. [BCA Section 8.75(d)]
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding, as authorized by the Board of Directors in
the specific case, upon receipt of a written undertaking by or on behalf of the
Director, Officer, employee or agent to repay such amount unless it shall
ultimately be determined that he or she or it is entitled to be indemnified by
the Corporation as authorized in this Article 5. [BCA Section 8.75(e)]
The indemnification provided by this Article 5 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-Law, agreement, vote of Shareholders or disinterested
Directors, or otherwise, both as to action in his or her or its official
capacity and as to action in another capacity while holding such Office, and
shall continue as to a person who has ceased to be a Director, Officer,
employee or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person. [BCA Section 8.75(f)]
If the Corporation has paid indemnity or has advanced expenses to a
Director, Officer, employee or agent, the Corporation shall report the
indemnification or advance in writing to the Shareholders with or before the
notice of the next Shareholders' Meeting. [BCA Section 8.75(h)]
For purposes of this Article 5, references to the "Corporation" shall
include, in addition to the surviving corporation, any merging corporation
(including any corporation having merged with a merging corporation) absorbed
in a merger which, if its separate existence
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had continued, would have had the power and authority to indemnify its
Directors, Officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was
serving at the request of such merging corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article 5 with respect to the surviving corporation as such person would have
with respect to such merging corporation if its separate existence had
continued. [BCA Section 8.75(i)]
For purposes of this Article 5, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, Officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, Officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she or it
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the Corporation" as referred to in
this Article 5. [BCA Section 8.75(j)]
Section 5.5 Indemnity Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee
or agent of the Corporation, or who is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article 5 or under the provisions of Section 8.75 of the
Illinois Business Corporation Act of 1983. [BCA Section 8.75(g)]
Article 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 Contracts. The Board of Directors may expressly authorize any
Officer or Officers and agent or agents of the Corporation to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances. [BCA Section 8.50]
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Section 6.2 Loans. All loans contracted can behalf of the Corporation and
all evidence of indebtedness issued in the Corporation's name shall be
authorized by resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 6.3 Pledges of Property and Assets. The pledge of all, or
substantially all, the property and assets of the Corporation in the usual and
regular course of business may be authorized by the Board of Directors upon
such terms and conditions as the Board of Directors deems necessary or
desirable, without authorization or consent of the Shareholders of the
Corporation. [BCA Section 11.55]
Section 6.4 Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall he signed by such Officer or Officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 6.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies, or other depositaries as the Board of Directors may
select.
Article 7
SHARES AND THEIR TRANSFER
Section 7.1 Consideration for Shares. Shares may be issued for such
consideration as shall be authorized from time to time by the Board of
Directors through action which establishes a price in cash or other
consideration, or both, or a minimum price or a general formula or method by
which the price can be determined. Upon authorization by the Board of
Directors, the Corporation may issue its own shares in exchange for or in
conversion of its outstanding shares, or may distribute its own shares pro rata
to its Shareholders or the Shareholders of one or more classes or series to
effectuate dividends or splits, and any such transactions shall not require
consideration; provided; that no such issuance of shares of any class or series
shall be made to the holders of shares of any other class or series unless it
is either expressly provided for in the Articles of Incorporation or authorized
by an affirmative vote of the holders of at least a majority of the outstanding
shares of the class or series in which the distribution is to be made. [BCA
Section 6.25]
Section 7.2 Payment for Shares. The consideration for the issuance of
shares shall be paid, in whole or in part, in money, in other property,
tangible or intangible, or in labor or services
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actually performed for the Corporation, as determined by the Board of
Directors. When payment of the consideration for which shares are to be issued
shall have been received by the Corporation, such shares shall be deemed to be
fully paid and non-assessable. In the absence of actual fraud in the
transaction, and subject to the provisions of the Business Corporation Act of
1983, the judgment of the Board of Directors or the Shareholders, as the case
may be, as to the value of the consideration received for shares shall be
conclusive. [BCA Section 6.30]
Section 7.3 Shares Represented by Certificates. Except as otherwise
provided pursuant to this Article 7, the issued shares of the Corporation shall
be represented by certificates. Certificates shall toe signed by the
appropriate corporate Officers and may be sealed with the seal, or a facsimile
of the seal, of the Corporation. In case the seal of the Corporation is changed
after the certificate is sealed with the seal or a facsimile of the seal of the
Corporation, but before it is issued, the certificate may be issued by the
Corporation with the same effect as if the seal had not been changed. if a
certificate is countersigned by a transfer agent or registrar, other than the
Corporation itself or its employee, any other signatures or countersignatures
on the certificate may be facsimiles. in case any Officer of the Corporation,
or any officer or employee of the transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon, such certificate ceases to
be an Officer of the Corporation, or an officer or employee of the transfer
agent or registrar, before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if the Officer of the
Corporation, or the officer or employee of the transfer agent or registrar, had
not ceased to be such at the date of its issue.
Every certificate representing shares issued by the Corporation at a time
when the Corporation is authorized to issue shares of more than one class shall
set forth upon the face or back of the certificate a full summary or statement
of all of the designations, preferences, qualifications, limitations,
restrictions and special or relative rights of the shares of each class
authorized to be issued, and, if the Corporation is authorized to issue any
preferred or special class in series, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined, and the authority of the Board of Directors to fix and
determine the relative rights and preferences of subsequent series. Such
statement may be omitted from the certificate if it shall be set forth upon the
face or back of the certificate that such statement, in full, will be
furnished by the Corporation to any Shareholder upon request and without
charge.
Each certificate representing shares shall also state:
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(a) That the Corporation is organized under the laws of Illinois;
(b) The name of the person to whom issued; and
(c) The number and class of shares, and the designation of the series, if
any, which such certificate represents;
No certificate shall be issued for any share until such share is fully
paid. [BCA Section 6.35]
Section 7.4 Uncertificated Shares. The Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes
and series of its shares shall be uncertificated shares, provided that such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Within a reasonable time after
the issuance or transfer of uncertificated shares, the Corporation shall send
to the registered owner thereof a written notice containing the information
required to be set forth or stated an certificates pursuant to this Article 7.
Except as otherwise expressly provided by law, the rights and obligations of
the holders of uncertificated shares and the rights and obligations of holders
of certificates representing shares of the same class and series shall be
identical. [BCA Section 6.35]
Article 8
FISCAL YEAR
Except as the Board of Directors of the Corporation may otherwise provide
by resolution duly adopted pursuant to the authority granted hereby, the fiscal
year of the Corporation shall begin an the first day of January in each year
and end on the last day of December in each year.
Article 9
DIVIDENDS
The Board of Directors way from time to time declare or effect, and the
Corporation may pay or make dividends on its outstanding shares or other
distributions to Shareholders, including without limitation purchases of shares
of the Corporation, subject in each case to any and all terms, conditions,
preferences and restrictions provided by law, by the Articles of Incorporation
and by any binding contract or instrument duly executed on behalf of the
Corporation. [BCA Sections 9.05, 9.10]
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Article 10
SEAL
The Board of Directors may provide a corporate seal which shall he in the
form of a circle and shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal, Illinois." [BCA Section 3.10]
Article 11
WAIVER OF NOTICE
Whenever any notice whatever is required to be given to any Shareholder or
Director of the Corporation under the provisions of these By-Laws or under the
provisions of the Articles of Incorporation or under the Illinois Business
Corporation Act of 1983, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance at
any Meeting shall constitute waiver of notice thereof unless the person at the
Meeting objects to the holding of the Meeting because proper notice was not
given. [BCA Section 7.20]
Article 12
AMENDMENTS TO THE BY-LAWS
The By-Laws of the Corporation may be made, altered, amended or repealed
by the Shareholders or the Board of Directors of the Corporation, but, if such
By-Law expressly so provides, no By-Law adopted by the Shareholders may be
altered, amended or repealed by the Board of Directors. These By-Laws may be
altered or amended to contain any provisions for the regulation and management
of the affairs of the Corporation not inconsistent with law or with the
Articles of Incorporation. [BCA Section 2.25]
Article 13
STATUTORY REFERENCES
The statutory references in these By-Laws to the "Business Corporation Act
of 1983" refer, except where the context otherwise requires, to the Illinois
Business Corporation Act of 1983, as amended from time to time. The citations
to sections of the BCA appearing in brackets throughout the text of these
By-Laws are for convenience of reference only, are not made a part hereof,
shall not be construed as incorporating the referenced provisions of the law
into these By-Laws, and shall not be deemed in any way to alter, affect or
qualify the meaning or effect of these By-Laws as written and adopted.
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EXHIBIT 3.13
CERTIFICATE OF INCORPORATION
OF
PRISS PRINTS ACQUISITION CORP.
I.
The name of this Corporation shall be:
PRISS PRINTS ACQUISITION CORP.
II.
The address of the registered office of the Corporation in the State of
Delaware is 229 South State Street, in the City of Dover, County of Kent, and
the name of the registered agent at that address is The Prentice-Hall
Corporation System, Inc.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
IV.
(a) The Corporation is authorized to issue two classes of stock
designated "Preferred Stock" and "Common Stock", respectively. The total number
of shares of Preferred Stock authorized to be issued is one hundred (100) and
each such share shall have a par value of ten cents ($.10). The total number of
shares of Common Stock authorized to be issued is one hundred (100) and each
such share shall have a par value of ten cents ($.10).
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof, including but not limited to the fixing or alteration of the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price
or prices, and the liquidation preferences of any wholly unissued series of
shares of Preferred Stock, or any of them; and to increase or decrease the
number of shares of any series subsequent to the
<PAGE> 2
issue of the shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number
of share of such series.
V.
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in
the manner provided in, the Bylaws of the Corporation.
VI.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation.
VII.
Election of directors at an annual or special meeting of shareholders
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
VIII.
Special meetings of the shareholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the Bylaws of the Corporation, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons; provided, however, that if and to the extent that any
special meeting of stockholders may be called by any other person or persons
specified in any provisions of the Certificate of Incorporation or any
amendment thereto or any certificate filed under Section 151(g) of the General
Corporation Law of Delaware (or its successor statute as in effect from time to
time hereunder), then such special meeting may also be called by the person or
persons, in the manner, at the times and for the purposes so specified.
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IX.
A Director shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director;
provided that this sentence shall not eliminate or limit the liability of a
Director (i) for any breach of his duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the General Corporation Law, or (iv) for any transaction from which the
Director derives an improper personal benefit. This Article IX shall not
eliminate or limit the liability of a Director for any act or omission
occurring prior to the date when this Article IX becomes effective.
X.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
XI.
The name and mailing address of the incorporator of the Corporation is:
Andrea E. Fish, Esq.
Paul, Hastings, Janofsky & Walker
1299 Ocean Avenue, 5th Floor
Santa Monica, California 90401
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set her hand this
18th day of September, 1986.
/s/ ANDREA E. FISH
--------------------------------
Andrea E. Fish, Incorporator
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EXHIBIT 3.14
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PRISS PRINTS ACQUISITION CORP.
Priss Prints Acquisition Corp., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify:
FIRST: The Corporation has not received any payment for any of its
stock.
SECOND: The amendment to the Corporation's Certificate of
Incorporation set forth in the following resolution was approved by a
majority of the Corporation's Board of Directors and was duly adopted
in accordance with the provisions of Section 241 of the General
Corporation Law of the State of Delaware:
"RESOLVED, that the Certificate of Incorporation of the Corporation
be amended by striking Article FIRST in its entirety and replacing
therefor: 'FIRST: The name of the corporation shall be Priss
Prints, Inc.'"
IN WITNESS WHEREOF, Priss Prints Acquisition Corp. has caused this
Certificate to be signed and attested by its duly authorized officers, this
30th day of September, 1986.
PRISS PRINTS ACQUISITION CORP.
By: /s/ VERNON W. BRYAN
---------------------------------
Vernon W. Bryan,
Executive Vice President
ATTEST:
/s/ RICHARD K. ROEDER
- --------------------------------------
Richard K. Roeder, Assistant Secretary
<PAGE> 1
EXHIBIT 3.15
BY-LAWS
OF
PRISS PRINTS, INC.
SECTION 1
Offices
Section 1.1 Registered Office. The registered office of Priss
Prints Acquisition Corp. (the "Corporation") shall be at such place in the
State of Delaware as shall be designated by the Board of Directors.
Section 1.2 Other Offices. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
SECTION 2
Meetings of Stockholders
Section 2.1 Annual Meetings. Annual meetings of stockholders may
be held at such time, date and place as the Board of Directors shall determine
by resolution for the purpose of electing directors and transacting such other
proper business as may come before the meeting.
Section 2.2 Special Meetings. Special meetings shall be held
solely for the purpose or purposes specified in the notice of hearing.
Section 2.3 Time and Place of Meetings. Subject to the provisions
of Section 2.1, each meeting of stockholders shall be held on such date, at
such hour and at such place, either within or without the State of Delaware, as
shall be fixed by the Board of Directors or in the notice of the meeting or, in
the case of an adjourned meeting, as announced at the meeting at which the
adjournment is taken.
Section 2.4 Notice of Meetings. A written notice of each meeting
of stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given either personally or by mail to each stockholder
entitled to vote at the meeting. Unless otherwise provided by statute, the
notice shall be given not less than ten or more than sixty days before the date
of the meeting and, if mailed, shall be deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. No notice need be given to
<PAGE> 2
any person with whom communication is unlawful, nor shall there be any duty to
apply for any permit or license to give notice to any such person. If the time
and place of an adjourned meeting of stockholders are announced at the meeting
at which the adjournment is taken, no notice need be given of the adjourned
meeting unless that adjournment is for more than thirty days or unless, after
the adjournment, a new record date is fixed for the adjourned meeting.
Section 2.5 Waiver of Notice. Anything herein to the contrary
notwithstanding, notice of any meeting of stockholders need not be given to any
stockholder who in person or by proxy shall have waived in writing notice of
the meeting, either before or after such meeting, or who shall attend the
meeting in person or by proxy, unless he attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 2.6 Advance Notice of Stockholder Business. At an annual
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of
the Corporation, not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the
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stockholder in such business. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.6. The Chairman of
the annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2.6, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 2.7 Quorum; Manner of Acting and Order of Business.
Subject to the provisions of these by-laws, the certificate of incorporation
and statutes as to the vote that is required for a specified action, the
presence in person or by proxy of the holders of a majority of the outstanding
shares of the Corporation entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business, and the vote in person or
by proxy of the holders of a majority of the shares constituting such quorum
shall be binding on all stockholders of the Corporation. A majority of the
shares present in person or by proxy and entitled to vote may, regardless of
whether or not they constitute a quorum, adjourn the meeting to another time
and place. Any business which might have been transacted at the original
meeting may be transacted at any adjourned meeting at which a quorum is
present. Meetings of the stockholders shall be presided over by the Chairman of
the Board, if any, or in his absence by the Vice Chairman of the Board, if any,
or in his absence by the President, or in his absence by a Vice President, or
in the absence of the foregoing persons by a chairman designated by the Board
of Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting. The order of business at all meetings of the stockholders shall
be determined by the chairman. The order of business so determined, however,
may be changed by vote of the holders of shares entitled to cast a majority of
the votes at the meeting present in person or represented by proxy.
Section 2.8 Voting. Stockholders shall be entitled to cumulative
voting at all elections of directors to the extent provided in or pursuant to
the certificate of incorporation. Stockholders may vote by proxy but no proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
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<PAGE> 4
Section 2.9 Inspection of Election.
(a) The Board of Directors shall appoint an inspector of
election to act at each meeting of stockholders and any adjournment thereof. If
an inspector of election is not so appointed, or the person appointed as
inspector fails or refuses to act, the chairman of the meeting shall appoint an
inspector of election.
(b) The inspector of election shall determine the outstanding
stock of the Corporation and the voting power of each class and series, the
stock represented at the meeting and the existence of a quorum, shall receive
votes or ballots, shall count and tabulate all votes and shall determine the
result; and in connection therewith, the inspector shall determine the
authority, validity and effect of proxies, hear and determine all challenges
and questions, and do such other acts as may be proper to conduct the election
or vote with fairness to all stockholders.
(c) The inspector of election shall make a report in writing
of any challenge or question or other matter determined by him and shall
execute a certificate of any fact found in connection therewith. Any such
report or certificate shall be filed with the record of the meeting.
Section 2.10 List of Stockholders. A complete list of the
stockholders entitled to vote at each meeting of stockholders, arranged in
alphabetical order, and showing the address and number of shares registered in
the name of each stockholder, shall be prepared and made available for
examination during regular business hours by any stockholder for any purpose
germane to the meeting. The list shall be available for such examination at the
place where the meeting is to be held for a period of not less than ten days
prior to the meeting and during the whole time of the meeting.
Section 2.11 Action Without a Meeting. Any action required to be
taken at any annual or special meeting of stockholders, or any action which may
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
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SECTION 3
Board of Directors
Section 3.1 Number. The number of directors shall be three (3).
Section 3.2 Organization Meetings. As promptly as practicable
after each annual meeting of stockholders, an organization meeting of the Board
of Directors shall be held for the purpose of organization and the transaction
of other business.
Section 3.3 Regular Meetings. Regular meetings of the Board of
Directors may be held at such place and time as may be designated by the Board.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman, the President, any two directors, or,
if less than two, the remaining director.
Section 3.5 Business of Meetings. Except as otherwise expressly
provided in these by-laws, any and all business may be transacted at any
meeting of the Board of Directors; provided, that if so stated in the notice of
meeting, the business transacted at a special meeting shall be limited to the
purpose or purposes specified in the notice.
Section 3.6 Time and Place of Meetings. Subject to the provisions
of Section 3.4, each meeting of the Board of Directors shall be held on such
date, at such hour and in such place as fixed by the Board or in the notice or
waivers of notice of the meeting or, in the case of an adjourned meeting, as
announced at the meeting at which the adjournment is taken.
Section 3.7 Notice of Meetings. No notice need be given of any
organization or regular meeting of the Board of Directors for which the date,
hour and place have been fixed by the Board. Notice of the date, hour and place
of all other organization and regular meetings, and of all special meetings,
shall be given to each director personally, by telephone or telegraph or by
mail. If by mail, the notice shall be deposited in the United States mail,
postage prepaid, directed to the director at his residence or usual place of
business as the same appear on the books of the Corporation not later than
seventy-two (72) hours before the meeting. If given by telegraph, the notice
shall be directed to the director at his residence or usual place of business
as the same appear on the books of the Corporation not later than at any time
during the day before the meeting. If given
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personally or by telephone, the notice shall be given not later than the day
before the meeting.
Section 3.8 Waiver of Notice. Anything herein to the contrary
notwithstanding, notice of any meeting of the Board of Directors need not be
given to any director who shall have waived in writing notice of the meeting,
either before or after the meeting, or who shall attend such meeting, unless he
attends for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
Section 3.9 Attendance by Telephone. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear one another, and such participation shall constitute presence
in person in the meeting.
Section 3.10 Quorum and Manner of Acting. A majority of the total
number of directors at the time provided for pursuant to Section 3.1 shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors and, except as otherwise provided in these by-laws, in the
certificate of incorporation or by statute, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board. A majority of the directors present at any meeting, regardless of
whether or not they constitute a quorum, may adjourn the meeting to another
time or place. Any business which might have been transacted at the original
meeting may be transacted at any adjourned meeting at which a quorum is
present.
Section 3.11 Action Without a Meeting. Any action which could be
taken at a meeting of the Board of Directors may be taken without a meeting if
all of the directors consent to the action in writing and the writing or
writings are filed with the minutes of proceedings of the Board.
Section 3.12 Resignation of Directors. Any director may resign at
any time upon written notice to the Corporation. The resignation shall become
effective at the time specified in the notice and, unless otherwise provided in
the notice, acceptance of the resignation shall not be necessary to make it
effective.
Section 3.13 Filling of Vacancies. Vacancies and newly created
directorships resulting from an increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or
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by a sole remaining director. The directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced.
Section 3.14 Compensation of Directors. The Directors shall be paid
their expenses, if any, for attendance at each meeting of the Board of
Directors and any Committee thereof. Directors who are not in the regular
employment of the Company shall be paid an annual retainer and a per meeting
fee according to rates established by the Board from time to time.
SECTION 4
Committees of the Board of Directors
Section 4.1 Executive Committee. By resolution adopted by an
affirmative vote of the majority of the whole Board of Directors, the Board may
appoint an Executive Committee consisting of one or more other directors and,
if deemed desirable, one or more directors as alternate members who may replace
any absentee or disqualified member at any meeting of the Executive Committee.
If so appointed, the Executive Committee shall, when the Board is not in
session, have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation not reserved to the
Board by Section 4.3, including, but not limited to, the power and authority to
authorize the issuance of stock, to adopt a certificate of ownership and merger
under Section 253 of the Delaware General Corporation Law. The Executive
Committee shall keep a record of its acts and proceedings and shall report the
same from time to time to the Board of Directors.
Section 4.2 Other Committees. By resolution adopted by an
affirmative vote of the majority of the whole Board of Directors, the Board may
from time to time appoint such other committees of the Board, consisting of one
or more directors and, if deemed desirable, one or more directors who shall act
as alternate members and who may replace any absentee or disqualified member at
any meeting of the committee, and may delegate to each such committee any of
the powers and authority of the Board in the management of the business and
affairs of the Corporation not reserved to the Board pursuant to Section 4.3.
Each such committee shall keep a record of its acts and proceedings and shall
report the same from time to time to the Board of Directors.
Section 4.3 Powers Reserved to the Board. No committee of the
Board shall take any action to amend the
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certificate of incorporation, or these by-laws, adopt any agreement to merge or
consolidate the Corporation, fill vacancies in the Board or any committee
thereof, declare dividends, or recommend to the stockholders a sale, lease or
exchange of all or substantially all of the property and assets of the
Corporation, a dissolution of the Corporation or a revocation of a dissolution
of the Corporation; nor shall any committee of the Board take any action which
is required in these by-laws, in the certificate of incorporation or by statute
to be taken by a vote of a specified proportion of the whole Board of Directors.
Section 4.4 Election of Committee Members; Vacancies. So far as
practicable, members of the committees of the Board and their alternates (if
any) shall be appointed at each organization meeting of the Board of Directors
and, unless sooner discharged by an affirmative vote of the majority of the
whole Board, shall hold office until the next organization meeting of the Board
and until their respective successors are appointed. Vacancies in committees of
the Board created by death, resignation or removal may only be filled by an
affirmative vote of a majority of the whole Board of Directors.
Section 4.5 Meetings. Each committee of the Board may provide for
regular meetings of such committee. Special meetings of each committee may be
called by any two members of the committee (or, if there is only one member, by
that member in concert with the chief executive officer) or by the chief
executive officer of the Corporation. The provisions of Section 3 regarding the
business, time and place, notice and waivers of notice of meetings, attendance
at meetings and action without a meeting shall apply to each committee of the
Board, except that the references in such provisions to the directors and the
Board of Directors shall be deemed respectively to be references to the members
of the committee and to the committee. Each committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 4.6 Quorum and Manner of Acting. One-half (in the case of
even-numbered committee membership) or the majority (in the case of
odd-numbered Committee membership) of the members of any committee of the Board
shall constitute a quorum for the transaction of business at meetings of the
committee, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of the committee. A majority of the
members present at any meeting, regardless of whether or not they constitute a
quorum, may adjourn the meeting to another time or place. Any
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business which might have been transacted at the original meeting may be
transacted at any adjourned meeting at which a quorum is present.
SECTION 5
Officers
Section 5.1 Election and Appointment. The elected officers of the
Corporation shall consist of a Chairman, a President, one or more Vice
Presidents, a Controller, a Treasurer, a Secretary and such other elected
officers as shall from time to time be designated by the Board of Directors. The
Board shall designate from among such elected officers a chief executive
officer, a chief financial officer and a chief executive officer, of the
Corporation, and may from time to time make, or provide for, other designations
it deems appropriate. The Board may also appoint, or provide for the appointment
of, such other officers and agents as may from time to time appear necessary or
advisable in the conduct of the affairs of the Corporation. Any number of
offices may be held by the same person.
Section 5.2 Duties of Chief Executive Officer. The chief executive
officer of the Corporation shall preside at all meetings of stockholders and at
all meetings of the Board of Directors and the Executive Committee and, except
to the extent otherwise provided in these by-laws or by the Board, shall have
general authority to execute any and all documents in the name of the
Corporation and general and active supervision and control of all of the
business and affairs of the Corporation. In the absence of the chief executive
officer, his duties shall be performed and his powers may be exercised by the
chief financial officer or by such other officer as shall be designated either
by the chief executive officer in writing or (failing such designation) by the
Executive Committee or Board of Directors.
Section 5.3 Duties of Other Officers. The other officers of the
Corporation shall have such powers and duties not inconsistent with these
by-laws as may from time to time be conferred upon them in or pursuant to
resolutions of the Board of Directors, and shall have such additional powers
and duties not inconsistent with such resolutions as may from time to time be
assigned to them by any competent superior officer. The Board shall assign to
one or more of the officers of the Corporation the duty to record the
proceedings of the meetings of the stockholders and the Board of Directors in a
book to be kept for that purpose.
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Section 5.4 Term of Office and Vacancy. So far as practicable, the
elected officers shall be elected at each organization meeting of the Board,
and shall hold office until the next organization meeting of the Board and
until their respective successors are elected and qualified. If a vacancy
shall occur in any elected office, the Board of Directors may elect a
successor for the remainder of the term. Appointed officers shall hold office
at the pleasure of the Board. Any officer may resign by written notice
to the Corporation.
Section 5.5 Removal of Elected Officers. Elected officers may be
removed at any time, either for or without cause, by the affirmative vote of a
majority of the whole Board of Directors.
Section 5.6 Compensation of Elected Officers. The compensation of
all elected officers of the Corporation shall be fixed from time to time by the
Board of Directors.
SECTION 6
Shares and Transfer of Shares
Section 6.1 Certificates. Every stockholder shall be entitled to a
certificate signed by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the class and number of shares owned by him in the Corporation;
provided that, any and all signatures on a certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or it were such
officer, transfer agent or registrar at the date of issue.
Section 6.2 Transfer Agents and Registrars. The Board of Directors
may, in its discretion, appoint one or more responsible banks or trust
companies in any city or cities (if any) the Board may deem advisable, from
time to time, to act as transfer agents and registrars of shares of the
Corporation; and, when such appointments shall have been made, no certificate
for shares of the Corporation shall be valid until countersigned by one of such
transfer agents and registered by one of such registrars.
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Section 6.3 Transfers of Shares. Shares of the Corporation may be
transferred by delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates or by written power of
attorney to sell, assign and transfer the same, signed by the record holder
thereof; but no transfer shall affect the right of the Corporation to pay any
dividend upon the shares to the holder of record thereof, or to treat the holder
of record as the holder in fact thereof for all purposes, and no transfer shall
be valid, except between the parties thereto, until such transfer shall have
been made upon the books of the Corporation.
Section 6.4 Stockholders' Addresses. Every stockholder or
transferee shall furnish the Secretary or a transfer agent with the address to
which notice of meetings and all other notices may be served upon or mailed to
said stockholder or transferee, and in default thereof, said stockholder or
transferee shall not be entitled to service or mailing of any such notice.
Section 6.5 Lost Certificates. In case any certificate for shares
of the Corporation shall be lost, stolen or destroyed, the Board of Directors,
in its discretion, or any transfer agent thereunto duly authorized by the
Board, may authorize the issue of a substitute certificate in place of the
certificate so lost, stolen or destroyed, and may cause such substitute
certificate to be countersigned by the appropriate transfer agent (if any) and
registered by the appropriate registrar (if any); provided that, in each such
case, the applicant for a substitute certificate shall furnish to the
Corporation and to such of its transfer agents and registrars as may require
the same, evidence to their satisfaction, in their discretion, of the loss,
theft or destruction of such certificate and of the ownership thereof, and also
such security or indemnity as may by them be required.
Section 6.6 Record Dates. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or to express consent to action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date which shall be not more than sixty nor less than ten days before
the date of any meeting of stockholders, and not more than sixty days prior to
any other action. In such case, those stockholders, and only those
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stockholders, who are stockholders of record on the date fixed by the Board of
Directors shall, notwithstanding any subsequent transfer of shares on the books
of the Corporation, be entitled to notice of and to vote at such meeting of
stockholders, or any adjournment thereof, or to express consent to such
corporate action in writing without a meeting, or entitled to receive payment
of such dividend or other distribution or allotment of rights, or entitled to
exercise rights in respect of any such change, conversion or exchange of shares
or to participate in any such other lawful action.
SECTION 7
Miscellaneous
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
Section 7.2. Signature on Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned in such manner as from time to time may be prescribed by
resolution of the Board of Directors.
Section 7.3. Indemnification of Officers, Directors, Employees,
Agents and Fiduciaries; Insurance.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to
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any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in Subsections (a) and (b) above,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
(d) Any indemnification under Subsections (a) and (b) above
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that the indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Subsections (a) and
(b). Such determination shall be made (l) by the Board of Directors or the
Executive Committee by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent
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legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding shall be paid by the
Corporation as incurred by the officer or director in advance of the
final disposition of such action, suit or proceeding upon receipt of a
written undertaking or agreement in a form satisfactory to the
Corporation by such officer or director to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section 7.3.
Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
(f) The indemnification and advancement of expenses provided or
granted pursuant to the other subsection of this Section 7.3 shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
(g) The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and
incurred by in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Section 7.3.
(h) For purposes of this Section 7.3, references to the
"Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under and subject
to the provisions of this Section 7.3
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(including, without limitation the provisions of Subsection 7.3(d) with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Section 7.3.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 7.3 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7.4 Interested Directors; Quorum. No contract or
transaction between the Corporation and one of its directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interests, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to
the Board of Directors on the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders:
or (3) the contract or transaction is
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fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Section 7.5 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock lodger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 7.6 Broadcast Lawful Indemnification. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of indemnification
than is permitted to the Corporation prior to such amendment or change),
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a director of officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. In addition, the Corporation shall, to the
broadest maximum extent permitted by Delaware law, as the same may exist from
time to time (but, in case of any amendment to or change in Delaware law, only
to the extent that such amendment or change permits the Corporation to provide
broader rights of payment of expenses incurred in advance of the final
disposition of an action, suit or proceeding than is permitted to the
Corporation prior to such amendment or change), pay to such person any and all
expenses (including attorneys' fees) incurred in defending or settling any
such action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of any undertaking by or on behalf of
the director or officer, to repay such amount if it shall ultimately be
determined by a final judgment or other final adjudication that he is not
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entitled to be indemnified by the Corporation as authorized in this Section
7.6. The first sentence of this Section 7.6 to the contrary notwithstanding,
the Corporation shall not indemnify any such person with respect to any of the
following matters: (i) remuneration paid to such person if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he was not entitled, in the event that a final judgment or other final
adjudication adverse to such person establishes that such person in fact gained
such personal profit or other advantage to which he was not entitled; or (v)
any matter in respect of which a final decision by a court with competent
jurisdiction shall determine that indemnification is unlawful; provided,
however, that the Corporation shall perform its obligations under the second
sentence of this Section 7.6 on behalf of such person until such time as it
shall be ultimately determined by a final judgment or other final adjudication
that he is not entitled to be indemnified by the Corporation as authorized by
the first sentence of this Section 7.6 by virtue of any preceding clauses (i),
(ii), (iii), (iv) or (v).
SECTION 8
By-law Amendments
Section 8.1 By the Stockholders. These by-laws may be amended by
the stockholders at a meeting called for the purpose in any manner not
inconsistent with any provision of law or of the certificate of incorporation.
Section 8.2 By the Directors. These by-laws may be amended by the
affirmative vote of a majority of the whole Board of Directors in any manner not
inconsistent with any provision of law or of the certificate of incorporation.
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EXHIBIT 3.16
CERTIFICATE OF INCORPORATION
OF
IMPACT, INC.
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "Delaware General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is:
IMPACT, INC.
SECOND: The address, including street, number, city and county of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square Suite L-100, Dover, Delaware, Kent County and the name of the registered
agent of the Corporation in the State of Delaware at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue is 1,000 shares $0.01 par value. Any and all
such shares issued, and for which the full consideration has been paid or
delivered, shall be deemed fully paid stock and the holder of such shares shall
not be liable for any further call or assessment or any other payment thereon.
FIFTH: The name and the mailing address of the sole incorporator is
as follows:
Name Mailing Address
---- ---------------
Dianne M. Chiappetti 30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
SIXTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time
<PAGE> 2
to time by the Board of Directors or in the By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 292 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation as the case may be,
and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
1. The number of directors of the Corporation shall be as specified in the
By-Laws of the Corporation but such number may from time to time be
increased or decreased in such manner as may be prescribed by the
By-Laws. In no event shall the number of directors be less than the
minimum prescribed by law. The election of directors need not be by
ballot. Directors need not be stockholders.
2. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered to make, alter, amend, and repeal By-Laws,
subject to the power of the stockholders to alter or repeal By-Laws
made by the Board of Directors.
3. Any director or any officer elected or appointed by the stockholders or
by the Board of Directors may be removed at
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any time in such manner as shall be provided in the By-Laws of the
Corporation.
4. In the absence of fraud, no contract or other transaction between the
Corporation and any other corporation and no act of the Corporation,
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested
in, or are directors or officers of, such other corporation; and in the
absence of fraud, any director, individually, or any firm of which any
director may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the
Corporation; provided, in any case, that the fact that he or such firm
is so interested shall be disclosed or shall have been known to the
Board of Directors or the majority thereof; and any director of the
Corporation, who is also a director or officer of any such other
corporation, or who is also interested, may be counted in determining
the existence of a quorum at any meeting of the Board of Directors of
the Corporation which shall authorize any such contract, act or
transaction, and may vote thereat to authorize any such contract, act
or transaction, with like force and effect as if he were not such
director or officer of such other corporation, or not so interested.
5. To the fullest extent permitted by the Delaware General Corporation Law
as it now exists or may hereafter be amended, no director of this
Corporation shall be liable to this Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director.
NINTH: (a) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, may be indemnified and held harmless by the Corporation to the fullest
extent authorized by and in the manner set forth in the Delaware General
Corporation Law against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such
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indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
subsection (b) of this Article NINTH, the Corporation may indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. Any right to
indemnification conferred by the Corporation pursuant to this Article NINTH may
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article or
otherwise.
(b) If any claim arising from any right to indemnification
conferred by the Corporation pursuant to the authority granted under subsection
(a) of this Article NINTH is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce
a claim for expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
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(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
authorized by this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation amy maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
(e) For the purposes of this Article, references to "the
Corporation" include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that nay person who is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article with respect to the resulting or surviving
corporation if its separate existence had continued.
For the purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the
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manner and at the time prescribed by said laws, and all rights at any time
conferred upon the stockholders of the Corporation by this Certificate are
granted subject to the provisions of this Article TENTH.
Executed at Chicago, Illinois on the 1st day of November, 1993.
/s/ DIANNE M. CHIAPPETTI
------------------------------
Dianne M. Chiappetti
Incorporator
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EXHIBIT 3.17
BY-LAWS OF IMPACT, INC.
ARTICLE I
OFFICES
The principal office of the Corporation shall be in the State of Illinois,
in the City of Mount Prospect, County of Cook. The Corporation may have such
other offices, either within or without the State of Illinois, as the business
of the Corporation may require from time to time.
The registered office of the Corporation required by the General
Corporation Law of Delaware to be maintained in the State of Delaware shall be
32 Loockerman Square, Suite L-100, City of Dover, County of Kent. The name of
the registered agent of the Corporation in Delaware shall be The Prentice-Hall
Corporation System, Inc.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders shall
be held on the 15th day of November at such hour as shall be designated
in the notice of the meeting for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a meeting of the stockholders as soon thereafter as conveniently may be.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the President, by the Board of Directors, or by the holders of not
less than one-fifth of all the outstanding shares of the Corporation.
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all stockholders may designate any
place, either within or without the State of Delaware, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the registered office of the
Corporation in the State of Delaware, except as otherwise provided in Section
2.5 of these By-Laws.
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SECTION 2.4. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the case of a
merger or consolidation not less than twenty nor more than sixty days before
the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or persons calling the meeting, to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on the records
of the Corporation, with postage thereon prepaid.
SECTION 2.5. MEETING OF ALL STOCKHOLDERS. If all of the stockholders
shall meet at any time and place, either within or without the State of
Delaware, and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting any
corporate action may be taken.
SECTION 2.6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty days. If the stock transfer books shall be closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days, or
in the case of a merger or consolidation, at least twenty days, immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
days and, for a meeting of stockholders, not less than ten days, or in the case
of a merger or consolidation, not less than twenty days, immediately preceding
such meeting. If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
stockholders.
SECTION 2.7. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the Corporation shall make at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares
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held by each, which list, for a period of ten days prior to such meeting, shall
be kept on file at the registered office of the Corporation and shall be
subject to inspection by any stockholder at any time during usual hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting. The original share ledger or transfer book, or a duplicate
thereof kept in this State, shall be prima facie evidence as to who are the
stockholders entitled to examine such list or share ledger or transfer book or
to vote at any meetings of stockholders.
SECTION 2.8. QUORUM. A majority of the outstanding shares of the
Corporation, represented in person or by proxy, shall constitute a quorum at
any meeting of stockholders; provided, that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting shall be the act of the stockholders, unless
the vote of a greater number or voting by classes is required by the Delaware
General Corporation Law or the Certificate of Incorporation.
SECTION 2.9. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meetings. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
SECTION 2.10. VOTING OF SHARES. Subject to the provisions of Section 2.12
of these By-Laws, each outstanding share, regardless of class, shall be
entitled to one vote upon each matter submitted to vote at a meeting of
stockholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the By-Laws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation may
determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in the
name of a guardian, conservator or trustee may be voted by such fiduciary,
either in person or by proxy, but no guardian, conservator or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a transfer of
such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may
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be voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 2.12. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at any annual or special meeting of the stockholders, or any other action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 2.13. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE 3
DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATION. The number of directors of
the Corporation shall be two (2). Each director shall hold office until the
next annual meeting of stockholders or until his successor shall have been duly
elected and qualified. Directors need not be residents of Delaware or
stockholders of the Corporation.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law, immediately
after, and at the same place as, the annual meeting of stockholders. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of Delaware,
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for the holding of additional regular meetings without other notice than such
resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any two Directors. The
person or persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Delaware, as
the place for holding any special meeting of the Board of Directors called by
them.
SECTION 3.5. NOTICE. Notice of any special meeting shall be given at least
five days previous thereto by written notice delivered personally or mailed to
each director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. A majority of the number of directors fixed by these
By-Laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, provided, that if less than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
SECTION 3.7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 3.8. VACANCIES. Any vacancy occurring in the Board of Directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by the directors at a special meeting called for such
purpose. Any director elected to such vacancy shall hold office until the next
annual meeting of stockholders.
SECTION 3.9. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors of corporation may be removed with or without cause at any annual or
special meeting of stockholders by the holders of a majority of the shares then
entitled to vote at an election of directors.
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SECTION 3.10. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board. In the event the Internal Revenue Service shall deem any
compensation (including any fringe benefit) paid to a director to be
unreasonable or excessive, such director must repay to the Corporation the
excess over what is determined by the Internal Revenue Service to be reasonable
compensation, with interest on such excess at the rate of nine percent (9%) per
annum, within ninety days after notice from the Corporation.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 3.12. INFORMAL ACTION BY BOARD OF DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or committee consent thereto in writing and all such writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 3.13. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board
of Directors or of any committee designated by the Board of Directors may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such meeting
shall constitute attendance and presence in person at the meeting of the person
or persons so participating.
SECTION 3.14. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in these By-Laws, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation by the
Board of Directors, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution or amending the By-Laws of the Corporation; and, unless the Board
of Directors, By-Laws or Certificate of Incorporation expressly so provide, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a Certificate of Ownership and
Merger.
SECTION 3.15. DIRECTORS' PERSONAL LIABILITY. As provided in the
Corporation's Certificate of Incorporation, no director shall be personally
liable to the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director; provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director (i) for any, breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware
Code (relating to the Delaware General Corporation Law) or any amendment
thereto or successor provision thereto, or (iv) for any transaction from which
the director derived an improper personal benefit. Neither the amendment nor
the repeal of this provision in the Corporation's Certificate of Incorporation,
nor the adoption of any provision to the Certificate of Incorporation
inconsistent with this provision, shall eliminate or reduce the effect of this
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for this provision would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE 4
OFFICERS
SECTION 4.1. NUMBER. The officers of the Corporation shall be a President,
a Treasurer, and a Secretary, and such Vice Presidents (the number thereof to
be determined by the Board of Directors), Assistant Treasurers, Assistant
Secretaries or other officers as may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person.
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SECTION 4.2. ELECTION AND TERMS OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 4.3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or because of the creation
of an office, may be filled by the Board of Directors for the unexpired portion
of the term.
SECTION 4.5. THE PRESIDENT. The President shall be the principal executive
officer of the Corporation and shall in general supervise and control all of
the business and affairs of the Corporation. He shall preside at all meetings
of the stockholders and of the Board of Directors. He may sign, with the
Secretary or any other officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 4.6. THE VICE PRESIDENTS. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the Corporation, and shall perform such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.
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SECTION 4.7. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation, receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
6 of these By-Laws; (b) in general perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors.
SECTION 4.8. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares
prior to the issue thereof and to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized in accordance with
the provisions of these By-Laws; (d) keep a register of the post office address
of each stockholder which shall be furnished to the Secretary by such
stockholder; (e) sign with the President, or a Vice President, certificates
for shares of the Corporation, the issue of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the Corporation; and (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
SECTION 4.9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries
as thereunto authorized by the Board of Directors may sign with the President
or the Vice President certificates for shares of the Corporation, the issue of
which shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers and Assistant Secretaries, in general, shall perform such
duties as shall be assigned to them by the Treasurer or the Secretary,
respectively, or by the President or the Board of Directors.
SECTION 4.10. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. In the event that the internal Revenue Service shall deem any
compensation (including
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any fringe benefit) paid to an officer to be unreasonable or excessive, such
officer must repay to the Corporation the excess over what is determined by
the Internal Revenue Service to be reasonable compensation, with interest on
such excess at the rate of nine percent (9%) per annum, within 90 days after
notice from the Corporation.
ARTICLE 5
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 5.1. ACTIONS AGAINST A PERSON. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 5.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which
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<PAGE> 11
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 5.3. INDEMNIFICATION IN EVENT OF SUCCESSFUL DEFENSE. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 5.1 and 5.2 hereof, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 5.4. BOARD OF DIRECTORS' APPROVAL. Any indemnification under
Sections 5.1 and 5.2 of these By-Laws (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 5.1 and 5.2 hereof. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable but a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
SECTION 5.5. ADVANCE INDEMNITY PAYMENTS. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
SECTION 5.6. NON-EXCLUSIVITY. The indemnification and advancement of
expenses provided by or granted pursuant to, Article NINTH of the Corporation's
Certificate of Incorporation, the Delaware General Corporation Law and this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 5.7. INDEMNITY INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership,
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<PAGE> 12
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not he is indemnified against such liability under the
provisions of this Article.
SECTION 5.8. CONSOLIDATION. For the purposes of this Article, references
to "the Corporation" include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
For the purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 6.1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
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<PAGE> 13
SECTION 6.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 6.3. CHECKS, RAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 6.4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE 7
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 7.1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and shall be sealed
with the seal of the Corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 7.2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
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ARTICLE 8
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the last day of December in each year.
ARTICLE 9
DIVIDENDS
The Board of Directors may from time to time, declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Certificate of Incorporation.
ARTICLE 10
SEAL
The Board of Directors may provide a corporate seal which shall
be in the form of a circle and shall have inscribed thereon the name
of the Corporation and the words, "Corporate Seal, Delaware."
ARTICLE 11
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these By-Laws or under the provisions of the Certificate of Incorporation or
under the provisions of the Delaware General Corporation Law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE 12
AMENDMENTS TO THE BY-LAWS
These By-Laws may be altered, amended or repealed and new ByLaws may be
adopted at any meeting of the Board of Directors of the Corporation by a
majority of the directors present at the meeting, subject to the power of the
stockholders to alter or repeal By-Laws made by the Board of Directors.
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EXHIBIT 3.18
CERTIFICATE OF INCORPORATION
OF
ERO CANADA, INC.
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "Delaware General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is:
ERO Canada, Inc.
SECOND: The address, including street, number, city and county of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square - Suite L-100, Dover, Delaware 19904, Kent County and the name of the
registered agent of the Corporation in the State of Delaware at such address in
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 1,000 shares, $0.01 par value. Any and all such
shares issued, and for which the full consideration has been paid or delivered,
shall be deemed fully paid stock and the holder of such shares shall not be
liable for any further call or assessment or any other payment thereon.
FIFTH: The name and the mailing address of the sole incorporator is as
follows:
Name Mailing Address
Dianne Chiappetti 30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
SIXTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time
<PAGE> 2
to time by the Board of Directors or in the By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 292 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class, of creditors, and/or of the
stockholders or class of stockholders of this Corporation as the case may be,
and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
1. The number of directors of the Corporation shall be as specified in the
By-Laws of the Corporation but such number may from time to time be
increased or decreased in such manner as may be prescribed by the
By-Laws. In no event shall the number of directors be less than the
minimum prescribed by law. The election of directors need not be by
ballot. Directors need not be stockholders.
2. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered to make, alter, amend, and repeal By-Laws,
subject to the power of the stockholders to alter or repeal By-Laws
made by the Board of Directors.
3. Any director of any officer elected or appointed by the stockholders or
by the Board of Directors may be removed at
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any time in such manner as shall be provided in the By-Laws of the
Corporation.
4. In the absence of fraud, no contract or other transaction between the
Corporation and any other corporation and no act of the Corporation,
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested
in, or are directors or officers of, such other corporation; and in
the absence of fraud, any director, individually, or any firm of which
any director may be a member, may be a party to, or may be pecuniarily
or otherwise interested in, any contract or transaction of the
Corporation; provided, in any case, that the fact that he or such firm
is so interested shall be disclosed or shall have been known to the
Board of Directors or the majority thereof; and any director of the
Corporation, who is also a director or officer of any such other
corporation, or who is also interested, may be counted in determining
the existence of a quorum at any meeting of the Board of Directors of
the Corporation which shall authorize any such contract, act or
transaction, and may vote thereat to authorize any such contract, act
or transaction, with like force and effect as if he were not such
director or officer of such other corporation, or not so interested.
5. To the fullest extent permitted by the Delaware General Corporation
Law as it now exists or may hereafter be amended, no director of this
Corporation shall be liable to this Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director.
NINTH: (a) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, may be indemnified and held harmless by the Corporation to the
fullest extent authorized by and in the manner set forth in the Delaware
General Corporation Law against all expense, liability and loss (including
attorneys'
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<PAGE> 4
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in subsection (b) of this Article NINTH, the
Corporation may indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. Any right to indemnification conferred by the Corporation pursuant
to this Article NINTH may include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of a undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article or
otherwise.
(b) If any claim arising from any right to indemnification conferred
by the Corporation pursuant to the authority granted under subsection (a) of
this Article NINTH is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard or conduct.
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<PAGE> 5
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition authorized by
this Article shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
(e) For the purposes of this Article, references to "the Corporation"
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article with respect to the result or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
For the purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
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TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate are granted subject to the provisions of this Article TENTH.
Executed at Chicago, Illinois on the 2nd Day of August, 1994
/s/ DIANNE M. CHIAPPETTI
---------------------------------------
Dianne M. Chiappetti
Incorporator
<PAGE> 1
EXHIBIT 3.19
BY-LAWS OF ERO CANADA, INC.
ARTICLE 1
OFFICES
The principal office of the Corporation shall be in the State of Illinois,
in the City of Mount Prospect, County of Cook. The Corporation may have such
other offices, either within or without the State of Illinois, as the business
of the Corporation may require from time to time.
The registered office of the Corporation required by the General
Corporation Law of Delaware to be maintained in the State of Delaware shall be
Loockerman Square - Suite L-100, City of Dover, County of Kent. The name of the
registered agent of the Corporation in Delaware shall be The Prentice Hall
Corporation System, Inc.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders shall
be held on the to be determined by the Board of Directors at such hour as shall
be designated in the notice of the meeting for the purpose of electing
directors and for the transaction of such other business as may came before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If the election of
directors shall not be held on the day designated herein for any annual
meeting, or at any adjournment thereof, the Board of Directors shall cause the
election to be held at a meeting of the stockholders as soon thereafter as
conveniently may be.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President, by the Board of Directors, or by the holders of not
less than one-fifth of all the outstanding shares of the Corporation.
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all stockholders may designate any
place, either within or without the State of Delaware, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the registered office of the
Corporation in the State of Delaware, except as otherwise provided in Section
2.5 of these By-Laws.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting, and in the case of
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a special meeting, the purposes for which the meeting is called, shall be
delivered not less than ten nor more than sixty days before the date of the
meeting, or in the case of a merger or consolidation not less than twenty nor
more than sixty days before the meeting, either personally or by mail, by or at
the direction of the President, or the Secretary, or the officer or persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the records of the Corporation, with postage thereon prepaid.
SECTION 2.5. MEETING OF ALL STOCKHOLDERS. If all of the stockholders
shall meet at any time and place, either within or without the State of
Delaware, and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting any
corporate action may be taken.
SECTION 2.6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty days. If the stock transfer books shall be closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days, or
in the case of a merger or consolidation, at least twenty days, immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
days and, for a meeting of stockholders, not less than ten days, or in the case
of a merger or consolidation, not less than twenty days, immediately preceding
such meeting. If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
stockholders.
SECTION 2.7. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the Corporation shall make at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
of the
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Corporation and shall be subject to inspection by any stockholder at any time
during usual hours. Such list shall also be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in this State, shall be prima facie
evidence as to who are the stockholders entitled to examine such list or share
ledger or transfer book or to vote at any meetings of stockholders.
SECTION 2.8. QUORUM. A majority of the outstanding shares of the
Corporation, represented in person or by proxy, shall constitute a quorum at
any meeting of stockholders; provided, that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the stockholders, unless the
vote of a greater number or voting by classes is required by the Delaware
General Corporation Law or the Certificate of Incorporation.
SECTION 2.9. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meetings. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
SECTION 2.10. VOTING OF SHARES. Subject to the provisions of Section 2.12
of these By-Laws, each outstanding share, regardless of class, shall be
entitled to one vote upon each matter submitted to vote at a meeting of
stockholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the By-Laws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation may
determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in the
name of a guardian, conservator or trustee may be voted by such fiduciary,
either in person or by proxy, but no guardian, conservator or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a transfer of
such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name
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if authority so to do be contained in an appropriate order of the court by
which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 2.12. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at any annual or special meeting of the stockholders, or any other action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 2.13. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE 3
DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATION. The number of directors of
the Corporation shall be two (2). Each director shall hold office until the
next annual meeting of stockholders or until his successor shall have been duly
elected and qualified. Directors need not be residents of Delaware or
stockholders of the Corporation.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law, immediately after, and at
the same place as, the annual meeting of stockholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Delaware,
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for the holding of additional regular meetings without other notice than such
resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any two Directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Delaware, as the place
for holding any special meeting of the Board of Directors called by them.
SECTION 3.5. NOTICE. Notice of any special meeting shall be given at least
five days previous thereto by written notice delivered personally or mailed to
each director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at any meeting shall constitute a. waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. A majority of the number of directors fixed by these
By-Laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, provided, that if less than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
SECTION 3.7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 3.8. VACANCIES. Any vacancy occurring in the Board of Directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by the directors at a special meeting called for such
purpose. Any director elected to such vacancy shall hold office until the next
annual meeting of stockholders.
SECTION 3.9. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors of this corporation may be removed with or without cause at any
annual or special meeting of stockholders by the holders of a majority of the
shares then entitled to vote at an election of directors.
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SECTION 3.10. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board. In the event the Internal Revenue Service shall deem any
compensation (including any fringe benefit) paid to a director to be
unreasonable or excessive, such director must repay to the Corporation the
excess over what is determined by the Internal Revenue Service to be reasonable
compensation, with interest on such excess at the rate of nine percent (9%) per
annum, within ninety days after notice from the Corporation.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 3.12. INFORMAL ACTION BY BOARD OF DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or committee consent thereto in writing and all such writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 3.13. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board
of Directors or of any committee designated by the Board of Directors may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such meeting
shall constitute attendance and presence in person at the meeting of the person
or persons so participating.
SECTION 3.14. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in these By-Laws, shall have and nay exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation by the
Board of Directors, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the Board of Directors,
By-Laws or Certificate of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a Certificate of Ownership and Merger.
ARTICLE 4
OFFICERS
SECTION 4.1. NUMBER. The officers of the Corporation shall be a President,
a Treasurer, and a Secretary, and such Vice Presidents (the number thereof to
be determined by the Board of Directors), Assistant Treasurers, Assistant
Secretaries or other officers as may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person.
SECTION 4.2. ELECTION AND TERMS OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided. Election or appointment of an officer or agent
shall not of itself create contract rights.
SECTION 4.3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or
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because of the creation of an office, may be filled by the Board of Directors
for the unexpired portion of the term.
SECTION 4.5. THE PRESIDENT. The President shall be the principal executive
officer of the Corporation and shall in general supervise and control all of
the business and affairs of the Corporation. He shall preside at all meetings
of the stockholders and of the Board of Directors. He may sign, with the
Secretary or any other officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 4.6. THE VICE PRESIDENTS. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the Corporation, and shall perform such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.
SECTION 4.7. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation, receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of Article
6 of these By-Laws; (b) in general perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors.
SECTION 4.8. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares
prior to
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the issue thereof and to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the provisions
of these By-Laws; (d) keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder; (e)
sign with the President, or a Vice President, certificates for shares of the
Corporation, the issue of which shall have been authorized by resolution of the
Board of Directors; (f) have general charge of the stock transfer books of the
Corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
SECTION 4.9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries
as thereunto authorized by the Board of Directors may sign with the President
or a Vice President certificates for shares of the Corporation, the issue of
which shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers and Assistant Secretaries, in general, shall perform such
duties as shall be assigned to them by the Treasurer or the Secretary,
respectively, or by the President or the Board of Directors.
SECTION 4.10. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. In the event that the Internal Revenue Service shall deem any
compensation (including any fringe benefit) paid to an officer to be
unreasonable or excessive, such officer must repay to the Corporation the
excess over what is determined by the Internal Revenue Service to be reasonable
compensation, with interest an such excess at the rate of nine percent (9%) per
annum, within 90 days after notice from the Corporation.
ARTICLE 5
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 5.1. ACTIONS AGAINST A PERSON. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees),
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judgment, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 5.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 5.3. INDEMNIFICATION IN EVENT OF SUCCESSFUL DEFENSE. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 5.1 and 5.2 hereof, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 5.4. OF DIRECTORS' APPROVAL. Any indemnification under Sections
5.1 and 5.2 of these By-Laws (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in
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Sections 5.1 and 5.2 hereof. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable but a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
SECTION 5.5. ADVANCE INDEMNITY PAYMENTS. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
SECTION 5.6. NON-EXCLUSIVITY. The indemnification and advancement of
expenses provided by or granted pursuant to, Article NINTH of the Corporation's
Certificate of incorporation, the Delaware General Corporation Law and this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 5.7. INDEMNITY INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not he is indemnified against
such liability under the provisions of this Article.
SECTION 5.8. CONSOLIDATION. For the purposes of this Article, references
to "the Corporation" include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
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For the purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 6.1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 6.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 6.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 6.4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries an the Board of Directors may
select.
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ARTICLE 7
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 7.1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and shall be sealed
with the seal of the Corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 7.2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
ARTICLE 8
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the last day of December in each year.
ARTICLE 9
DIVIDENDS
The Board of Directors may from time to time, declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Certificate of Incorporation.
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ARTICLE 10
SEAL
The Board of Directors may provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the Corporation
and the words, "Corporate Seal, Delaware."
ARTICLE 11
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these By-Laws or under the provisions of the Certificate of Incorporation or
under the provisions of the Delaware General Corporation law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE 12
AMENDMENTS TO THE BY-LAWS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted at any meeting of the Board of Directors of the Corporation by a
majority of the directors present at the meeting, subject to the power of the
stockholders to alter or repeal By-Laws made by the Board of Directors.
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EXHIBIT 3.20
CERTIFICATE OF INCORPORATION
OF
ERO NY ACQUISITION, INC.
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of
the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and
the acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "Delaware General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is:
ERO NY ACQUISITION, INC.
SECOND: The address, including street, number, city and county of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, Dover, Kent County, Delaware 19904, and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is one thousand (1,000) shares of common stock of
$0.01 par value per share. Any and all such shares issued, and for which the
full consideration has been paid or delivered, shall be deemed fully paid stock
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon.
FIFTH: The name and the mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
Jamie E. Jedras Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
SIXTH: Meetings of stockholders may be held within or without the
state of Delaware, as the By-Laws of the Corporation may so provide. The books
of the Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the By-Laws of the
Corporation.
<PAGE> 2
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
1. The number of directors of the Corporation shall be as specified in the
By-Laws of the Corporation but such number may from time to time be
increased or decreased in such manner as may be prescribed by the
By-Laws. In no event shall the number of directors be less than the
minimum prescribed by law. The election of directors need not be by
ballot. Directors need not be stockholders.
2. In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized
and empowered to make, alter, amend, and repeal By-Laws, subject to the
power of the stockholders to alter or repeal By-Laws made by the Board
of Directors.
3. Any director or any officer elected or appointed by the stockholders or
by the Board of Directors may be removed at any time in such manner as
shall be provided in the By-Laws of the Corporation.
4. In the absence of fraud, no contract or other transaction between the
Corporation and any other corporation and no act of the Corporation,
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested in,
or are directors or officers of, such other Corporation; and in the
absence of fraud, any director, individually, or any firm of which any
director may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the Corporation;
provided, in any case, that the fact that he or such firm is so
interested shall be disclosed or shall have been known to the Board of
Directors or the majority thereof; and any director of the Corporation,
who is also a director or officer of any such other Corporation, or who
is also interested, may be counted in determining the existence of a
quorum at any meeting of the Board of Directors of the Corporation which
shall authorize any such contract, act or transaction, and may vote
thereat to authorize any such contract, act or transaction, with like
force and effect as if he were not such director or officer of such
other corporation, or not so interested.
5. To the fullest extent permitted by the Delaware General Corporation Law
as it now exists or may hereafter be amended, no director of this
Corporation shall be liable to this Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article SEVENTH, Section 5
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
EIGHTH: (a) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she,
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<PAGE> 3
or a person of whom he or she is the legal representative, is or was a director
or officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer, or in any
other capacity while serving as a director, officer, employee or agent, may be
indemnified and held harmless by the Corporation to the fullest extent
authorized by and in the manner set forth in the Delaware General Corporation
Law against all expense, liability and loss (including attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, except as
provided in subsection (b) of this Article EIGHTH, the Corporation may
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
Any right to indemnification conferred by the Corporation pursuant to this
Article EIGHTH may include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article or
otherwise.
(b) If any claim arising from any right to indemnification
conferred by the Corporation pursuant to the authority granted under subsection
(a) of this Article EIGHTH is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce
a claim for expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard or conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
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<PAGE> 4
(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
authorized by this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
For the purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director or officer of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article.
NINTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of the State of Delaware.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate are granted subject to the provisions of this Article TENTH.
Executed at Chicago, Illinois on the 11th day of October, 1995
/s/ JAMIE E. JEDRAS
-----------------------------------
Jamie E. Jedras, Incorporator
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<PAGE> 1
EXHIBIT 3.21
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
ERO NY ACQUISITION, INC.
It is hereby certified that:
1. The name of the Corporation (hereinafter called the
"Corporation") is
ERO NY Acquisition, Inc.
2. The certificate of incorporation of the Corporation is hereby
amended by striking out Article One thereof and substituting in lieu of said
Article the following new Article:
The name of the Corporation is:
Amav Industries, Inc.
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation law of the State of Delaware.
4. The effective time of the amendment herein certified shall be
effective upon the filing date.
Signed as of January 23, 1996.
/s/ D. RICHARD RYAN, JR.
----------------------------------
D. Richard Ryan, Jr., President
<PAGE> 1
EXHIBIT 3.22
BY-LAWS OF AMAV INDUSTRIES, INC.
ARTICLE 1
OFFICES
The principal office of the Corporation shall be in the State of Illinois,
in the City of Mount Prospect IL, County of Cook. The Corporation may have such
other offices, either within or without the State of Illinois, as the business
of the Corporation may require from time to time.
The registered office of the Corporation required by the General
Corporation Law of Delaware to be maintained in the State of Delaware shall be
32 Loockerman Square, Suite L-100, City of Dover, County of Kent. The name of
the registered agent of the Corporation in Delaware shall be The Prentice-Hall
Corporation System, Inc.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders shall
be held on October 15 at such hour as shall be designated in the notice of the
meeting for the purpose of electing directors and for the transaction of such
other business as may came before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting, or at any adjournment thereof,
the Board of Directors shall cause the election to be held at a meeting of the
stockholders as soon thereafter as conveniently may be.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President, by the Board of Directors, or by the holders of not
less than one-quarter of all the outstanding shares of the Corporation.
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all stockholders may designate any
place, either within or without the State of Delaware, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the registered office of the
Corporation in the State of Delaware, except as otherwise provided in Section
2.5 of these By-Laws.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the case of a
merger or consolidation not less than twenty nor more than sixty days
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<PAGE> 2
before the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or persons calling the meeting, to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on the records
of the Corporation, with postage thereon prepaid.
SECTION 2.5. MEETING OF ALL STOCKHOLDERS. If all of the stockholders
shall meet at any time and place, either within or without the State of
Delaware, and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting any
corporate action may be taken.
SECTION 2.6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty days. If the stock transfer books shall be closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days, or
in the case of a merger or consolidation, at least twenty days, immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
days and, for a meeting of stockholders, not less than ten days, or in the case
of a merger or consolidation, not less than twenty days, immediately preceding
such meeting. If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
stockholders.
SECTION 2.7. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the Corporation shall make at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any stockholder at any
time during usual hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in this State, shall be prima facie
evidence as to who are the stockholders entitled to examine such list or share
ledger or transfer book or to vote at any meetings of stockholders.
SECTION 2.8. QUORUM. A majority of the outstanding shares of the
Corporation, represented in person or by proxy, shall constitute a quorum at
any meeting of stockholders;
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<PAGE> 3
provided, that if less than a majority of the outstanding shares are
represented at said meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting shall be the act of the stockholders, unless the vote of a greater
number or voting by classes is required by the Delaware General Corporation Law
or the Certificate of Incorporation.
SECTION 2.9. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meetings. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
SECTION 2.10. VOTING OF SHARES. Subject to the provisions of Section 2.12
of these By-Laws, each outstanding share, regardless of class, shall be
entitled to one vote upon each matter submitted to vote at a meeting of
stockholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the By-Laws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation may
determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in the
name of a guardian, conservator or trustee may be voted by such fiduciary,
either in person or by proxy, but no guardian, conservator or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a transfer of
such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 2.12. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at any annual or special meeting of the stockholders, or any other action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken,
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<PAGE> 4
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.13. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE 3
DIRECTORS
SECTION 3.l. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATION. The number of directors of
the Corporation shall be two (2). Each director shall hold office until the
next annual meeting of stockholders or until his successor shall have been duly
elected and qualified. Directors need not be residents of Delaware or
stockholders of the Corporation.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law, immediately after, and at
the same place as, the annual meeting of stockholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Delaware, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any two Directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Delaware, as the place
for holding any special meeting of the Board of Directors called by them.
SECTION 3.5. NOTICE. Notice of any special meeting shall be given at least
five days previous thereto by written notice delivered personally or mailed to
each director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
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purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. A majority of the number of directors fixed by these
By-Laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, provided, that if less than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
SECTION 3.7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 3.8. VACANCIES. Any vacancy occurring in the Board of Directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by the directors at a special meeting called for such
purpose. Any director elected to such vacancy shall hold office until the next
annual meeting of stockholders.
SECTION 3.9. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors of this corporation may be removed with or without cause at any
annual or special meeting of stockholders by the holders of a majority of the
shares then entitled to vote at an election of directors.
SECTION 3.10. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board. In the event the Internal Revenue Service shall deem any
compensation (including any fringe benefit) paid to a director to be
unreasonable or excessive, such director must repay to the Corporation the
excess over what is determined by the Internal Revenue Service to be reasonable
compensation, with interest on such excess at the rate of nine percent (9%) per
annum, within ninety days after notice from the Corporation.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 3.12. INFORMAL ACTION BY BOARD OF DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or committee consent thereto
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in writing and all such writings are filed with the minutes of proceedings of
the Board or committee.
SECTION 3.13. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board
of Directors or of any committee designated by the Board of Directors may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such meeting
shall constitute attendance and presence in person at the meeting of the person
or persons so participating.
SECTION 3.14. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, or in these By-Laws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation by the Board of
Directors, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the By-Laws of the Corporation; and, unless the Board of Directors, By-Laws or
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a Certificate of ownership and Merger.
ARTICLE 4
OFFICERS
SECTION 4.1. NUMBER. The officers of the Corporation shall be a President,
a Chief Executive Officer, a Treasurer, and a Secretary, and such Vice
Presidents (the number thereof to be determined by the Board of Directors),
Assistant Treasurers, Assistant Secretaries or other officers as may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person.
SECTION 4.2. ELECTION AND TERMS OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such
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meeting, such election shall be held as soon thereafter as conveniently may be.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Election or appointment
of an officer or agent shall not of itself create contract rights.
SECTION 4.3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or because of the creation
of an office, may be filled by the Board of Directors for the unexpired portion
of the term.
SECTION 4.5. THE PRESIDENT. The President shall be the principal executive
officer of the Corporation and shall in general supervise and control all of
the business and affairs of the Corporation. He shall preside at all meetings
of the stockholders and of the Board of Directors, He may sign, with the
Secretary or any other officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 4.6 THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation, subject to the powers of the Board of Directors, shall have
general and active management of the business of the Corporation; and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. The Chief Executive Officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or as may be
provided in these By-Laws.
SECTION 4.7. THE VICE PRESIDENTS. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the Corporation, and shall perform such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.
SECTION 4.8. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or
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<PAGE> 8
sureties as the Board of Directors shall determine. He shall: (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation, receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with the provisions of Article 6 of these
By-Laws; (b) in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
SECTION 4.9. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of those By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares
prior to the issue thereof and to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized in accordance with
the provisions of these By-Laws; (d) keep a register of the post office address
of each stockholder which shall be furnished to the Secretary by such
stockholder; (e) sign with the President, or a Vice President, certificates for
shares of the Corporation, the issue of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the Corporation; and (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
SECTION 4.10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. The Assistant
Secretaries as thereunto authorized by the Board of Directors may sign with the
President or a Vice President certificates for shares of the Corporation, the
issue of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers and Assistant Secretaries, in general,
shall perform such duties as shall be assigned to them by the Treasurer or the
Secretary, respectively, or by the President or the Board of Directors.
SECTION 4.11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. In the event that the Internal Revenue Service shall deem any
compensation (including any (fringe benefit) paid to an officer to be
unreasonable or excessive, such officer must repay to the Corporation the
excess over what is determined by the Internal Revenue Service to be reasonable
compensation, with interest on such excess at the rate of nine percent (9%) per
annum, within 90 days after notice from the Corporation.
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<PAGE> 9
SECTION 5.4. BOARD OF DIRECTORS' APPROVAL. Any indemnification under
Sections 5.1 and 5.2 of these By-Laws (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 5.1 and 5.2 hereof. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable but a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
SECTION 5.5. ADVANCE INDEMNITY PAYMENTS. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article.
SECTION 5.6. NON-EXCLUSIVITY. The indemnification and advancement of
expenses provided by or granted pursuant to, Article NINTH of the Corporation's
Certificate of Incorporation, the Delaware General Corporation Law and this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 5.7. INDEMNITY INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he is indemnified against such liability under the provisions of
this Article.
SECTION 5.8. CONSOLIDATION. For the purposes of this Article, references
to "the Corporation" include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was serving as a director or
officer of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
For the purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect
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<PAGE> 10
to any employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director or officer of the
Corporation which imposes duties on, or involves services by, such director,
officer employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 6.1. CONTACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 6.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 6.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 6.4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries an the Board of Directors may
select.
ARTICLE 7
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 7.1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and shall be sealed
with the seal of the Corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the
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<PAGE> 11
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed or mutilated certificate a now one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 7.2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
ARTICLE 8
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the last day of December in each year.
ARTICLE 9
DIVIDENDS
The Board of Directors may from time to time, declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Certificate of Incorporation.
ARTICLE 10
SEAL
The Board of Directors may provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the Corporation
and the words, "Corporate Seal, Delaware."
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<PAGE> 12
ARTICLE 11
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of theme By-Laws or under the provisions of the Certificate of Incorporation or
under the provisions of the Delaware General Corporation law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE 12
AMENDMENTS TO THE BY-LAWS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted at any meeting of the Board of Directors of the Corporation by a
majority of the directors present at the meeting, subject to the power of the
stockholders to alter or repeal By-Laws made by the Board of Directors.
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<PAGE> 1
EXHIBIT 4.1
================================================================================
HEDSTROM CORPORATION
10% Senior Subordinated Notes Due 2007
INDENTURE
Dated as of June 1, 1997
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
================================================================================
<PAGE> 2
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
SECTION Section
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . 4.02
4.11; 12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 12.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . 12.06
(a)(1)(A) 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
</TABLE>
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
i
<PAGE> 3
TABLE OF CONTENTS
ARTICLE I
Definitions and Incorporation by Reference
<TABLE>
Page
----
<S> <C> <C>
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . 27
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
The Securities
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 30
SECTION 2.04. Paying Agent To Hold Money in Trust . . . . . . . . . . . . . . . 30
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.06. Replacement Securities . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.07. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.08. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.09. Cancelation . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.10. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.11. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.02. Selection of Securities To Be Redeemed . . . . . . . . . . . . . 33
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.04. Effect to Notice of Redemption . . . . . . . . . . . . . . . . . 35
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . 35
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . 36
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . 37
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . . . . . . . . 39
SECTION 4.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock . . . . . . . 46
SECTION 4.07. Limitation on Affiliate Transactions 50
SECTION 4.08. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.09. Limitation on Capital Stock of Restricted Subsidiaries . . . . . 53
SECTION 4.10. Future Guarantors . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.11. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.12. Further Instruments and Acts . . . . . . . . . . . . . . . . . . 54
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . 59
SECTION 6.05. Control of Majority . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 6.07. Rights of Holders To Receive Payment . . . . . . . . . . . . . . 60
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . 60
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . 60
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . 64
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . 64
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . 65
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . 65
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . . . . . . . . 67
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . 67
SECTION 7.11. Preferential Collection of Claims Against Company . . . . . . . . 67
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance . . . . . . . . 68
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . 70
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 8.05. Indemnity for U.S. Government Obligations . . . . . . . . . . . . 71
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . 71
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . 74
SECTION 9.04. Revocation and Effect of Consents and Waivers . . . . . . . . . . 74
SECTION 9.05. Notation on or Exchange of Securities . . . . . . . . . . . . . . 74
SECTION 9.06. Trustee To Sign Amendments . . . . . . . . . . . . . . . . . . . 74
ARTICLE X
Subordination of Securities and Subsidiary Guaranties
SECTION 10.01. Agreement To Subordinate . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.02. Liquidation, Dissolution, Bankruptcy . . . . . . . . . . . . . . 75
SECTION 10.03. Default on Senior Indebtedness or
Subsidiary Guarantor Senior Indebtedness . . . . . . . . . . . 76
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 10.04. Acceleration of Payment of Securities . . . . . . . . . . . . . . 77
SECTION 10.05. When Distribution Must Be Paid Over . . . . . . . . . . . . . . . 78
SECTION 10.06. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.07. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.08. Subordination May Not Be Impaired by Company or the Subsidiary
Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10.09. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . 79
SECTION 10.10. Distribution or Notice to Representative . . . . . . . . . . . . 79
SECTION 10.11. Article X Not To Prevent Events of Default or Limit Right
to Accelerate . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.12. Trust Moneys Not Subordinated . . . . . . . . . . . . . . . . . . 80
SECTION 10.13. Trustee Entitled to Rely . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.14. Trustee To Effectuate Subordination . . . . . . . . . . . . . . . 81
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness and Subsidiary
Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . 81
SECTION 10.16. Reliance by Holders of Senior Indebtedness and Subsidiary Guarantor
Senior Indebtedness on Subordination Provisions . . . . . . . . 81
ARTICLE XI
Guaranties
SECTION 11.01. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 11.02. Limitation on Liability of Subsidiary Guarantors . . . . . . . . 84
SECTION 11.03. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.04. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 11.05. Right of Contribution . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 11.06. No Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 11.07. Additional Subsidiary Guarantors . . . . . . . . . . . . . . . . 86
SECTION 11.08. Modification . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . 87
SECTION 12.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
v
<PAGE> 7
<TABLE>
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Page
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<S> <C> <C>
SECTION 12.03. Communication by Holders with Other Holders . . . . . . . . . . . 87
SECTION 12.04. Certificate and Opinion as to Conditions Precedent . . . . . . . 88
SECTION 12.05. Statements Required in Certificate or Opinion . . . . . . . . . . 88
SECTION 12.06. When Securities Disregarded . . . . . . . . . . . . . . . . . . . 88
SECTION 12.07. Rules by Trustee, Paying Agent and Registrar . . . . . . . . . . 89
SECTION 12.08. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 12.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 12.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . 89
SECTION 12.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 12.12. Multiple Originals . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 12.13. Variable Provisions . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 12.14. Qualification of Indenture . . . . . . . . . . . . . . . . . . . 90
SECTION 12.15. Table of Contents; Headings . . . . . . . . . . . . . . . . . . . 90
</TABLE>
vi
<PAGE> 8
INDENTURE dated as of June 1, 1997, among HEDSTROM
CORPORATION, a Delaware corporation (as further defined
below, the "Company"), HEDSTROM HOLDINGS, INC., a Delaware
corporation ("Holdings"), the Subsidiary Guarantors (as
defined herein) identified on the signature pages hereto
(together with Holdings, the "Guarantors"), and IBJ
SCHRODER BANK & TRUST COMPANY, a New York corporation, as
trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 10%
Senior Subordinated Notes Due 2007 (the "Initial Notes") and, if and when
issued in exchange for Initial Notes as provided in the Registration Rights
Agreement (as hereinafter defined), the Company's 10% Senior Subordinated Notes
Due 2007 (the "Exchange Notes") and, if and when issued in exchange for Initial
Notes as provided in the Registration Rights Agreement, the Company's 10%
Senior Subordinated Notes Due 2007 (the "Private Exchange Notes" and, together
with the Initial Notes and the Exchange Notes, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments
of the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the
<PAGE> 9
2
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Security at any
Redemption Date, the greater of (i) 1.0% of the principal amount of such
Security and (ii) the excess of (A) the present value at such time of (1)
105.0% of the principal amount of such Security plus (2) all required interest
payments due on such Security through June 1, 2002, computed using a discount
rate equal to the Treasury Rate plus 100 basis points, over (B) the principal
amount of such Security. The Company shall be solely responsible for making
this calculation.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (iv) dispositions of property for net proceeds which, when taken
collectively with the net proceeds of any other such dispositions under this
clause (iv) that were consummated since the beginning of the calendar year in
which such disposition is consummated, do not exceed 1.5% of the consolidated
book value of the Company's assets as of the most recent date prior to such
disposition for which a consolidated balance sheet of the Company has been
regularly prepared, and (v) transactions permitted under Section 5.01.
"Asset Swap" means the execution of a definitive agreement,
subject only to customary closing conditions that the Company in good faith
believes will be satisfied, for a substantially concurrent purchase and sale,
or exchange, of Productive Assets between the Company or any of its Restricted
Subsidiaries and another Person or group of affiliated Persons; provided,
however, that any amendment to or waiver of any closing condition that
individually or in
<PAGE> 10
3
the aggregate is material to the Asset Swap shall be deemed to be a new Asset
Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Bank Indebtedness" means any and all amounts, whether
outstanding on the Issue Date or thereafter Incurred, payable by the Company
under or in respect of the Credit Agreement and any related notes, collateral
documents, letters of credit and guarantees, including principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means, as the context requires, the Board of
Directors of Holdings or the Company or any committee thereof duly authorized
to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such
<PAGE> 11
4
lease prior to the first date upon which such lease may be terminated without
penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Change of Control" means:
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries to any Person or
group of related Persons for purposes of Section 13(d) of the Exchange
Act (a "Group") (whether or not otherwise in compliance with the
provisions of this Indenture), other than to Permitted Holders; or
(ii) a majority of the Board of Directors of Holdings or the
Company shall consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the
Permitted Holders) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Hedstrom Corporation until a successor replaces
it and, thereafter, means the successor and, for purposes of any provision
contained herein and required by the TIA, each other obligor on the indenture
securities.
"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense, (v) exchange or translation losses on foreign currencies,
and (vi) all other non-cash items reducing Consolidated Net Income (excluding
any non-cash item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of
<PAGE> 12
5
the Securities) and less, to the extent added in calculating Consolidated Net
Income, (x) exchange or translation gains on foreign currencies and (y) non-
cash items (excluding such non-cash items to the extent they represent an
accrual for cash receipts reasonably expected to be received prior to the
Stated Maturity of the Securities), in each case for such period.
Notwithstanding the foregoing, the income tax expense, the depreciation expense
and amortization expense of a Subsidiary of the Company shall be included in
Consolidated Cash Flow only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any of its Restricted Subsidiaries has
Incurred any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes
the one year projected average balance of such Indebtedness (as determined in
good faith by senior management of the Company and assuming a constant level of
sales) shall be deemed outstanding for purposes of this calculation) and (B)
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and has not been replaced), Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period and as if the Company or such Restricted
<PAGE> 13
6
Subsidiary had not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness, (3) if since the
beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period, or increased by an
amount equal to the Consolidated Cash Flow (if negative) attributable thereto
for such period, and Consolidated Interest Expense for such period shall be (i)
reduced by an amount equal to the Consolidated Interest Expense attributable to
any Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale) and (ii) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company) or an acquisition
of assets, including any Investment in a Restricted Subsidiary of the Company
or any acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all or substantially all
of a product line or operating unit of a business, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness and the
use of the proceeds therefrom) as if such Investment or acquisition occurred on
the first day of such period and (5) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary of the Company or was
merged with or into the Company or any Restricted Subsidiary of the Company
since the beginning of such period) shall have made any Asset Disposition,
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a
<PAGE> 14
7
Restricted Subsidiary of the Company during such period, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any Interest Rate Agreement applicable
to such Indebtedness if such Interest Rate Agreement has a remaining term in
excess of 12 months). Notwithstanding anything herein to the contrary, if at
the time the calculation of the Consolidated Coverage Ratio is to be made, the
Company does not have available consolidated financial statements reflecting
the ownership by the Company of ERO for a period of at least four full fiscal
quarters, all calculations required by the Consolidated Coverage Ratio shall be
prepared on a pro forma basis, as though such acquisition and the related
transactions (to the extent not otherwise reflected in the consolidated
financial statements of the Company) had occurred on the first day of the
four-fiscal-quarter period for which such calculation is being made.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense attributable
to capital leases, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Company or any such Restricted
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net payments (whether positive or negative) pursuant to Interest
Rate Agreements, (viii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust and (ix) cash and
Disqualified Stock dividends in respect of all Preferred Stock of Restricted
Subsidiaries
<PAGE> 15
8
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and debt discount
solely to the extent relating to the issuance and sale of Indebtedness together
with any other security as part of an investment unit and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect
to any Restricted Subsidiary of the Company, that was not a Wholly-Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its consolidated Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person acquired by the Company or any of its Restricted
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition, (ii) any net income of any Restricted Subsidiary of
the Company if such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company (other than
restrictions in effect on the Issue Date with respect to a Restricted
Subsidiary of the Company and other than restrictions that are created or exist
in compliance with Section 4.05), (iii) any gain or loss realized upon the sale
or other disposition of any assets of the Company or its consolidated
Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
which are not sold or otherwise disposed of in the ordinary course of business
and any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person, (iv) any extraordinary gain or loss, (v) the cumulative
effect of a change in accounting principles, (vi) restructuring charges or
writeoffs recorded within the one year period following the Issue Date in an
aggregate amount not to exceed $5 million including any reversals of any such
charges, (vii) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of the lesser of (A) dividends or
distributions paid to the Company or any of its Restricted Subsidiaries by such
Person and (B) the net income of such Person (but in no event less than zero),
and the net loss of such Person (other than an Unrestricted Subsidiary) shall
be included only to the extent of the aggregate Investment of the Company or
any of its Restricted Subsidiaries in such Person and (viii) any non-cash
expenses attributable to grants or exercises of
<PAGE> 16
9
employee stock options. Notwithstanding the foregoing, for the purpose of
Section 4.04 only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under Section 4.04 pursuant to Section
4.04(a)(3)(E).
"Consolidated Net Worth" means the total of the amounts shown on
the balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" means, as of the date of determination, any
Person who (i) was a member of the Board of Directors on the date of the
Indenture, (ii) was nominated for election or elected to the Board of Directors
with the affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or election,
or (iii) is a representative of a Permitted Holder.
"Credit Agreement" means (i) the Credit Agreement as well as all
exhibits, schedules and appendices thereto to be entered into among the
Company, Credit Suisse First Boston, as Administrative Agent, and the lenders
parties thereto from time to time, as the same may be amended, supplemented or
otherwise modified from time to time and (ii) any renewal, extension,
refunding, restructuring, replacement or refinancing thereof (whether with the
original Administrative Agent and lenders or another administrative agent or
agents or other lenders and whether provided under the original Credit
Agreement or any other agreement).
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person
<PAGE> 17
10
against fluctuations in currency values as to which such Person is a party or a
beneficiary.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness
in the case of the Company, (ii) any Guarantee by a Subsidiary Guarantor of the
Bank Indebtedness in the case of such Subsidiary Guarantor and (iii) any other
Senior Indebtedness in the case of the Company or Subsidiary Guarantor Senior
Indebtedness in the case of such Subsidiary Guarantor which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $10 million and is specifically designated by the Company or
such Subsidiary Guarantor in the instrument evidencing or governing such Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"Discount Notes" means the 12% Senior Discount Notes Due 2009
issued by Holdings under an indenture dated the date hereof among Holdings and
United States Trust Company of New York, as trustee.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock of such Person which by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable) or upon
the happening of any event (i) matures or is mandatorily redeemable pursuant to
a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is
convertible or exchangeable solely at the option of the Company or a Restricted
Subsidiary) or (iii) is redeemable at the option of the holder thereof, in
whole or in part, in each case on or prior to the Stated Maturity of the
Securities; provided, however, that only the portion of Capital Stock which so
matures or is mandatorily redeemable, is so convertible or exchangeable or is
so redeemable at the option of the holder thereof prior to such Stated Maturity
shall be deemed to be Disqualified Stock; provided further, however, that any
Capital Stock that would not constitute
<PAGE> 18
11
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Securities shall not constitute Disqualified Stock if
the "asset sale" or "change of control" provision applicable to such Capital
Stock are not more favorable to the holders of such Capital Stock than the
provisions described in Section 4.06 and Section 4.08.
"Equity Offering" means an offering for cash by Holdings or the
Company of its common stock, or options, warrants or rights with respect to its
common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Financial Advisory Agreement" means the Financial Advisory
Agreement between Hicks Muse Partners and Holdings and the Company as in effect
on the Issue Date.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a State thereof
or the District of Columbia and with respect to which more than 80% of its
assets (determined on a consolidated basis in accordance with GAAP) are located
in territories outside of the United States of America and jurisdictions
outside of the United States of America.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date hereof, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or the SEC or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and 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 Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to
<PAGE> 19
12
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Hicks Muse Partners" means Hicks Muse & Co. Partners, L.P., an
affiliate of Hicks Muse.
"Holdings Guaranty" means the Guarantee of the Securities by
Holdings as set for in Article XI.
"Holdings Senior Indebtedness" means, with respect to Holdings,
whether outstanding on the Issue Date or thereafter issued, any Guarantee of
the Bank Indebtedness by Holdings, all other Guarantees by Holdings of Senior
Indebtedness of the Company and all Indebtedness of Holdings, including
interest and fees thereon, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that the
obligations of Holdings in respect of such Indebtedness are not superior in
right of payment to the obligations of Holdings under the Holdings Guaranty;
provided, however, that Holdings Senior Indebtedness shall not include (1) any
obligations of Holdings to the Company or any Subsidiary of the Company, (2)
any liability for Federal, state, local or other taxes owed or owing by
Holdings, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities) or (4) any Indebtedness, Guarantee or
obligation of Holdings that is expressly subordinate or junior in right of
payment to any other Indebtedness, Guarantee or obligation of Holdings,
including any Holdings Senior Subordinated Indebtedness and Holdings
Subordinated Obligations.
"Holdings Subordinated Obligation" means, with respect to
Holdings, any indebtedness of Holdings (whether outstanding on the Issue Date
or thereafter Incurred) which is subordinate or junior in right of payment to
the obligations of Holdings under the Holdings Guaranty pursuant to a written
agreement.
<PAGE> 20
13
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. The term "Incurrence" when used as a noun shall have a correlative
meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated
Maturity of the Securities (but excluding, in each case, any accrued dividends)
and (ix) to the extent not otherwise included in this
<PAGE> 21
14
definition, obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
principal amount of all unconditional obligations as described above, as such
amount would be reflected on a balance sheet prepared in accordance with GAAP,
and the maximum liability of such Person, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations
described above at such date.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of Section 4.04, (i) "Investment" shall include the portion (proportionate to
the Company's equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary) of the fair market value of the net assets of such
Restricted Subsidiary of the Company at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment"
in such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be
<PAGE> 22
15
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors and evidenced by a
resolution of such Board of Directors certified in an Officers' Certificate to
the Trustee.
"Issue Date" means the date on which the Initial Notes are
originally issued.
"Legal Holiday" has the meaning ascribed in Section 12.08.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Merger" means the merger of ERO, Inc., with and into HC
Acquisition Corp., a Wholly-Owned Subsidiary of the Company, pursuant to the
Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger, dated
April 10, 1997 between the Company, HC Acquisition Corp. and ERO, Inc.
"Monitoring and Oversight Agreement" means the Monitoring and
Oversight Agreement between Hicks Muse Partners and Holdings and the Company as
in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to the properties or assets subject to such Asset
Disposition), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to any Person owning a beneficial interest in assets subject to
<PAGE> 23
16
sale or minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition, (iv) the deduction of appropriate amounts to be
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition
and retained by the Company or any Restricted Subsidiary of the Company after
such Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company, as applicable.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee.
<PAGE> 24
17
The counsel may be an employee of or counsel to the Company or the Trustee.
"Permitted Holders" means Hicks Muse, Arnold E. Ditri or any of
their respective Affiliates, officers and directors.
"Permitted Indebtedness" means (i) Indebtedness of the Company
owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a
Restricted Subsidiary owing to and held by the Company or any Wholly-Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer
of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; (ii) Indebtedness represented by (x) the
Securities, (y) any Indebtedness (other than the Indebtedness described in
clauses (i), (ii) and (iv) of Section 4.03(b) and other than Indebtedness
Incurred pursuant to clause (i) above or clauses (iv), (v) or (vi) below)
outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (ii) or Incurred pursuant
to Section 4.03(a); (iii) (A) Indebtedness of a Restricted Subsidiary Incurred
and outstanding on the date on which such Restricted Subsidiary was acquired by
the Company or a Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary
or was otherwise acquired by the Company or a Restricted Subsidiary); provided,
however, that at the time such Restricted Subsidiary is acquired by the Company
or a Restricted Subsidiary, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to Section 4.03(a) after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (iii) and (B)
Refinancing Indebtedness Incurred by the Company or a Restricted Subsidiary in
respect of Indebtedness Incurred by the Company or such Restricted Subsidiary
pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance
bonds, bankers' acceptances and surety or appeal bonds provided by the Company
or any of its Restricted Subsidiaries to their customers in the ordinary course
of their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection with
pledges, deposits or payments made or given in the ordinary course of business
in
<PAGE> 25
18
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations, (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchisees or customers of obligations (other than Indebtedness) incurred in
the ordinary course of business and (D) under Currency Agreements and Interest
Rate Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements
are entered into for bona fide hedging purposes of the Company or its
Restricted Subsidiaries (as determined in good faith by the Board of Directors
or senior management of the Company) and correspond in terms of notional
amount, duration, currencies and interest rates, as applicable, to Indebtedness
of the Company or its Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business; (v) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the disposition of
any business assets or Restricted Subsidiary of the Company (other than
Guarantees of Indebtedness or other obligations Incurred by any Person
acquiring all or any portion of such business assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the Company or any
of its Restricted Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness Incurred pursuant to
this clause (v), when taken together with all Indebtedness Incurred pursuant to
this clause (v) and then outstanding, shall not exceed $10 million; (vi)
Indebtedness consisting of (A) Guarantees by the Company or a Restricted
Subsidiary of Indebtedness Incurred by a Wholly-Owned Subsidiary without
violation of this Indenture and (B) Guarantees by a Restricted Subsidiary of
Senior Indebtedness Incurred by the Company without violation of the Indenture
(so long as such Restricted Subsidiary could have Incurred such Indebtedness
directly without violation of this Indenture); and (vii) Indebtedness arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within ten Business
Days of its incurrence.
<PAGE> 26
19
"Permitted Investment" means an Investment by the Company or any
of its Restricted Subsidiaries in (i) the Company or a Wholly-Owned Subsidiary
of the Company; provided, however, that the primary business of such Wholly-
Owned Subsidiary is a Related Business; (ii) another Person if as a result of
such Investment such other Person becomes a Wholly-Owned Subsidiary of the
Company or is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Wholly-Owned Subsidiary of
the Company; provided, however, that in each case such Person's primary
business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any of its Restricted Subsidiaries, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and that
are made in the ordinary course of business; (vi) loans or advances to
employees for purposes of purchasing the Company's common stock in an aggregate
amount outstanding at any one time not to exceed $5 million and other loans and
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Restricted
Subsidiaries or in satisfaction of judgments or claims; (viii) a Person engaged
in a Related Business or a loan or advance to the Company the proceeds of which
are used solely to make an Investment in a Person engaged in a Related Business
or a Guarantee by the Company of Indebtedness of any Person in which such
Investment has been made; provided, however, that no Permitted Investments may
be made pursuant to this clause (viii) to the extent the amount thereof would,
when taken together with all other Permitted Investments made pursuant to this
clause (viii), exceed $10 million in the aggregate (plus, to the extent not
previously reinvested, any return of capital realized on Permitted Investments
made pursuant to this clause (viii), or any release or other cancelation of any
Guarantee constituting such Permitted Investment); (ix) Persons to the extent
such Investment is received by the Company or any Restricted Subsidiary as
non-cash consideration for asset dispositions effected in compliance with
Section 4.06; (x) prepayments and other credits to suppliers made in the
ordinary course of business consistent with the past practices of the Company
and its Restricted Subsidiaries; and (xi) Investments in connection with
pledges, deposits, payments or performance bonds made or given in the ordinary
course of business in connection
<PAGE> 27
20
with or to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by the
Company and its Restricted Subsidiaries in the Company's business or any
Related Business.
A "Public Market" exists at any time with respect to the common
stock of the Company or Holdings if (a) the common stock of the Company or
Holdings is then registered with the Securities and Exchange Commission
pursuant to Section 12(b) or 12(g) of the Exchange Act and traded either on a
national securities exchange or in the National Association of Securities
Dealers Automated Quotation System and (b) at least 15% of the total issued and
outstanding common stock of the Company or Holdings has been distributed prior
to such time by means of an effective registration statement under the
Securities Act, or pursuant to sales pursuant to Rule 144 under the Securities
Act.
"Redemption Date" means the date specified by the Company in a
notice delivered pursuant to Section 3.03 as the date on which the Company has
elected to redeem all of the Securities pursuant to the third paragraph of
paragraph 5 of the Securities after the occurrence of a Change of Control.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness of the Company
or any Restricted Subsidiary existing on the date of the Indenture or Incurred
in compliance with the Indenture (including Indebtedness of the Company that
refinances Indebtedness of any Restricted Subsidiary and Indebtedness
<PAGE> 28
21
of any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Securities and (B) the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
lesser of (A) the Average Life of the Securities and (B) the Average Life of
the Indebtedness being refinanced, and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to (or 101% of, in the case
of a refinancing of the Securities in connection with a Change of Control) or
less than the sum of the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced, plus applicable premium and defeasance costs and
reasonable fees and expenses paid in connection with such refinancing.
"Registered Exchange Offer" shall have the meaning set forth in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated June 9, 1997, among the Company, Holdings, the Subsidiary
Guarantors, Credit Suisse First Boston Corporation, Societe Generale Securities
Corporation and UBS Securities.
"Related Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date hereof, as reasonably determined by the
Company's Board of Directors.
"Representative" means any trustee, agent or representative (if
any) for an issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
<PAGE> 29
22
"Secured Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor secured by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means, whether outstanding on the Issue
Date or thereafter Incurred, the Bank Indebtedness and all other Indebtedness
of the Company, including interest and fees thereon, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that the obligations in respect of such Indebtedness are not
superior in right of payment to the Securities; provided, however, that Senior
Indebtedness will not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, foreign, local or other taxes
owed or owing by the Company, (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), or (4) any
Indebtedness, Guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including any Senior Subordinated Indebtedness
and any Subordinated Obligations.
"Senior Subordinated Indebtedness" means the Securities and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or
<PAGE> 30
23
thereafter Incurred) which is subordinate or junior in right of payment to the
Securities pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means each Subsidiary (other than foreign
subsidiaries) of the Company in existence on the Issue Date and each Subsidiary
(other than foreign subsidiaries and Unrestricted Subsidiaries) created or
acquired by the Company after the Issue Date.
"Subsidiary Guarantor Senior Indebtedness" means, with respect to
any Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
issued, any Guarantee of the Bank Indebtedness by such Subsidiary Guarantor,
all other Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the
Company and all Indebtedness of such Subsidiary Guarantor, including interest
and fees thereon, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
of such Subsidiary Guarantor in respect of such Indebtedness are not superior
in right of payment to the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty; provided, however, that Subsidiary Guarantor Senior
Indebtedness shall not include (1) any obligations of such Subsidiary Guarantor
to the Company or any other Subsidiary of the Company, (2) any liability for
Federal, state, local or other taxes owed or owing by such Subsidiary
Guarantor, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities) or (4) any Indebtedness, Guarantee or
obligation of such Subsidiary Guarantor that is expressly subordinate or junior
in right of payment to any other Indebtedness, Guarantee or obligation of such
Subsidiary Guarantor, including any Subsidiary Guarantor Senior Subordinated
Indebtedness and Subsidiary Guarantor Subordinated Obligations of such
Subsidiary Guarantor.
<PAGE> 31
24
"Subsidiary Guarantor Senior Subordinated Indebtedness" means,
with respect to a Subsidiary Guarantor, the obligations of such Subsidiary
Guarantor under the Subsidiary Guaranty and any other Indebtedness of such
Subsidiary Guarantor that specifically provides that such Indebtedness is to
rank pari passu in right of payment with the obligations of such Subsidiary
Guarantor under the Subsidiary Guaranty and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Subsidiary Guarantor Senior Indebtedness of such
Subsidiary Guarantor.
"Subsidiary Guarantor Subordinated Obligation" means, with
respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty pursuant to a written
agreement.
"Subsidiary Guaranty" means the Guarantee of the Securities by a
Subsidiary Guarantor as set forth in Article XI.
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act), (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of
<PAGE> 32
25
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v)
above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two business days prior
to the Redemption Date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to June 1, 2002; provided, however, that if the
period from the Redemption Date to June 1, 2002 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average
yields of United States Treasury securities for which such yields are given,
except that if the period from the Redemption Date to June 1, 2002 is less than
one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used. The
Company shall be solely responsible for making this calculation.
"Trustee" means IBJ Schroder Bank & Trust Company, until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer this Indenture, or in the case of a successor trustee, an
officer assigned to the department, division or group performing the
corporation trust work of such successor and assigned to administer this
Indenture.
<PAGE> 33
26
"Uniform Commercial Code" means the New York Uniform Commercial
Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors thereof.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary;
provided, however, that until the date that is 180 days following the Issue
Date, ERO, Inc. shall be deemed to be a Wholly-Owned
<PAGE> 34
27
Subsidiary of the Company so long as the Company or a Wholly-Owned Subsidiary
owns at least 98% of the Capital Stock of ERO, Inc.
<TABLE>
<CAPTION>
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . 4.07
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Blockage Notice" . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
"covenant defeasance option" . . . . . . . . . . . . . . . . . . . 8.01(b)
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"legal defeasance option" . . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"pay the Securities" . . . . . . . . . . . . . . . . . . . . . . . 10.03
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period" . . . . . . . . . . . . . . . . . . . . . 10.03
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . 4.04
"Successor Company" . . . . . . . . . . . . . . . . . . . . . . . . 5.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by the TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
<PAGE> 35
28
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate
or junior to Secured Indebtedness merely by virtue of its nature as
unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation preference of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect
to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Notes were originally issued.
<PAGE> 36
29
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Notes, the Private Exchange Notes and the Exchange Notes are set forth
in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which
is hereby incorporated in and expressly made part of this Indenture. The
Initial Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Notes, the Private Exchange Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities
may have notations, legends or endorsements required by law, stock exchange
rule, agreements to which the Company is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Company). Each Security shall be dated the date of its authentication. The
terms of the Securities set forth in the Appendix and Exhibit A are part of the
terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall
sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually authenticates the Security. The signature of the Trustee
on a Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
The Trustee shall authenticate and deliver: (1) Initial Notes
for original issue in an aggregate principal amount of $110,000,000 and (2)
Exchange Notes or Private Exchange Notes for issue only in a Registered
Exchange Offer or a Private Exchange, respectively, pursuant to the
Registration Rights Agreement, for a like principal amount of Initial Notes, in
each case upon a written order of the Company signed by two Officers of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of
<PAGE> 37
30
Securities is to be authenticated and whether the Securities are to be Initial
Notes, Exchange Notes or Private Exchange Notes. The aggregate principal
amount of Securities outstanding at any time may not exceed $110,000,000 except
as provided in Section 2.06 of this Indenture.
The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent.
SECTION 2.03. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more coregistrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or coregistrar not a party to this Indenture, which
shall incorporate the terms of the TIA. Such agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of each such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.07. The Company or any of its domestically incorporated Wholly-Owned
Subsidiaries may act as Paying Agent, Registrar, coregistrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent for the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. By at least
11:00 a.m. (New York City time) on the date on which any principal of or
interest on any Security is due and payable, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal or interest when due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that such Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by such Paying Agent for the
payment of principal of or interest on the
<PAGE> 38
31
Securities and shall notify the Trustee of any default by the Company in making
any such payment. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate
trust fund. The Company at any time may require a Paying Agent (other than the
Trustee) to pay all money held by it to the Trustee and to account for any
funds disbursed by such Paying Agent. Upon complying with this Section, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money delivered to the Trustee. Upon any bankruptcy,
reorganization or similar proceeding with respect to the Company, the Trustee
shall serve as Paying Agent for the Securities.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee, in writing at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Replacement Securities. If a mutilated Security
is surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements
of Section 8-405 of the Uniform Commercial Code are met and the Holder
satisfies any other reasonable requirements of the Trustee. If required by the
Trustee or the Company, such Holder shall furnish an indemnity bond sufficient
in the judgment of the Company and the Trustee to protect the Company, the
Trustee, the Paying Agent, the Registrar and any coregistrar from any loss
which any of them may suffer if a Security is replaced. The Company and the
Trustee may charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.07. Outstanding Securities. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
<PAGE> 39
32
If a Security is replaced pursuant to Section 2.06, it ceases to
be outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may
be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.08. Temporary Securities. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities, in each case upon a written order of the
Company signed by two Officers of the Company. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities. After the preparation of definitive
Securities, the temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at any office or agency
maintained by the Company for that purpose and such exchange shall be without
charge to the Holder. Upon surrender for cancelation of any one or more
temporary Securities, the Company shall execute, and the Trustee shall
authenticate and deliver in exchange therefor, one or more definitive
Securities representing an equal principal amount of Securities. Until so
exchanged, the Holder of temporary Securities shall in all respects be entitled
to the same benefits under this Indenture as a holder of definitive Securities.
SECTION 2.09. Cancelation. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancelation and deliver a certificate of such destruction
to the Company unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may
<PAGE> 40
33
not issue new Securities to replace Securities it has redeemed, paid or
delivered to the Trustee for cancelation.
SECTION 2.10. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed (or upon the Company's failure to do so the Trustee shall
fix) any such special record date and payment date to the reasonable
satisfaction of the Trustee which specified record date shall not be less than
10 days prior to the payment date for such defaulted interest and shall
promptly mail or cause to be mailed to each Securityholder a notice that states
the special record date, the payment date and the amount of defaulted interest
to be paid. The Company shall notify the Trustee in writing of the amount of
defaulted interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such defaulted interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when so deposited to be held in trust for the benefit of the Person
entitled to such defaulted interest as provided in this Section.
SECTION 2.11. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify
the Trustee in writing of the redemption date and the principal amount of
Securities to be redeemed.
<PAGE> 41
34
The Company shall give each notice to the Trustee provided for in
this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply
with the conditions herein. If fewer than all the Securities are to be
redeemed, the record date relating to such redemption shall be selected by the
Company and set forth in the related notice given to the Trustee, which record
date shall be not less than 15 days after the date of such notice.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of such Securities the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
<PAGE> 42
35
(e) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(f) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(g) the CUSIP number, if any, printed on the Securities being
redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date;
provided, however, that if the redemption date is after a regular record date
and on or prior to the interest payment date, the accrued interest shall be
payable to the Securityholder of the redeemed Securities registered on the
relevant record date. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Not later than 11:00
a.m. (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying
Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate
and hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which are owned by the Company or
a Subsidiary and have been delivered by the Company or such Subsidiary to the
Trustee for cancelation.
<PAGE> 43
36
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such redemption price, interest
on the Securities to be redeemed will cease to accrue on and after the
applicable redemption date, whether or not such Securities are presented for
payment.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in a principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the Trustee
or the Paying Agent holds in accordance with this Indenture money sufficient to
pay all principal and interest then due and the Trustee or the Paying Agent, as
the case may be, is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States
of America from principal or interest payments hereunder.
SECTION 4.02. SEC Reports. The Company shall file with the
Trustee and provide the holders of the Securities, within 15 days after it
files them with the SEC, copies of its annual report and the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. Notwithstanding that the Company may not be subject to the reporting
<PAGE> 44
37
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide the Trustee and Securityholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections. Upon qualification of this
Indenture under the TIA, the Company also shall comply with the other
provisions of TIA Section 314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, Incur,
directly or indirectly, any Indebtedness; provided, however, that the Company
and any of its Restricted Subsidiaries may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.00 : 1.00, if
such Indebtedness is Incurred on or prior to December 31, 1999 or 2.25: 1.00,
if such Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to (A) the Credit Agreement (including, without limitation,
any renewal, extension, refunding, restructuring, replacement or refinancing
thereof referred to in clause (ii) of the definition thereof) or (B) any other
agreements or indentures governing Senior Indebtedness; provided, however, that
the aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i) does not exceed $180 million at any time outstanding, less the
aggregate principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of a repayment of revolving credit
Indebtedness, the commitment to advance the loans repaid has been terminated);
(ii) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case Incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property used in a Related Business or Incurred to Refinance any
such purchase price or cost of construction or improvement, in each case
Incurred no later than 365 days after the date of such acquisition or the date
of completion of such construction or improvement; provided, however, that the
principal amount of any Indebtedness Incurred pursuant to this Section
4.03(b)(ii) shall not exceed $15 million at any time outstanding; (iii)
Permitted Indebtedness; and (iv) Indebtedness (other
<PAGE> 45
38
than Indebtedness described in clauses (i) - (iii)) in a principal amount
which, when taken together with the principal amount of all other Indebtedness
Incurred pursuant to this Section 4.03(b)(iv) and then outstanding, will not
exceed $15 million (it being understood that any Indebtedness Incurred under
this clause (iv) shall cease to be deemed Incurred or outstanding for purposes
of this clause (iv) (but shall be deemed to be Incurred for purposes of Section
4.03(a)) from and after the first date on which the Company or its Restricted
Subsidiaries could have Incurred such Indebtedness under Section 4.03(a)
without reliance upon this clause (iv)).
(c) Notwithstanding the foregoing, neither the Company nor any
Restricted Subsidiary shall Incur any Indebtedness under Section 4.03(b) if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company unless such Indebtedness shall be
subordinated to the Securities to at least the same extent as such Subordinated
Obligations. No Subsidiary Guarantor shall Incur any Indebtedness under
Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subsidiary Guarantor Subordinated Obligation of such Subsidiary
Guarantor unless such Indebtedness shall be subordinated to the obligations of
such Subsidiary Guarantor under the Subsidiary Guaranty to at least the same
extent as such Subsidiary Guarantor Subordinated Obligation.
(d) In addition, the Company shall not Incur any Secured
Indebtedness which is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the Securities equally and
ratably with such Secured Indebtedness for so long as such Secured Indebtedness
is secured by a Lien. No Subsidiary Guarantor shall Incur any Secured
Indebtedness which is not Subsidiary Guarantor Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure such
Subsidiary Guarantor's obligations under the Subsidiary Guaranty equally and
ratably with such Secured Indebtedness for so long as such Secured Indebtedness
is secured by a Lien.
(e) The Company will not permit any Unrestricted Subsidiary to
incur any Indebtedness other than Non-Recourse Debt; provided, however, that if
any such Indebtedness ceases to be Non-Recourse Debt, such event shall be
deemed to constitute an Incurrence of Indebtedness by the Company or a
Restricted Subsidiary.
(f) The Company shall not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in
<PAGE> 46
39
any respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to Senior Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any
Indebtedness if such Indebtedness is contractually subordinate or junior in
ranking in any respect to any Guarantor Senior Indebtedness of such Subsidiary
Guarantor unless such Indebtedness is Subsidiary Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor or is contractually subordinated in
right of payment to Subsidiary Guarantor Senior Subordinated Indebtedness of
such Subsidiary Guarantor.
(g) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Company, in its
sole discretion, will classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
SECTION 4.04. Limitation on Restricted Payments. (a) The
Company shall not, and shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with
any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) except (A) dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock; and
(B) dividends or distributions payable solely to the Company or a
Restricted Subsidiary (and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro
rata basis);
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company held by Person other than a Restricted
Subsidiary of the Company or any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company, other than another
Restricted Subsidiary (in either case, other than in exchange for its
Capital Stock (other than Disqualified Stock));
<PAGE> 47
40
(iii) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of purchase, repurchase or acquisition); or
(iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to in clauses (i) through (iv) as a "Restricted
Payment"), if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or
would result therefrom); or
(2) the Company is not able to incur an additional $1.00
of Indebtedness pursuant to Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and
all other Restricted Payments declared or made subsequent to the
Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from
the Issue Date to the end of the most recent fiscal
quarter ending prior to the date of such Restricted
Payment as to which financial results are available (or,
in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit);
(B) the aggregate net proceeds received by the
Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to
a Subsidiary of the Company or an employee stock ownership
plan or similar trust); provided, however, that the
<PAGE> 48
41
value of any non-cash net proceeds shall be as determined
by the Board of Directors in good faith, except that in
the event the value of any non-cash net proceeds shall be
$10 million or more, the value shall be as determined in
writing by an independent investment banking firm of
nationally recognized standing;
(C) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) to an employee stock ownership
plan or similar trust subsequent to the Issue Date;
provided, however, that if such plan or trust Incurs any
Indebtedness to or Guaranteed by the Company or any of its
Restricted Subsidiaries to finance the acquisition of such
Capital Stock, such aggregate amount shall be limited to
such Net Cash Proceeds less such Indebtedness Incurred to
or Guaranteed by the Company or any of its Restricted
Subsidiaries and any increase in the Consolidated Net
Worth of the Company resulting from principal repayments
made by such plan or trust with respect to Indebtedness
Incurred by it to finance the purchase of such Capital
Stock;
(D) the amount by which Indebtedness of the Company
is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Restricted
Subsidiary of the Company) subsequent to the Issue Date of
any Indebtedness of the Company for Capital Stock of the
Company (less the amount of any cash, or other property,
distributed by the Company upon such conversion or
exchange);
(E) the amount equal to the net reduction in
Investments (other than Permitted Investments) made by the
Company or any of its Restricted Subsidiaries in any
Person resulting from (i) repurchases or redemptions of
such Investments by such Person, proceeds realized upon
the sale of such Investment to an unaffiliated purchaser,
and repayments of loans or advances or other transfers of
assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of
<PAGE> 49
42
Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount
was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount
shall be included under this clause (E) of this Section
4.04(a) to the extent it is already included in
Consolidated Net Income;
(F) the aggregate Net Cash Proceeds received by a
Person in consideration for the issuance of such Person's
Capital Stock (other than Disqualified Stock) which are
held by such Person at the time such Person is merged with
and into the Company in accordance with Section 5.01
subsequent to the Issue Date; provided, however, that
concurrently with or immediately following such merger the
Company uses an amount equal to such Net Cash Proceeds to
redeem or repurchase the Company's Capital Stock; and
(G) $5 million.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan or similar
trust); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from clause
(3)(B) of Section 4.04(a);
(ii) any purchase or redemption of Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Company; provided, however, that such purchase or redemption shall be
<PAGE> 50
43
excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from
Net Available Cash to the extent permitted under Section 4.06; provided,
however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
if at such date of declaration such dividend would have complied with
this provision; provided, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(v) payments of dividends on the Company's common stock after an
initial public offering of common stock of the Company in an annual
amount not to exceed 6% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of
the offering) received by the Company from shares of common stock sold
for the account of the Company (and not for the account of any
stockholder) in such initial public offering or 6% of the amount
contributed to the Company by Holdings from the proceeds of an initial
public offering of common stock of Holdings;
(vi) payments by the Company to repurchase Capital Stock or other
securities of Holdings or the Company from members of management of
Holdings or the Company in an aggregate amount not to exceed $5 million;
(vii) payments to enable Holdings or the Company to redeem or
repurchase stock purchase or similar rights granted by Holdings or the
Company with respect to its Capital Stock in an aggregate amount not to
exceed $1 million;
(viii) payments, not to exceed $200,000 in the aggregate, to
enable Holdings or the Company to make cash payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its
Capital Stock;
(ix) payments made pursuant to any merger, consolidation or sale
of assets effected in accordance with Section 5.01; provided, however,
that no such payment may be made pursuant to this clause (ix) unless,
after giving effect to such transaction (and the incurrence of any
Indebtedness in connection
<PAGE> 51
44
therewith and the use of the proceeds thereof), the Company would be
able to Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.03(a) such that, after
Incurring that $1.00 of additional Indebtedness, the Consolidated
Coverage Ratio would be greater than 3.50:1.00;
(x) purchase or redemption by the Company or a Restricted
Subsidiary of Capital Stock of ERO, Inc. contemplated by the Merger
Agreement;
(xi) payments by the Company to fund (A) out of pocket expenses
of Holdings for administrative, legal and accounting services provided
by third parties, or to pay franchise fees and similar costs in an
amount not to exceed $1 million per annum and (B) taxes of Holdings
attributable to the Company and its Subsidiaries; provided, however,
that such payments shall be excluded in the calculation of the amount of
Restricted Payments; and
(xii) the declaration or payment of any dividend on shares of the
Company's common stock so long as (A) the Company would be permitted
immediately after giving pro forma effect to such declaration or payment
to incur an additional $1.00 of Indebtedness pursuant to Section
4.03(a), (B) such declaration or payment is made immediately prior to a
date on which cash interest is required to be paid on the Discount Notes
and (C) the full amount of such payment is applied by Holdings on such
date as payment of such cash interest on the Discount Notes; provided,
however, that such dividend shall be included in the calculation of the
amount of Restricted Payments;
provided, however, that in the case of clauses (v), (vi), (vii), (viii) and
(ix) no Default or Event of Default shall have occurred or be continuing at the
time of such payment or as a result thereof.
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any of
its Restricted Subsidiaries to, create or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any such Restricted
Subsidiary to:
(i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company;
<PAGE> 52
45
(ii) make any loans or advances to the Company; or
(iii) transfer any of its property or assets to the Company;
except:
(a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date,
including the Credit Agreement;
(b) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred or Preferred Stock issued and outstanding
by such Restricted Subsidiary on or prior to the date on which
such Restricted Subsidiary was acquired by the Company and
outstanding on such date (other than Indebtedness Incurred or
Preferred Stock issued as consideration in, or to provide all or
any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary of the Company or was acquired by the Company);
(c) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement evidencing
Indebtedness Incurred without violation of the Indenture or
effecting a refinancing of Indebtedness issued pursuant to an
agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses
(a) or (b) or this clause (c); provided, however, that the
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or
amendment, taken as a whole, are no less favorable to the Holders
in any material respect, as determined in good faith by the
senior management of the Company or Board of Directors of the
Company, than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in agreements in effect at, or
entered into on, the Issue Date;
(d) in the case of clause (iii) of this Section 4.05, any
encumbrance or restriction (A) that restricts in a customary
manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar
property or asset, (B) by
<PAGE> 53
46
virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by
the Indenture, (C) that is included in a licensing agreement to
the extent such restrictions limit the transfer of the property
subject to such licensing agreement or (D) arising or agreed to
in the ordinary course of business and that does not,
individually or in the aggregate, detract from the value of
property or assets of the Company or any of its Subsidiaries in
any manner material to the Company or any such Restricted
Subsidiary as determined in good faith by the senior management
of the Company;
(e) in the case of clause (iii) of this Section 4.05,
restrictions contained in security agreements, mortgages or
similar documents securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements;
(f) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of
such sale or disposition;
(g) any encumbrance or restriction imposed solely upon a
Foreign Subsidiary; provided, however, that immediately after
giving effect to such encumbrance or restriction, the Company
would be able to Incur at least $1.00 of Indebtedness pursuant to
Section 4.03(a); and
(h) encumbrances or restrictions arising or existing by
reason of applicable law.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary
Stock. (a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Asset Disposition unless:
(i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Company's
senior management or the Board of Directors (including as to
<PAGE> 54
47
the value of all noncash consideration), of the shares and assets
subject to such Asset Disposition;
(ii) at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents; and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be):
(A) first, to the extent the Company or any Restricted
Subsidiary elects (or is required by the terms of any Senior
Indebtedness), to prepay, repay or purchase (x) Senior
Indebtedness or (y) Indebtedness (other than any Disqualified
Stock) of a Wholly-Owned Subsidiary (in each case other than
Indebtedness owed to the Company) within 180 days from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, within one year from the receipt of such Net
Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A),
at the Company's election either (x) to the investment in or
acquisition of Additional Assets or (y) to prepay, repay or
purchase (1) Senior Indebtedness or (2) Indebtedness (other than
any Disqualified Stock) of a Wholly-Owned Subsidiary (in each
case other than Indebtedness owed to the Company); and
(C) third, within 45 days after the later of the
application of Net Available Cash in accordance with clauses (A)
and (B) and the date that is one year from the receipt of such
Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A)
and (B), to make an offer (each, an "Offer") to purchase
Securities (and other Senior Subordinated Indebtedness designated
by the Company), pro rata tendered at 100% of the principal
amount thereof (or 100% of the accreted value of such other
Senior Subordinated Indebtedness, if such Senior Subordinated
Indebtedness was issued at a discount) plus accrued and unpaid
interest, if any, thereon to the date of purchase.
<PAGE> 55
48
The balance of such Net Available Cash after application
in accordance with clauses (A), (B) and (C) may be used by the
Company in any manner not otherwise prohibited under this
Indenture. Notwithstanding anything contained herein to the
contrary, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (B) or (C)
above, the Company or such Restricted Subsidiary shall retire
such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Company and its
Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions
which are not applied in accordance with this covenant at any
time exceeds $5 million. The Company shall not be required to
make an offer for Securities pursuant to this covenant if the Net
Available Cash available therefor (after application of the
proceeds as provided in clauses (A) and (B)) is less than $10
million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining
whether an offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be
deemed to be cash or cash equivalents: (x) the assumption by the
transferee of Senior Indebtedness of the Company or Indebtedness of any
Restricted Subsidiary of the Company and the release of the Company or
such Restricted Subsidiary from all liability on such Senior
Indebtedness or Indebtedness in connection with such Asset Disposition
(in which case the Company shall, without further action, be deemed to
have applied such assumed Indebtedness in accordance with clause (A) of
the preceding paragraph) and (y) securities received by the Company or
any Restricted Subsidiary of the Company from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into
cash.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries will be permitted to consummate an Asset Swap if (i) immediately
after giving effect to such Asset Swap, no Default or Event of Default shall
have occurred or be continuing, (ii) in the event such Asset Swap
<PAGE> 56
49
involves an aggregate amount in excess of $5 million, the terms of such Asset
Swap have been approved by a majority of the members of the Board of Directors
of the Company, and (iii) in the event such Asset Swap involves an aggregate
amount in excess of $20 million, the Company has received a written opinion
from an independent investment banking firm of nationally recognized standing
that such Asset Swap is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to Section 4.06(a)(iii)(C), the Company will be
required to purchase Securities (and any other Senior Subordinated Indebtedness
tendered for by the Company) tendered pursuant to an offer by the Company for
the Securities (and any other Senior Subordinated Indebtedness) at a purchase
price of 100% of their principal amount plus accrued and unpaid interest, if
any, to the purchase date in accordance with the procedures (including
prorating in the event of oversubscription) set forth in Section 4.06(c). If
the aggregate purchase price of the Securities (and any other Senior
Subordinated Indebtedness) tendered pursuant to the offer is less than the Net
Available Cash allotted to the purchase thereof, the Company may use the
remaining Net Available Cash for any purpose not prohibited by this Indenture
and any remaining Net Available Cash will not be subject to any future offer to
purchase.
(c) (1) Promptly, and in any event within 10 days after the
Company is required to make an Offer, the Company shall deliver to the Trustee
and send, by first-class mail to each Holder, a written notice stating that the
Holder may elect to have his Securities purchased by the Company either in
whole or in part (subject to prorating as hereinafter described in the event
the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date").
(2) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, the Company shall deliver to
the Trustee an Officers' Certificate setting forth (i) the amount of the Offer
(the "Offer Amount"), (ii) the allocation of the Net Available Cash from the
Asset Dispositions as a result of which such Offer is being made and (iii) the
compliance of such allocation with the provisions of Section 4.06(a). Upon the
expiration of the period (the "Offer Period") for which the Offer remains open,
the Company shall deliver to
<PAGE> 57
50
the Trustee for cancelation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee shall,
on the Purchase Date, mail or deliver payment to each tendering Holder in the
amount of the purchase price of the Securities tendered by such Holder to the
extent such funds are available to the Trustee.
(3) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice prior to the expiration of
the Offer Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one Business Day prior to the
expiration of the Offer Period, a telegram, telex, facsimile transmission or
letter from such Holder setting forth the name of such Holder, the principal
amount of the Security or Securities which were delivered for purchase by such
Holder and a statement that such Holder is withdrawing his election to have
such Security or Securities purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities
are purchased only in part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered.
(d) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.06. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.06, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service), with any Affiliate of the Company
other than a Wholly-Owned Subsidiary (an "Affiliate Transaction") unless:
<PAGE> 58
51
(i) the terms of such Affiliate Transaction are no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction or series
of related transactions, in arm's-length dealings with a Person who is
not such an Affiliate;
(ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $5 million, the terms of such transaction
or series of related transactions have been approved by a majority of
the members of the Board of Directors of the Company and by a majority
of the disinterested members of such Board, if any (and such majority or
majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and
(iii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $15 million, the Company has received a
written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair
to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
(b) The foregoing provision of Section 4.07(a) shall not apply
to:
(i) any Restricted Payment permitted to be made pursuant to
Section 4.04;
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company;
(iii) loans or advances to employees in the ordinary course of
business of the Company or any of its Restricted Subsidiaries;
(iv) any transaction between Wholly-Owned Subsidiaries;
(v) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of the Company and its
Restricted Subsidiaries, in each case in the ordinary course of
business;
<PAGE> 59
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(vi) transactions pursuant to agreements as in existence on the
Issue Date;
(vii) any employment, noncompetition or confidentiality
agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business;
(viii) payments made in connection with the transactions,
including fees to Hicks Muse;
(ix) the issuance of Capital Stock of the Company (other than
Disqualified Stock);and
(x) any obligations of the Company pursuant to the Monitoring and
Oversight Agreement and the Financial Advisory Agreement.
SECTION 4.08. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Securities at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive accrued and unpaid interest due
on the relevant interest payment date in respect of outstanding Securities),
such repurchase to be made in accordance with Section 4.08(b).
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on a record date to
receive accrued and unpaid interest on the relevant interest payment date
in respect of outstanding Securities);
(2) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
<PAGE> 60
53
(3) the procedures determined by the Company, consistent with
this Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the purchase date. Each Holder will be entitled to withdraw its
election if the Company receives, not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter from such
Holder setting forth the name of such Holder, the principal amount of the
Security or Securities which were delivered for purchase by such Holder and a
statement that such Holder is withdrawing his election to have such Security or
Securities purchased.
(d) On the purchase date, all Securities purchased by the
Company under this Section shall be delivered to the Trustee for cancelation,
and the Company shall pay the purchase price plus accrued and unpaid interest,
if any, to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.08. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.08, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.09. Limitation on Capital Stock of Restricted
Subsidiaries. The Company will not, nor will it permit any Restricted
Subsidiary to, sell or otherwise dispose of any Capital Stock (other than
Preferred Stock) of a Restricted Subsidiary to any Person (other than to the
Company or a Wholly-Owned Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly-Owned Subsidiary of the Company) to own any
Capital Stock (other than Preferred Stock) of a Restricted Subsidiary of the
Company, if in either case as a result thereof such Restricted Subsidiary would
no longer be a Restricted Subsidiary of the Company; provided, however, that
this Section 4.09 shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
<PAGE> 61
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Subsidiary as an Unrestricted Subsidiary in compliance with this Indenture.
SECTION 4.10. Future Guarantors. The Company shall cause each
domestic Restricted Subsidiary (including each domestic Restricted Subsidiary
created or acquired following the Issue Date) to Guarantee the Securities
pursuant to a Subsidiary Guaranty, as provided in Section 11.07.
SECTION 4.11. Compliance Certificate. The Company shall deliver
to the Trustee within 120 days after the end of each fiscal year of the Company
an Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default or Event of Default and whether or not the signers
know of any Default or Event of Default that occurred during such period. If
they do, the certificate shall describe the Default or Event of Default, its
status and what action the Company is taking or proposes to take with respect
thereto. The Company also shall comply with TIA Section 314(a)(4).
SECTION 4.12. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. The
Company shall not consolidate with or merge with or into, or convey, transfer
or lease, in one transaction or a series of transactions, all or substantially
all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture;
<PAGE> 62
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(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been Incurred by the Successor Company or such
Subsidiary at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) complies with this Indenture.
The Successor Company will succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture,
but in the case of a lease of all or substantially all its assets, the Company
will not be released from the obligation to pay the principal of and interest
on the Securities.
Notwithstanding clauses (ii) and (iii) of the first sentence of
this Section 5.01: (1) any Restricted Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company; and (2) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs
if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article X, and such default continues for
a period of 30 days;
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(2) the Company defaults in the payment of principal of any
Security when the same becomes due and payable at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment shall be prohibited by Article X;
(3) the Company or any Subsidiary Guarantor fails to comply with
Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10 or 4.13 (in each case other than a
failure to repurchase Securities when required pursuant to Section 4.06
or 4.08 which failure shall constitute an Event of Default under Section
6.01(2)) and such failure continues for 30 days after the notice
specified below;
(5) the Company or any Subsidiary Guarantor fails to comply with
any of its agreements in the Securities or this Indenture (other than
those referred to in (1), (2), (3) or (4) above) and such failure
continues for 60 days after the notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary is
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such unpaid or accelerated Indebtedness exceeds $10 million or
its foreign currency equivalent at the time and such default shall not
have been cured or such acceleration rescinded within a 10-day period;
(7) the Company, Holdings or a Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against
it in an involuntary case;
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
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(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company, Holdings or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company, Holdings or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the Company,
Holdings or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10 million or its foreign currency equivalent at the time (to the
extent not covered by insurance) is entered against the Company or any
Significant Subsidiary and such judgment or decree remains undischarged
or unstayed for a period of 60 days after such judgment becomes final
and non-appealable; or
(10) the Holdings Guaranty or any Subsidiary Guaranty by a
Significant Subsidiary ceases to be in full force and effect (except as
contemplated by the terms of this Indenture) or Holdings or any
Subsidiary Guarantor that is a Significant Subsidiary denies or
disaffirms its obligations under this Indenture or the Holdings Guaranty
or its Subsidiary Guaranty, respectively, and such Default continues for
10 days.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or
any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
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Notwithstanding the foregoing, a Default under clause (4) or (5)
of this Section 6.01 will not constitute an Event of Default until the Trustee
or the Holders of at least 25% in principal amount of the outstanding
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified in said clause (4) or (5) after receipt of
such notice. Such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clauses (4), (5), (6), (9) or (10) of this
Section 6.01.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in outstanding principal amount of the Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
and unpaid interest, if any, on all the Securities to be due and payable
immediately. Upon such a declaration, such principal and interest shall be due
and payable immediately. If an Event of Default specified in Section 6.01(7)
or (8) with respect to the Company, Holdings or a Significant Subsidiary
occurs, the principal of and accrued and unpaid interest on all the Securities
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in principal amount of the Securities by notice to
the Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the
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Trustee or any Securityholder in exercising any right or remedy accruing upon
an Event of Default shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except (i) a
Default or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 9.02 cannot be amended without the consent of each Securityholder
affected. When a Default or Event of Default is waived, it is deemed cured but
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture
or, subject to Section 7.01, that the Trustee determines is unduly prejudicial
to the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that
an Event of Default is continuing;
(2) the Holders of at least 25% in outstanding principal amount
of the Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the
outstanding Securities do not give the Trustee a direction that, in the
opinion of the Trustee, is inconsistent with the request during such 60-
day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts provided
for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may
file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, Holdings, any
Subsidiary or their respective creditors or properties and, unless prohibited
by law or applicable regulations, may vote on behalf of the Holders in any
election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
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Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness and Subsidiary
Guarantor Senior Indebtedness to the extent required by Article X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit
by Holders of more than 10% in outstanding principal amount of the Securities.
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ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
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(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper Person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
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SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, coregistrar
or copaying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default or Event of
Default occurs and is continuing and if a Trust Officer has actual knowledge
thereof, the Trustee shall mail to each Securityholder notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal of, premium (if any) or
interest on any Security (including payments pursuant to the optional
redemption or required repurchase provisions of such Security, if any), the
Trustee may withhold the notice if and so long as its board of directors, a
committee of its board of directors or a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b). The Trustee shall also transmit by mail all reports required
by TIA Section 313(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC if required by law and each stock
exchange (if any) on which the Securities are listed. The Company agrees to
notify promptly the Trustee whenever the Securities become listed on any stock
exchange and of any delisting thereof.
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SECTION 7.07. Compensation and Indemnity. The Company shall pay
to the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, costs of preparing and reviewing reports,
certificates and other documents, costs of preparation and mailing of notices
to Securityholders and reasonable costs of counsel retained by the Trustee in
connection with the delivery of an Opinion of Counsel or otherwise, in addition
to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall
indemnify the Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder,
including the costs and expenses of enforcing this Indenture (including this
Section 7.07) and of defending itself against any claims (whether asserted by
any Securityholder, the Company or otherwise). The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee may
have separate counsel and the Company shall pay the fees and expenses of such
counsel. The Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities. The Trustee's right to
receive payment of any amounts due under this Section 7.07 shall not be
subordinate to any other liability or indebtedness of the Company.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(7) or (8) with
respect to the Company, the expenses are intended to constitute expenses of
administration under any Bankruptcy Law.
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SECTION 7.08. Replacement of Trustee. The Trustee may resign at
any time by so notifying the Company. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee with the consent of the Company, which consent
shall not be unreasonably withheld. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee or the Holders
of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under
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Section 7.07 shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50 million as set forth in its
most recent published annual report of condition. The Trustee shall comply
with TIA Section 310(b); provided, however, that there shall be excluded from
the operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
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ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance.
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.06) for cancelation or
(ii) all outstanding Securities have become due and payable, whether at
maturity or as a result of the mailing of a notice of redemption pursuant to
Article III hereof and the Company irrevocably deposits with the Trustee funds
sufficient to pay at maturity or upon redemption all outstanding Securities
(other than Securities replaced pursuant to Section 2.06), including interest
thereon to maturity or such redemption date, and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture
shall, subject to Section 8.01(c), cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture on demand of the
Company (accompanied by an Officers' Certificate and an Opinion of Counsel
stating that all conditions precedent specified herein relating to the
satisfaction and discharge of this Indenture have been complied with) and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture and all obligations of the Guarantors under their respective
Guaranties and this Indenture ("legal defeasance option") or (ii) its
obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09,
4.10, 4.11, 5.01(iii) and 5.01(iv) and the operation of Sections 6.01(4),
6.01(6), 6.01(7) (but only with respect to a Significant Subsidiary), 6.01(8)
(but only with respect to a Significant Subsidiary), 6.01(9) and 6.01(10)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of
the Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Sections
6.01(4), 6.01(6), 6.01(7) (but only with respect to a Significant Subsidiary),
6.01(8) (but only with respect to a Significant Subsidiary), 6.01(9) and
6.01(10) or because of the failure of the Company to comply with Section
5.01(iii) and Section 5.01(iv). If the Company exercises its legal defeasance
option or its covenant
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defeasance option, each Guarantor, if any, shall be released from all its
obligations with respect to its Guaranty.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 8.01(a) and (b),
the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08, 8.04,
8.05 and 8.06 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may
be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and
in such amounts as will be sufficient to pay principal and interest when
due on all the Securities to maturity or redemption, as the case may be;
(3) the Company shall have delivered to the Trustee an Opinion of
Counsel, subject to certain customary qualifications, to the effect that
(i) the funds so deposited will not be subject to any rights of any
other holders of Indebtedness of the Company, and (ii) the funds so
deposited will not be subject to avoidance under applicable Bankruptcy
Law;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(5) the Company delivers to the Trustee an Opinion of Counsel to
the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a
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regulated investment company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or
loss for U.S. Federal income tax purposes as a result of such legal
defeasance and will be subject to U.S. Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such covenant defeasance
and will be subject to U.S. Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities and this Indenture as
contemplated by this Article VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article III.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article VIII. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with
this Indenture to the payment of principal of and interest on the Securities.
Money and securities so held in trust are not subject to Article X.
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SECTION 8.04. Repayment to Company. The Trustee and the Paying
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal of or interest on the Securities that remains
unclaimed for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors.
SECTION 8.05. Indemnity for U.S. Government Obligations. The
Company shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
this Article VIII by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Obligations of the Company,
Holdings and the Subsidiary Guarantors under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article VIII until such time as the Trustee or Paying Agent is permitted
to apply all such money or U.S. Government Obligations in accordance with this
Article VIII; provided, however, that, if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
Obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
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(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article X that would limit or terminate
the benefits available to any holder of Senior Indebtedness or
Subsidiary Guarantor Senior Indebtedness (or Representatives therefor)
under Article X;
(5) to add further Guarantees with respect to the Securities or
to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the rights
of any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness then outstanding
unless the holders of such Senior Indebtedness or Subsidiary Guarantor Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
SECTION 9.02. With Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender
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offer or exchange for the Securities). However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment;
(2) reduce the stated rate of or extend the stated time for
payment of interest on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption or repurchase
of any Security or change the time at which any Security may be redeemed
as set forth in paragraph 5 of the Securities;
(5) make any Security payable in money other than that stated in
the Security;
(6) impair the right of any Holder to receive the due and
punctual payment of the principal of or interest on Securities; or
(7) make any change in Section 6.04 or 6.07 or the second
sentence of this Section.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness then outstanding
unless the holders of such Senior Indebtedness, Holdings Senior Indebtedness or
Subsidiary Guarantor Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
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SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to give such consent or to revoke any
consent previously given or to take any such action, whether or not such
Persons continue to be Holders after such record date. No such consent shall
become valid or effective more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder
of the Security to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Security regarding the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article IX if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to
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receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
ARTICLE X
Subordination of Securities and Subsidiary Guaranties
SECTION 10.01. Agreement To Subordinate. The Company and each
Subsidiary Guarantor agree, and each Securityholder by accepting a Security and
the related Subsidiary Guaranties agrees, that the Indebtedness evidenced by
the Securities and the related Subsidiary Guaranties is subordinated in right
of payment, to the extent and in the manner provided in this Article X, to the
prior payment of (i) all Senior Indebtedness in the case of the Securities and
(ii) all Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor
in the case of its obligations under its Subsidiary Guaranty and that the
subordination is for the benefit of and enforceable by the holders of Senior
Indebtedness and such Subsidiary Guarantor Senior Indebtedness. The Securities
shall in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company, the related Subsidiary Guaranty of each Subsidiary
Guarantor shall in all respects rank pari passu with all Subsidiary Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor and only
Indebtedness of the Company which is Senior Indebtedness will rank senior to
the Securities and only Indebtedness of such Subsidiary Guarantor which is
Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor shall
rank senior to the obligations of such Subsidiary Guarantor under its
Subsidiary Guaranty in accordance with the provisions set forth herein. All
provisions of this Article X shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of the assets of the Company or any Subsidiary
Guarantor to creditors upon a total or partial liquidation or a total or
partial dissolution of the Company or such Subsidiary Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or such Subsidiary Guarantor or their respective
properties:
(1) holders of Senior Indebtedness in the case of the Company or
holders of Subsidiary Guarantor Senior Indebtedness of such Subsidiary
Guarantor in the case of such Subsidiary Guarantor shall be entitled to
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receive payment in full in cash of all Senior Indebtedness in the case
of the Company or all such Subsidiary Guarantor Senior Indebtedness in
the case of such Subsidiary Guarantor before Securityholders shall be
entitled to receive any payment of principal of or interest on or other
amounts with respect to the Securities from the Company or such
Subsidiary Guarantor, whether directly by the Company or pursuant to the
Subsidiary Guaranty; and
(2) until the Senior Indebtedness in the case of the Company or
such Subsidiary Guarantor Senior Indebtedness in the case of such
Subsidiary Guarantor is paid in full in cash, any payment or
distribution to which Securityholders would be entitled but for this
Article X shall be made to holders of Senior Indebtedness in the case of
payments or distributions made by the Company or the holders of such
Subsidiary Guarantor Senior Indebtedness in the case of payments or
distributions made by such Subsidiary Guarantor, in each case as their
respective interests may appear.
SECTION 10.03. Default on Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness. Neither the Company nor any Subsidiary
Guarantor may pay the principal of, premium (if any) or interest on or other
amounts with respect to the Securities or make any deposit pursuant to Section
8.01 or repurchase, redeem or otherwise retire any Securities, whether directly
by the Company or by such Subsidiary Guarantor under the Subsidiary Guaranty
(collectively, "pay the Securities") if (i) any Senior Indebtedness in the case
of the Company or any Subsidiary Guarantor Senior Indebtedness of such
Subsidiary Guarantor in the case of such Subsidiary Guarantor is not paid when
due or (ii) any other default on Senior Indebtedness in the case of the Company
or such Subsidiary Guarantor Senior Indebtedness in the case of such Subsidiary
Guaranty occurs and the maturity of such Senior Indebtedness in the case of the
Company or such Subsidiary Guarantor Senior Indebtedness in the case of such
Subsidiary Guarantor is accelerated in accordance with its terms unless, in
either case, (x) the default has been cured or waived and any such acceleration
has been rescinded or (y) such Senior Indebtedness in the case of the Company
or such Subsidiary Guarantor Senior Indebtedness in the case of such Subsidiary
Guarantor has been paid in full in cash; provided, however, that the Company or
such Subsidiary Guarantor may pay the Securities, whether directly or pursuant
to the Subsidiary Guaranty, without regard to the foregoing if the Company or
such Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representative of the Senior
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Indebtedness in the case of the Company or such Subsidiary Guarantor Senior
Indebtedness in the case of such Subsidiary Guarantor with respect to which
either of the events set forth in clause (i) or (ii) of this sentence has
occurred or is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof
may be accelerated immediately without further notice (except such notice as
may be required to effect such acceleration) or the expiration of any
applicable grace periods, neither the Company (in the case of Designated Senior
Indebtedness of the Company) nor any Subsidiary Guarantor (in the case of
Designated Senior Indebtedness of such Subsidiary Guarantor) may pay the
Securities (except in (i) Capital Stock (other than Disqualified Stock) issued
by the Company to pay interest on the Securities or issued in exchange for the
Securities, (ii) in securities substantially identical to the Securities issued
by the Company in payment of interest thereon or (iii) in securities issued by
the Company which are subordinated to Senior Indebtedness at least to the same
extent as the Securities and having an Average Life at least equal to the
remaining Average Life of the Securities), either directly or pursuant to the
Subsidiary Guaranty, for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to the Company or such Subsidiary
Guarantor) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company or such Subsidiary Guarantor from the Person or
Persons who gave such Blockage Notice, (ii) by repayment in full in cash of
such Designated Senior Indebtedness or (iii) because the default giving rise to
such Blockage Notice is no longer continuing). Notwithstanding the provisions
of the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Indebtedness, the Company or
such Subsidiary Guarantor may resume payments on the Securities, either
directly or pursuant to the Subsidiary Guaranty, after such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive 360-
day period, irrespective of the number of defaults with respect to Designated
Senior Indebtedness during such period.
SECTION 10.04. Acceleration of Payment of Securities. If
payment of the Securities is accelerated because of an Event of Default, the
Company, the Subsidiary
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Guarantors or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of the acceleration. If any
Designated Senior Indebtedness is outstanding, neither the Company (in the case
of any Designated Senior Indebtedness of the Company) nor any Subsidiary
Guarantor (in the case of any Designated Senior Indebtedness of such Subsidiary
Guarantor) may pay the Securities, either directly or pursuant to the
Subsidiary Guaranty, until five Business Days after the holder or
Representative of such Designated Senior Indebtedness receives notice of such
acceleration and, thereafter, may pay the Securities, either directly or
pursuant to the Subsidiary Guaranty, only if this Article X otherwise permits
payments at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article X should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and Subsidiary
Guarantor Senior Indebtedness and promptly pay it over to them as their
respective interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness and
Subsidiary Guarantor Senior Indebtedness is paid in full in cash and until the
Securities are paid in full, Securityholders shall be subrogated to the rights
of holders of Senior Indebtedness and Subsidiary Guarantor Senior Indebtedness
to receive distributions applicable to Senior Indebtedness and Subsidiary
Guarantor Senior Indebtedness. A distribution made under this Article X to
holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company of Senior Indebtedness
or, as between a Subsidiary Guarantor and Securityholders, a payment by such
Subsidiary Guarantor of Subsidiary Guarantor Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article X defines the
relative rights of Securityholders and holders of Senior Indebtedness and
Subsidiary Guarantor Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company or the Subsidiary Guarantors,
as the case may be, and Securityholders, the obligation of the Company
or the Subsidiary Guarantors, as the case may be, which is absolute and
unconditional, to pay principal of and interest on the Securities in
accordance with their terms; or
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(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness and Subsidiary Guarantor Senior
Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company or
the Subsidiary Guarantors. No right of any holder of Senior Indebtedness or
Subsidiary Guarantor Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities or the related Subsidiary Guaranty
shall be impaired by any act or failure to act by the Company or any Subsidiary
Guarantor or by the failure of any of them to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make
payments on the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that payments may not
be made under this Article X. The Company, the Registrar or coregistrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness may give the notice; provided, however, that, if
an issue of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness has
a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness with the same
rights it would have if it were not Trustee. The Registrar and coregistrar and
the Paying Agent may do the same with like rights. The Trustee shall be
entitled to all the rights set forth in this Article X with respect to any
Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness; and nothing in
Article VII shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article X shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness or Subsidiary
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Guarantor Senior Indebtedness, the distribution may be made and the notice
given to their Representative (if any).
SECTION 10.11. Article X Not To Prevent Events of Default or
Limit Right To Accelerate. The failure to make a payment in respect of the
Securities, whether directly or pursuant to the Subsidiary Guaranty, by reason
of any provision in this Article X shall not be construed as preventing the
occurrence of a Default or Event of Default. Nothing in this Article X shall
have any effect on the right of the Securityholders or the Trustee to
accelerate the maturity of the Securities or to make a claim for payment under
the Subsidiary Guaranty.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness or subject to the restrictions set forth in this
Article X, and none of the Securityholders shall be obligated to pay over any
such amount to the Company, any Subsidiary Guarantor, any holder of Senior
Indebtedness of the Company, any holder of Subsidiary Guarantor Senior
Indebtedness or any other creditor of the Company or any Subsidiary Guarantor.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness, Subsidiary Guarantor Senior
Indebtedness and other Indebtedness of the Company or the Subsidiary
Guarantors, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
X. In the event that the Trustee determines, in good faith, that evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness or Subsidiary Guarantor Senior Indebtedness to participate in any
payment or distribution pursuant to this Article X, the
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Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness or
Subsidiary Guarantor Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution
and other facts pertinent to the rights of such Person under this Article X,
and, if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article X.
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Securityholders and the
holders of Senior Indebtedness and Subsidiary Guarantor Senior Indebtedness as
provided in this Article X and appoints the Trustee as attorney-in-fact for any
and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness and Subsidiary Guarantor Senior Indebtedness. The Trustee shall
not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness
or Subsidiary Guarantor Senior Indebtedness and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Securityholders or the
Company, the Subsidiary Guarantors or any other Person, money or assets to
which any holders of Senior Indebtedness or Subsidiary Guarantor Senior
Indebtedness shall be entitled by virtue of this Article X or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness and
Subsidiary Guarantor Senior Indebtedness on Subordination Provisions. Each
Securityholder by accepting a Security acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness, whether such Senior Indebtedness or Subsidiary
Guarantor Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness and
such holder of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to
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hold, such Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness.
ARTICLE XI
Guaranties
SECTION 11.01. Guaranties. The Guarantors hereby, jointly and
severally, unconditionally and irrevocably, Guarantee to each Holder and to the
Trustee and its successors and assigns (a) the full and punctual payment of
principal of and interest on the Securities when due, whether at maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Company under this Indenture (including obligations to the Trustee) and the
Securities and (b) the full and punctual performance within applicable grace
periods of all other obligations of the Company under this Indenture and the
Securities (all the foregoing being hereinafter collectively called the
"Obligations"). The Guarantors further agree that the obligations may be
extended or renewed, in whole or in part, without notice or further assent from
the Guarantors, and that the Guarantors will remain bound under this Article XI
notwithstanding any extension or renewal of any obligation.
The Guarantors waive presentation to, demand of, payment from and
protest to the Company of any of the Obligations and also waive notice of
protest for nonpayment. The Guarantors waive notice of any default under the
Securities or the Obligations. The obligations of the Guarantors hereunder
shall not be affected by (a) the failure of any Holder or the Trustee to assert
any claim or demand or to enforce any right or remedy against the Company or
any other Person under this Indenture, the Securities or any other agreement or
otherwise; (b) any extension or renewal of any obligation; (c) any rescission,
waiver, amendment, modification or supplement of any of the terms or provisions
of this Indenture (other than this Article XI), the Securities or any other
agreement; (d) the release of any security held by any Holder or the Trustee
for the Obligations or any of them; (e) the failure of any Holder or Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of the Company.
The Guarantors further agree that their Guaranties herein
constitute a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waive any right to require that any resort be
had by any
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Holder or the Trustee to any security held for payment of the Obligations.
The Subsidiary Guaranty of each Subsidiary Guarantor is, to the
extent and in the manner set forth in Article X, subordinated and subject in
right of payment to the prior payment in full of the principal of and premium,
if any, and interest on all Subsidiary Guarantor Senior Indebtedness of such
Subsidiary Guarantor and this Subsidiary Guaranty is made subject to such
provisions of this Indenture. The Holdings Guaranty ranks pari passu in right
of payment with all Holdings Senior Indebtedness and is senior in right of
payment to all Holdings Subordinated Obligations.
The obligations of the Guarantors hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise,
and shall not be subject to any defense, setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of the Guarantors herein shall not
be discharged or impaired or otherwise affected by the failure of any Holder or
the Trustee to assert any claim or demand or to enforce any remedy under this
Indenture, the Securities or any other agreement, by any waiver or modification
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or thing or omission or
delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of the Guarantors or would otherwise operate as a
discharge of the Guarantors as a matter of law or equity.
The Guarantors further agree that their Guaranties herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Obligation is rescinded or must otherwise
be restored by any Holder or the Trustee upon the bankruptcy or reorganization
of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against the
Guarantors by virtue hereof, upon the failure of the Company to pay any
obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any
other Obligation, the Guarantors hereby promise to and will, upon receipt of
written demand
<PAGE> 91
84
by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or
the Trustee an amount equal to the sum of (i) the unpaid principal amount of
such Obligations, (ii) accrued and unpaid interest on such Obligations (but
only to the extent not prohibited by law) and (iii) all other monetary
Obligations of the Company to the Holders and the Trustee.
The Guarantors agree that, as between the Guarantors, on the one
hand, and the Holders and the Trustee, on the other hand, (x) the maturity of
the Obligations guaranteed hereby may be accelerated as provided in Article VI
for the purposes of the Guaranties herein, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article VI, such Obligations (whether or not
due and payable) shall forthwith become due and payable by the Subsidiary
Guarantors for the purposes of this Section.
The Subsidiary Guarantors also agree to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 11.02. Limitation on Liability of Subsidiary Guarantors.
Any term or provision of this Indenture to the contrary notwithstanding, the
Obligations of each Subsidiary Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Subsidiary Guarantor (including, without limitation, any guarantees under the
Credit Agreement) and after giving effect to any collections from or payments
made by or on behalf of any other Subsidiary Guarantor in respect of the
Obligations of such other Subsidiary Guarantor under its Subsidiary Guaranty or
pursuant to its contribution Obligations under this Indenture, result in the
Obligations of such Subsidiary Guarantor under the Subsidiary Guaranty not
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law.
SECTION 11.03. Successors and Assigns. (a) This Article XI
shall be binding upon the Guarantors and their successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such
<PAGE> 92
85
transferee or assignee, all subject to the terms and conditions of this
Indenture.
(b) Notwithstanding the foregoing, all Obligations of a
Subsidiary Guarantor under this Article XI shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer to
any Person which is not a Subsidiary of the Company, of all or substantially
all of the assets of such Subsidiary Guarantor or all of the Capital Stock of
such Subsidiary Guarantor owned by the Company or any Subsidiary; provided that
(i) such sale, exchange or transfer is not prohibited by this Indenture and
(ii) all Obligations of such Subsidiary Guarantor in respect of the Bank
Indebtedness and under all of its Guarantees of, and in respect of all Liens on
its assets securing, Indebtedness of the Company are also released and
discharged upon such sale, exchange or transfer.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article XI shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of
any right, power or privilege. The rights, remedies and benefits of the
Trustee and the Holders herein expressly specified are cumulative and not
exclusive of any other rights, remedies or benefits which either may have under
this Article XI at law, in equity, by statute or otherwise.
SECTION 11.05. Right of Contribution. Each Guarantor hereby
agrees that to the extent that a Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Guarantor shall be
entitled to seek and receive contribution from and against any other Guarantor
hereunder who has not paid its proportionate share of such payment. Each
Guarantor's right of contribution shall be subject to the terms and conditions
of Section 11.06. The provisions of this Section shall in no respect limit the
Obligations and liabilities of any Guarantor to the Trustee and the
Securityholders and each Guarantor shall remain liable to the Trustee and the
Securityholders for the full amount guaranteed by such Guarantor hereunder.
SECTION 11.06. No Subrogation. Notwithstanding any payment or
payments made by any of the Guarantors hereunder, no Guarantor shall be
entitled to be subrogated to any of the rights of the Trustee or any
Securityholder against the Company or any other Guarantor or any collateral
<PAGE> 93
86
security or guarantee or right of offset held by the Trustee or any
Securityholder for the payment of the Obligations, nor shall any Guarantor seek
or be entitled to seek any contribution or reimbursement from the Company or
any other Guarantor in respect of payments made by such Guarantor hereunder,
until all amounts owing to the Trustee and the Securityholders by the Company
on account of the Obligations are paid in full. If any amount shall be paid to
any Guarantor on account of such subrogation rights at any time when all of
the Obligations shall not have been paid in full, such amount shall be held by
such Guarantor in trust for the Trustee and the Securityholders, segregated
from other funds of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Trustee in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Trustee, if required), to be
applied against the Obligations.
SECTION 11.07. Additional Subsidiary Guarantors. Concurrently
with the creation or acquisition by the Company of any Subsidiary (other than a
foreign subsidiary and other than an Unrestricted Subsidiary), the Company,
such Subsidiary and the Trustee shall execute and deliver a supplement to this
Indenture providing that such Subsidiary will be a Subsidiary Guarantor
hereunder. Each such supplement shall be in a form reasonably satisfactory to
the Trustee.
SECTION 11.08. Modification. No modification, amendment or
waiver of any provision of this Article XI, nor the consent to any departure by
the Guarantors therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Trustee, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on the Guarantors in any case shall entitle the
Guarantors to any other or further notice or demand in the same, similar or
other circumstances.
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which
is required to be included in this Indenture by the TIA, the provision required
by the TIA shall control.
<PAGE> 94
87
SECTION 12.02. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company, Holdings or the Subsidiary Guarantors:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attention of Chief Financial Officer
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention of Corporate Trust Agencies &
Administration
The Company, Holdings, any of the Subsidiary Guarantors, or the
Trustee by notice to the other may designate additional or different addresses
for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver will be the equivalent of
such notice.
SECTION 12.03. Communication by Holders With Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The
<PAGE> 95
88
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 12.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that,
<PAGE> 96
89
for the purpose of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee knows are so owned shall be so disregarded. Also, subject to the
foregoing, only Securities outstanding at the time shall be considered in any
such determination.
SECTION 12.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 12.08. Legal Holidays. A "Legal Holiday" is a Saturday,
a Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 12.09. Governing Law. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State
of New York but without giving effect to applicable principles of conflicts of
law to the extent that the application of the laws of another jurisdiction
would be required thereby.
SECTION 12.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any Obligations of the Company under the Securities or this Indenture or
for any claim based on, in respect of or by reason of such Obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 12.11. Successors. All agreements of the Company,
Holdings and the Subsidiary Guarantors in this Indenture and the Securities
shall bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 12.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. one signed copy is enough to
prove this Indenture.
<PAGE> 97
90
SECTION 12.13. Variable Provisions. The Company initially
appoints the Trustee as Paying Agent and Registrar and custodian with respect
to any Global Securities.
SECTION 12.14. Qualification of Indenture. The Company shall
qualify this Indenture under the TIA in accordance with the terms and
conditions of the Registration Rights Agreement and shall pay all reasonable
costs and expenses (including attorneys' fees for the Company, the Trustee and
the Holders) incurred in connection therewith, including, but not limited to,
costs and expenses of qualification of the Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel
or other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 12.15. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
HEDSTROM CORPORATION,
by /s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
HEDSTROM HOLDINGS, INC.,
as Guarantor,
by /s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
<PAGE> 98
91
ERO, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
ERO INDUSTRIES, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
PRISS PRINTS, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
IMPACT, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
ERO MARKETING, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
ERO CANADA, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
<PAGE> 99
AMAV INDUSTRIES, INC.,
as a Subsidiary Guarantor,
by
/s/ ALAN PLOTKIN
---------------------------------
Name: Alan Plotkin
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
by
/s/ BARBARA McCLUSKEY
----------------------------------
Name: Barbara McCluskey
Title:
<PAGE> 100
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN
RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL NOTES,
PRIVATE EXCHANGE NOTES
AND EXCHANGE NOTES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Notes" means the 10% Senior Subordinated Notes Due 2007
to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Rights Agreement.
"Initial Purchasers" means Credit Suisse First Boston
Corporation, Societe Generale Securities Corporation and UBS Securities.
"Initial Notes" means the 10% Senior Subordinated Notes Due 2007,
issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Company, pursuant to
the Registration Rights Agreement, to the Initial Purchasers to issue and
deliver to each Initial Purchaser, in exchange for the Initial Notes held by
the Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Notes.
"Private Exchange Notes" means the 10% Senior Subordinated Notes
Due 2007 to be issued pursuant to this Indenture to the Initial Purchasers in a
Private Exchange.
"Purchase Agreement" means the Purchase Agreement dated June 9,
1997, between the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
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"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Notes, to issue and deliver to such Holders, in exchange for the Initial Notes,
a like aggregate principal amount of Exchange Notes registered under the
Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated June 9, 1997, among the Company and the Initial Purchasers.
"Securities" means the Initial Notes, the Exchange Notes and the
Private Exchange Notes, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depositary), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement
issued by the Company, in connection with the offer and sale of Initial Notes
or Private Exchange Notes, pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(b)hereto.
1.2 Other Definitions
-----------------
Defined in
Term Section:
---- -------
"Agent Members" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Global Security" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Regulation S" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
2. The Securities.
2.1 Form and Dating.
The Initial Notes are being offered and sold by the Company
pursuant to the Purchase Agreement.
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(a) Global Securities. Initial Notes offered and sold to a QIB
in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance
on Regulation S under the Securities Act ("Regulation S"), in each case as
provided in the Purchase Agreement, shall be issued initially in the form of
one or more permanent global Securities in definitive, fully registered form
without interest coupons with the global securities legend and restricted
securities legend set forth in Exhibit 1 hereto (each, a "Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary (or with such other custodian as the Depositary may direct), and
registered in the name of the Depositary or a nominee of the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from
time to time be increased or decreased by adjustments made on the records of
the Trustee and the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only
to a Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary or by the Trustee as the custodian of
the Depositary or under such Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices of such Depositary governing the exercise of the rights of
a holder of a beneficial interest in any Global Security.
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(c) Certificated Securities. Except as provided in Section 2.3
or 2.4, owners of beneficial interests in Global Securities will not be
entitled to receive physical delivery of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Notes for original issue in an aggregate principal amount of
$110,000,000 and (2) Exchange Notes or Private Exchange Notes for issue only in
a Registered Exchange Offer or a Private Exchange, respectively, pursuant to
the Registration Rights Agreement, for a like principal amount of Initial
Notes, in each case upon a written order of the Company signed by two Officers
or by an Officer and either an Assistant Treasurer or an Assistant Secretary of
the Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and whether the Securities are to be Initial Notes, Exchange
Notes or Private Exchange Notes. The aggregate principal amount of Securities
outstanding at any time may not exceed $110,000,000 except as provided in
Section 2.06 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Global
Securities. (i) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depositary, in accordance with
this Indenture (including applicable restrictions on transfer set forth herein,
if any) and the procedures of the Depositary therefor. A transferor of a
beneficial interest in a Global Security shall deliver to the Registrar a
written order given in accordance with the Depositary's procedures containing
information regarding the participant account of the Depositary to be credited
with a beneficial interest in the Global Security. The Registrar shall, in
accordance with such instructions instruct the Depositary to credit to the
account of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the transfer
the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.4), a Global Security
may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or a nominee of such successor
Depositary.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to
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<PAGE> 104
Section 2.4 or Section 2.09 of the Indenture, prior to the consummation
of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to such Securities, such Securities
may be exchanged only in accordance with such procedures as are
substantially consistent with the provisions of this Section 2.3
(including the certification requirements set forth on the reverse of
the Initial Notes intended to ensure that such transfers comply with
Rule 144A or Regulation S, as the case may be) and such other procedures
as may from time to time be adopted by the Company.
(b) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii)
and (iv), each Security certificate evidencing the Global Securities
(and all Securities issued in exchange therefor or in substitution
thereof) shall bear a legend in substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUERS
THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (i) INSIDE THE U.S. TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE
THE U.S. IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, OR (v) TO THE ISSUERS, IN EACH OF CASES
(i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
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<PAGE> 105
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act, in the case of
any Transfer Restricted Security that is represented by a Global
Security, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a certificated Security that does not
bear the legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder certifies
in writing to the Registrar that its request for such exchange was made
in reliance on Rule 144 (such certification to be in the form set forth
on the reverse of the Security).
(iii) After a transfer of any Initial Notes or Private Exchange
Notes during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Notes or Private Exchange Notes,
as the case may be, all requirements pertaining to legends on such
Initial Note or such Private Exchange Note will cease to apply, the
requirements requiring any such Initial Note or such Private Exchange
Note issued to certain Holders be issued in global form will cease to
apply, and a certificated Initial Note or Private Exchange Note without
legends will be available to the transferee of the Holder of such
Initial Notes or Private Exchange Notes upon exchange of such
transferring Holder's certificated Initial Note or Private Exchange Note
or directions to transfer such Holder's interest in the Global Security,
as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Notes pursuant to which Holders of such Initial
Notes are offered Exchange Notes in exchange for their Initial Notes,
all requirements pertaining to such Initial Notes that Initial Notes
issued to certain Holders be issued in global form will cease to apply
and certificated Initial Notes with the restricted securities legend set
forth in Exhibit 1 hereto will be available to Holders of such Initial
Notes that do not exchange their Initial Notes, and Exchange Notes in
certificated or global form will be available to Holders that exchange
such Initial Notes in such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to
the Initial Notes pursuant to which
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Holders of such Initial Notes are offered Private Exchange Notes in
exchange for their Initial Notes, all requirements pertaining to such
Initial Notes that Initial Notes issued to certain Holders be issued in
global form will still apply, and Private Exchange Notes in global form
with the Restricted Securities Legend set forth in Exhibit 1 hereto will
be available to Holders that exchange such Initial Notes in such Private
Exchange.
(c) Cancelation or Adjustment of Global Security. At such time
as all beneficial interests in a Global Security have either been exchanged for
certificated or Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depositary for cancelation or retained
and canceled by the Trustee. At any time prior to such cancelation, if any
beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such
reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.06, 4.08 and 9.05 of the
Indenture).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated Security
selected for redemption in whole or in part pursuant to Article III of
this Indenture, except the unredeemed portion of any certificated
Security being redeemed in part, or (b) any Security for a period
beginning 15 Business Days before the mailing of a notice of an offer to
repurchase or
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redeem Securities or 15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer
of any Security, the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar may deem and treat the person in whose
name a Security is registered as the absolute owner of such Security for
the purpose of receiving payment of principal of and interest on such
Security and for all other purposes whatsoever, whether or not such
Security is overdue, and none of the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by notice to
the contrary.
(v) All Securities issued upon any transfer or exchange pursuant
to the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a participant
in the Depositary or other Person with respect to the accuracy of the
records of the Depositary or its nominee or of any participant or member
thereof, with respect to any ownership interest in the Securities or
with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount, under
or with respect to such Securities. All notices and communications to
be given to the Holders and all payments to be made to Holders under the
Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any
Global Security shall be exercised only through the Depositary subject
to the applicable rules and procedures of the Depositary. The Trustee
may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers
between
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or among Depositary participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do
so if and when expressly required by, the terms of this Indenture, and
to examine the same to determine substantial compliance as to form with
the express requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depository or with the
Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed
by the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee located in the Borough of Manhattan, The City of New York, to be
so transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Notes of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depositary shall direct. Any certificated
Initial Note delivered in exchange for an interest in the Global Security
shall, except as otherwise provided by Section 2.3(b), bear the restricted
securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to
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take any action which a Holder is entitled to take under this Indenture or the
Securities.
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
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<PAGE> 110
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUERS
THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (i) INSIDE THE U.S. TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE
U.S. IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (v) TO THE ISSUER, IN
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EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT
OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.
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HEDSTROM CORPORATION
No. ___ Principal Amount $____________
CUSIP NO.
10% Senior Subordinated Note Due 2007
Hedstrom Corporation, a Delaware corporation, promises to pay to
_______________, or registered assigns, the principal sum of ________________
Dollars on June 1, 2007.
Interest Payment Dates: June 1 and December 1.
Record Dates: May 15 and November 15.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: HEDSTROM CORPORATION
by ___________________________
by ___________________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by _________________________
Authorized Signatory
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[REVERSE SIDE OF INITIAL NOTE]
10% Senior Subordinated Note Due 2007
1. Interest
Hedstrom Corporation, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above; provided, however,
that if (i) a Registration Default (as defined in the Registration Rights
Agreement) occurs, additional interest will accrue on this Security at a rate
of 0.50% per annum from and including the date on which any such Registration
Default shall occur to but excluding the date on which all Registration
Defaults have been cured. The Company will pay interest semiannually on June 1
and December 1 of each year. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from June 12, 1997. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the May 15 or November 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments
in respect of a certificated Security (including principal, premium and
interest) by mailing a check to the registered address of each Holder thereof;
provided, however, that payments on a certificated Security will be made by
wire transfer to a U.S. dollar account maintained by the payee with a bank in
the United States if such Holder elects payment by wire transfer by giving
written notice to the Trustee or the Paying Agent to such effect designating
such account no later than 30 days immediately preceding the relevant due date
for
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payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a New York
corporation (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
June 1, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company,
Holdings, the Subsidiary Guarantors named therein (the "Subsidiary Guarantors")
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the
date of the Indenture (the "Act"). Capitalized terms used herein and not
defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the Act for a statement of those terms.
The Securities are general unsecured senior subordinated
obligations of the Company limited to $110.0 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Security is one of the Initial
Notes referred to in the Indenture. The Securities include the Initial Notes
and any Exchange Notes and Private Exchange Notes issued in exchange for the
Initial Notes pursuant to the Indenture and the Registration Rights Agreement.
The Initial Notes, the Exchange Notes and the Private Exchange Notes are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company
and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Subordinated Obligations, the sale or transfer of assets and Capital Stock
of Restricted Subsidiaries, the issuance or sale
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of Capital Stock of Restricted Subsidiaries, the investments of the Company and
its Restricted Subsidiaries and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and its Restricted Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according
to the terms of the Securities and the Indenture, Holdings has unconditionally
guaranteed such obligations on a senior basis pursuant to the terms of the
Indenture and the Subsidiary Guarantors have, jointly and severally,
unconditionally guaranteed such obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will not
be redeemable at the option of the Company prior to June 1, 2002. On and after
such date, the Securities will be redeemable, at the Company's option, in whole
or in part, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's registered address, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<TABLE>
<CAPTION>
if redeemed during the 12-month period
commencing on June 1 of the Redemption
years set forth below Price
-------------------------------------- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.000%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.333
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.667
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100.000
</TABLE>
At any time or from time to time prior to June 1, 2000, the
Company may redeem in the aggregate up to $44,000,000 principal amount of the
Securities with the proceeds of one or more Equity Offerings so long as there
is a
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<PAGE> 116
Public Market at the time of such redemption (provided that if the Equity
Offering is an offering by Holdings, a portion of the net cash proceeds thereof
equal to the amount required to redeem any such Securities is contributed to
the equity capital of the Company), at a redemption price (expressed as a
percentage of principal amount) of 110%, plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive accrued and unpaid interest due on the relevant
interest payment date); provided, however, that after giving effect to such
redemption, at least $66,000,000 principal amount of the Securities remain
outstanding.
At any time on or prior to June 1, 2002, the Securities may be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued and unpaid interest on
all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant
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record date to receive interest due on the relevant interest payment date) as
provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not register the transfer of or exchange
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period beginning 15 days before a selection of Securities to
be redeemed or beginning 15 days before an interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
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12. Discharge and Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount of the outstanding Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company,
Holdings, the Subsidiary Guarantors and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to
add additional covenants for the benefit of the Holders or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder, or to provide
for the issuance of Exchange Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company to comply with other agreements in the Indenture
or the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Indebtedness of the Company or its Restricted
Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million and
such acceleration or failure to pay is not rescinded or
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cured within a 10-day period; (v) certain events of bankruptcy or insolvency
with respect to the Company, Holdings or any Significant Subsidiary; (vi)
certain final, non-appealable judgments or decrees for the payment of money in
excess of $10.0 million against the Company or any Significant Subsidiary; and
(vii) the Holdings Guaranty or any Subsidiary Guaranty by a Significant
Subsidiary ceases to be in full force and effect (except as contemplated by the
terms of the Indenture) or Holdings or any Subsidiary Guarantor that is a
Significant Subsidiary denies or disaffirms its obligations under the Indenture
or the Holdings Guaranty or its Subsidiary Guaranty, respectively, and such
default continues for 10 days. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company, Holdings or any Subsidiary Guarantor shall not have any liability for
any obligations of the Company, Holdings or any Subsidiary Guarantor under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation.
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<PAGE> 120
By accepting a Security, each Securityholder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement
Each holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
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<PAGE> 121
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEDSTROM CORPORATION, 300 CORPORATE CENTER DRIVE, SUITE 110, CORAOPOLIS,
PENNSYLVANIA 15108, ATTENTION: CHIEF FINANCIAL OFFICER.
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<PAGE> 122
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for
him.
Date: _________________ Your Signature: ________________
Signature Guarantee: ___________________________________
(Signature must be guaranteed by an
"eligible guarantor institution," that is, a
bank, stockbroker, savings and loan
association or credit union meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended)
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
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<PAGE> 123
CHECK ONE BOX BELOW
<TABLE>
<CAPTION>
(1) [ ] to the Company; or
<S> <C> <C>
(2) [ ] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act
of 1933) that purchases for its own account or for the
account of a qualified institutional buyer to whom notice
is given that such transfer is being made in reliance on
Rule 144A, in each case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
(4) [ ] outside the United States in an offshore transaction
within the meaning of Regulation S under the Securities
Act in compliance with Rule 904 under the Securities Act
of 1933; or
(5) [ ] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however, that
if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or
</TABLE>
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in a transaction not subject to, the registration requirements of the
Securities Act of 1933, such as the exemption provided by Rule 144 under
such Act.
______________________ Signature
Signature Guarantee:
_____________________________ ______________________
(Signature must be guaranteed by an Signature
"eligible guarantor institution," that is, a bank, stockbroker, savings and
loan association or credit union meeting the requirements of the Registrar,
which requirements include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended)
____________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
E1-15
<PAGE> 125
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal Amount this Global authorized officer
Amount of this of this Global Security following of Trustee or
Global Security Security such decrease or Securities
increase) Custodian
<S> <C> <C> <C> <C>
</TABLE>
E1-16
<PAGE> 126
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
----
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount in principal amount (must be integral multiple of $1,000): $
Date: _______________ Your Signature: ______________________ (Sign
exactly as your name appears
on the other side of this
Security.)
Signature Guarantee: ___________________________________________
(Signature must be guaranteed by an
"eligible guarantor institution," that is, a
bank, stockbroker, savings and loan
association or credit union meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended)
E1-17
<PAGE> 127
EXHIBIT A
[FORM OF FACE OF EXCHANGE NOTE
OR PRIVATE EXCHANGE NOTE]
[*]
[**]
HEDSTROM CORPORATION
No.___ Principal Amount
$_____________
CUSIP NO.
10% Senior Subordinated Note Due 2007
Hedstrom Corporation, a Delaware corporation, promises to pay to
____________, or registered assigns, the principal sum of
_________________________Dollars on June 1, 2007.
Interest Payment Dates: June 1 and December 1.
Record Dates: May 15 and November 15.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: HEDSTROM CORPORATION
by ____________________________
by ____________________________
__________________________________
*[If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its
initial allotment, add the Restricted Securities Legend from Exhibit 1
to Appendix A and replace the Assignment Form included in this Exhibit A
with the Assignment Form included in such Exhibit 1.]
**[If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to the Appendix A and the attachment
from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] -
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".]
EA-1
<PAGE> 128
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by ____________________
Authorized Signatory
EA-2
<PAGE> 129
[REVERSE SIDE OF EXCHANGE NOTE
OR PRIVATE EXCHANGE NOTE]
HEDSTROM CORPORATION
10% Senior Subordinated Note Due 2007
1. Interest
Hedstrom Corporation, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above; provided, however,
that if (i) a Registration Default (as defined in the Registration Rights
Agreement) occurs, additional interest will accrue on this Security at a rate
of 0.50% per annum from and including the date on which any such Registration
Default shall occur to but excluding the date on which all Registration
Defaults have been cured. The Company will pay interest semiannually on June 1
and December 1 of each year. Interest on the Securities will accrue from the
most recent date to which interest has been paid, if no interest has been paid,
from June 12, 1997. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the May 15 or November 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments
in respect of a certificated Security (including principal, premium and
interest) by mailing a check to the registered address of each Holder thereof;
provided, however, that payments on a certificated Security will be made by
wire transfer to a U.S. dollar account maintained by the payee with a bank in
the United States if such Holder elects payment by wire transfer by giving
written notice to the Trustee or the
EA-3
<PAGE> 130
Paying Agent to such effect designating such account no later than 30 days
immediately preceding the relevant due date for payment (or such other date as
the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a New York
corporation (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
June 1, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company,
Holdings, the Subsidiary Guarantors named therein (the "Subsidiary Guarantors")
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the
date of the Indenture (the "Act"). Capitalized terms used herein and not
defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the Act for a statement of those terms.
The Securities are general unsecured senior subordinated
obligations of the Company limited to $110.0 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Security is one of the Initial
Notes referred to in the Indenture. The Securities include the Initial Notes
and any Exchange Notes and Private Exchange Notes issued in exchange for the
Initial Notes pursuant to the Indenture and the Registration Rights Agreement.
The Initial Notes, the Exchange Notes and the Private Exchange Notes are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company
and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Subordinated Obligations, the sale
EA-4
<PAGE> 131
or transfer of assets and Capital Stock of Restricted Subsidiaries, the
issuance or sale of Capital Stock of Restricted Subsidiaries, the investments
of the Company and its Restricted Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and
its Restricted Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according
to the terms of the Securities and the Indenture, Holdings has unconditionally
guaranteed such obligations on a senior basis pursuant to the terms of the
Indenture and the Subsidiary Guarantors have, jointly and severally,
unconditionally guaranteed such obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will not
be redeemable at the option of the Company prior to June 1, 2002. On and after
such date, the Securities will be redeemable, at the Company's option, in whole
or in part, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's registered address, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<TABLE>
<CAPTION>
if redeemed during the 12-month period
commencing on June 1 of the years Redemption
set forth below: Price
-------------------------------------- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.000%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.333
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.667
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100.000
</TABLE>
At any time or from time to time prior to June 1, 2000, the
Company may redeem in the aggregate up to
EA-5
<PAGE> 132
$44,000,000 principal amount of the Securities with the proceeds of one or more
Equity Offerings so long as there is a Public Market at the time of such
redemption (provided that if the Equity Offering is an offering by Holdings, a
portion of the net cash proceeds thereof equal to the amount required to redeem
any such Securities is contributed to the equity capital of the Company), at a
redemption price (expressed as a percentage of principal amount) of 110%, plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive accrued and
unpaid interest due on the relevant interest payment date); provided, however,
that after giving effect to such redemption, at least $66,000,000 principal
amount of the Securities remain outstanding.
At any time on or prior to June 1, 2002, the Securities may be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued and unpaid interest on
all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase
EA-6
<PAGE> 133
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not register the transfer of or exchange
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period beginning 15 days before a selection of Securities to
be redeemed or beginning 15 days before an interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
EA-7
<PAGE> 134
12. Discharge and Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount of the outstanding Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company,
Holdings, the Subsidiary Guarantors and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to
add additional covenants for the benefit of the Holders or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder, or to provide
for the issuance of Exchange Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company to comply with other agreements in the Indenture
or the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Indebtedness of the Company or its Restricted
Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million and
such acceleration or failure to pay is not rescinded or
EA-8
<PAGE> 135
cured within a 10 day period; (v) certain events of bankruptcy or insolvency
with respect to the Company, Holdings or any Significant Subsidiary; (vi)
certain final, non-appealable judgments or decrees for the payment of money in
excess of $10.0 million against the Company or any Significant Subsidiary; and
(vii) the Holdings Guaranty or any Subsidiary Guaranty by a Significant
Subsidiary ceases to be in full force and effect (except as contemplated by the
terms of the Indenture) or Holdings or any Subsidiary Guarantor that is a
Significant Subsidiary denies or disaffirms its obligations under the Indenture
or the Holdings Guaranty or its Subsidiary Guaranty, respectively, and such
default continues for 10 days. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
15. Trustee Dealings with the Company
Subject to certain limitations as set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company, Holdings or Subsidiary Guarantor shall not have any liability for any
obligations of the Company, Holdings or any Subsidiary Guarantor under the
Securities or the Indenture or for any claim based on, in respect of or by
EA-9
<PAGE> 136
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO
EA-10
<PAGE> 137
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEDSTROM CORPORATION, 300 CORPORATE CENTER DRIVE, SUITE 110, CORAOPOLIS,
PENNSYLVANIA 15108, ATTENTION: CHIEF FINANCIAL OFFICER.
EA-11
<PAGE> 138
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.) and irrevocably
appoint agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
Date: ________________ Your Signature: ___________________
(Sign exactly as your name appears on
the other side of the Security)
Signature Guarantee: ________________________________
(Signature must be guaranteed by an
"eligible guarantor institution," that is, a
bank, stockbroker, savings and loan
association or credit union meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended)
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
EA-12
<PAGE> 139
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
----
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the
amount in principal amount (must be integral multiple of $1,000): $
Date: ___________ Your Signature: _________________
(Sign exactly as your name appears on the other
side of the Security)
Signature Guarantee:______________________________
(Signature must be guaranteed by an "eligible
guarantor institution," that is, a bank,
stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar,
which requirements include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be determined
by the Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended)
EA-13
<PAGE> 1
EXHIBIT 4.4
================================================================================
HEDSTROM HOLDINGS, INC.
12% Senior Discount Notes Due 2009
INDENTURE
Dated as of June 1, 1997
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
================================================================================
<PAGE> 2
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
SECTION Section
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . 4.02
4.12; 10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . 10.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
</TABLE>
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
The Securities
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 30
SECTION 2.04. Paying Agent To Hold Money in
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.06. Replacement Securities . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.07. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.08. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.09. Cancelation . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.10. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.11. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.02. Selection of Securities To Be
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.04. Effect to Notice of Redemption . . . . . . . . . . . . . . . . . 35
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . 35
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . 36
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . 37
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . . . . . . . . 38
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.07. Limitation on Affiliate Transactions 49
SECTION 4.08. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 4.09. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.10. Limitation on Sale/Leaseback
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.11. Limitation on Capital Stock of
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.12. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.13. Further Instruments and Acts . . . . . . . . . . . . . . . . . . 53
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . 57
SECTION 6.05. Control of Majority . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.07. Rights of Holders To Receive Payment . . . . . . . . . . . . . . 58
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . 58
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . 59
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
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ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . 62
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . 62
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . 63
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . . . . . . . . 65
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . 65
SECTION 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . 67
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . 68
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.05. Indemnity for U.S. Government
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . 69
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.03. Compliance with Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 9.04. Revocation and Effect of Consents and
Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 9.05. Notation on or Exchange of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.06. Trustee To Sign Amendments . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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ARTICLE X
Miscellaneous
SECTION 10.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . 72
SECTION 10.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.03. Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.05. Statements Required in Certificate
or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.06. When Securities Disregarded . . . . . . . . . . . . . . . . . . . 74
SECTION 10.07. Rules by Trustee, Paying Agent and
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.08. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . 75
SECTION 10.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.12. Multiple Originals . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.13. Variable Provisions . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.14. Qualification of Indenture . . . . . . . . . . . . . . . . . . . 75
SECTION 10.15. Table of Contents; Headings . . . . . . . . . . . . . . . . . . . 76
</TABLE>
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<PAGE> 7
INDENTURE dated as of June 1, 1997, among HEDSTROM
HOLDINGS, INC., a Delaware corporation (as further defined
below, the "Company"), and UNITED STATES TRUST COMPANY OF
NEW YORK, a New York corporation, as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 12%
Senior Discount Notes Due 2009 (the "Initial Notes") and, if and when
issued in exchange for Initial Notes as provided in the Registration
Rights Agreement (as hereinafter defined), the Company's 12% Senior
Discount Notes Due 2009 (the "Exchange Notes") and, if and when issued in
exchange for Initial Notes as provided in the Registration Rights
Agreement, the Company's 12% Senior Discount Notes Due 2009 (the "Private
Exchange Notes" and, together with the Initial Notes and the Exchange
Notes, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Accreted Value" means, as of any date (the "Specified Date"),
the amount provided below for each $1,000 principal amount at maturity of
Securities:
(i) if the Specified Date occurs on one of the following dates
(each, a "Semi-Annual Accrual Date"), the Accreted Value will equal
the amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
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Semi-Annual
Accrual Date Accreted Value
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December 1, 1997 . . . . . . . . . . . . . . $591.90
June 1, 1998 . . . . . . . . . . . . . . 627.41
December 1, 1998 . . . . . . . . . . . . . . 665.06
June 1, 1999 . . . . . . . . . . . . . . 704.96
December 1, 1999 . . . . . . . . . . . . . . 747.26
June 1, 2000 . . . . . . . . . . . . . . 792.10
December 1, 2000 . . . . . . . . . . . . . . 839.62
</TABLE>
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2
<TABLE>
<S> <C> <C>
June 1, 2001 . . . . . . . . . . . . . . 890.00
December 1, 2001 . . . . . . . . . . . . . . 943.40
June 1, 2002 . . . . . . . . . . . . . . 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original
issue price ($560.387 per Unit) of a Unit and (b) an amount equal to the
product of (1) the Accreted Value for the first Semi-Annual Accrual Date
less such original issue price multiplied by (2) a fraction, the
numerator of which is the number of days elapsed from the Issue Date to
the Specified Date, using a 360-day year of 12 30-day months, and the
denominator of which is the number of days from the Issue Date to the
first Semi-Annual Accrual Date, using a 360-day year of 12 30-day
months;
(iii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted
Value for the Semi-Annual Accrual Date immediately preceding such
Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is the
number of days elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of 12 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or a Restricted Subsidiary of
the Company; (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary of the Company; or (iv) Permitted
Investments of the type and in the amounts described in clause (viii) of the
definition thereof; provided, however, that, in the case of clauses (ii) and
(iii), such Restricted Subsidiary is primarily engaged in a Related Business.
<PAGE> 9
3
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Premium" means, with respect to a Security at any
Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Security
on such Redemption Date and (ii) the excess of (A) the present value at such
time of (1) 106.000% of the principal amount of such Security plus (2) all
required interest payments, if any, due on such Security through June 1, 2002,
computed using a discount rate equal to the Treasury Rate plus 100 basis
points, over (B) the Accreted Value of such Security on the Redemption Date.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (iv) dispositions of property for net proceeds which, when taken
collectively with the net proceeds of any other such dispositions under this
clause (iv) that were consummated since the beginning of the calendar year in
which such disposition is consummated, do not exceed 1.5% of the consolidated
book value of the Company's assets as of the most recent date prior to such
disposition for which a consolidated balance sheet of the Company has been
regularly prepared, and (v) transactions permitted under Section 5.01.
"Asset Swap" means the execution of a definitive agreement,
subject only to customary closing conditions that
<PAGE> 10
4
the Company in good faith believes will be satisfied, for a substantially
concurrent purchase and sale, or exchange, of Productive Assets between the
Company or any of its Restricted Subsidiaries and another Person or group of
affiliated Persons; provided, however, that any amendment to or waiver of any
closing condition that individually or in the aggregate is material to the
Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such
Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be
terminated without penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any
<PAGE> 11
5
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change of Control" means:
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries to any Person or
group of related Persons for purposes of Section 13(d) of the Exchange
Act (a "Group") (whether or not otherwise in compliance with the
provisions of this Indenture), other than to Permitted Holders; or
(ii) a majority of the Board of Directors of the Company shall
consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the
Permitted Holders) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Hedstrom Holdings, Inc. until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense, (v) exchange or translation losses on foreign currencies,
and (vi) all other non-cash items reducing Consolidated Net Income (excluding
any non-cash item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
Securities) and less, to the extent added in calculating Consolidated Net
Income, (x) exchange or translation gains on foreign currencies and (y)
non-cash items (excluding such non-cash items to the extent they represent an
accrual for cash receipts reasonably expected to be received prior to the
Stated Maturity of the Securities), in each case for such period.
Notwithstanding the foregoing, the income tax
<PAGE> 12
6
expense, the depreciation expense and amortization expense of a Subsidiary of
the Company shall be included in Consolidated Cash Flow only to the extent (and
in the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any of its Restricted Subsidiaries has
Incurred any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes
the one year projected average balance of such Indebtedness (as determined in
good faith by senior management of the Company and assuming a constant level of
sales) shall be deemed outstanding for purposes of this calculation) and (B)
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and has not been replaced), Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period and as if the Company or such Restricted
Subsidiary had not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness, (3) if since the
beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to
<PAGE> 13
7
calculate the Consolidated Coverage Ratio is an Asset Disposition, Consolidated
Cash Flow for such period shall be reduced by an amount equal to the
Consolidated Cash Flow (if positive) attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be (i) reduced
by an amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale) and (ii) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company) or an acquisition
of assets, including any Investment in a Restricted Subsidiary of the Company
or any acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all or substantially all
of a product line or operating unit of a business, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness and the
use of the proceeds therefrom) as if such Investment or acquisition occurred on
the first day of such period and (5) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary of the Company or was
merged with or into the Company or any Restricted Subsidiary of the Company
since the beginning of such period) shall have made any Asset Disposition,
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a Restricted
Subsidiary of the Company during such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income
<PAGE> 14
8
or earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting officer of the Company. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
Notwithstanding anything herein to the contrary, if at the time the calculation
of the Consolidated Coverage Ratio is to be made, the Company does not have
available consolidated financial statements reflecting the ownership by the
Company of ERO for a period of at least four full fiscal quarters, all
calculations required by the Consolidated Coverage Ratio shall be prepared on a
pro forma basis, as though such acquisition and the related transactions (to
the extent not otherwise reflected in the consolidated financial statements of
the Company) had occurred on the first day of the four-fiscal-quarter period
for which such calculation is being made.
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Restricted Subsidiaries, plus, to
the extent not included in such interest expense, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually paid by the Company or
any such Restricted Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (vii) net payments (whether positive or
negative) pursuant to Interest Rate Agreements, (viii) the cash contributions
to any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by
such plan or trust and (ix) cash and Disqualified Stock dividends in respect of
all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of the
Company held by Persons other than the Company or a Wholly Owned Subsidiary and
less (a) to the extent included in such interest expense, the amortization of
capitalized debt issuance costs and debt discount solely to the extent relating
to the issuance and sale of Indebtedness together with any other security as
part of an investment unit and (b) interest income.
<PAGE> 15
9
Notwithstanding the foregoing, the Consolidated Interest Expense with respect
to any Restricted Subsidiary of the Company, that was not a Wholly Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income: (i)
any net income (loss) of any Person acquired by the Company or any of its
Restricted Subsidiaries in a pooling of interests transaction for any period
prior to the date of such acquisition, (ii) any net income of any Restricted
Subsidiary of the Company if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company (other than restrictions in effect on the Issue Date with respect to a
Restricted Subsidiary of the Company and other than restrictions that are
created or exist in compliance with Section 4.05), (iii) any gain or loss
realized upon the sale or other disposition of any assets of the Company or its
consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (iv) any extraordinary gain or loss, (v) the
cumulative effect of a change in accounting principles, (vi) restructuring
charges or writeoffs recorded within the one year period following the Issue
Date in an aggregate amount not to exceed $5 million including any reversals of
any such charges, (vii) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of the lesser of (A) dividends or
distributions paid to the Company or any of its Restricted Subsidiaries by such
Person and (B) the net income of such Person (but in no event less than zero),
and the net loss of such Person (other than an Unrestricted Subsidiary) shall
be included only to the extent of the aggregate Investment of the Company or
any of its Restricted Subsidiaries in such Person and (viii) any non-cash
expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments
<PAGE> 16
10
permitted under Section 4.04 pursuant to Section 4.04(a)(3)(E).
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending prior to the
taking of any action for the purpose of which the determination is being made
and for which financial statements are available (but in no event ending more
than 135 days prior to the taking of such action), as (i) the par or stated
value of all outstanding Capital Stock of the Company plus (ii) paid-in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" means, as of the date of determination,
any Person who (i) was a member of the Board of Directors on the date of the
Indenture, (ii) was nominated for election or elected to the Board of Directors
with the affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or election,
or (iii) is a representative of a Permitted Holder.
"Credit Agreement" means (i) the Credit Agreement as well as
all exhibits, schedules and appendices thereto to be entered into among
Hedstrom, Credit Suisse First Boston, as Administrative Agent, and the lenders
parties thereto from time to time, as the same may be amended, supplemented or
otherwise modified from time to time and (ii) any renewal, extension,
refunding, restructuring, replacement or refinancing thereof (whether with the
original Administrative Agent and lenders or another administrative agent or
agents or other lenders and whether provided under the original Credit
Agreement or any other agreement).
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person against fluctuations in currency values as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors and assigns, or
<PAGE> 17
11
such other depository institution hereinafter appointed by the Company.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock of such Person which by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable) or upon
the happening of any event (i) matures or is mandatorily redeemable pursuant to
a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is
convertible or exchangeable solely at the option of the Company or a Restricted
Subsidiary) or (iii) is redeemable at the option of the holder thereof, in
whole or in part, in each case on or prior to the Stated Maturity of the
Securities; provided, however, that only the portion of Capital Stock which so
matures or is mandatorily redeemable, is so convertible or exchangeable or is
so redeemable at the option of the holder thereof prior to such Stated Maturity
shall be deemed to be Disqualified Stock; provided further, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the Stated Maturity of the Securities shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provision applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions described in Section 4.06 and
Section 4.08.
"Equity Offering" means an offering for cash by the Company of
its common stock, or options, warrants or rights with respect to its common
stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Financial Advisory Agreement" means the Financial Advisory
Agreement between Hicks Muse Partners and Hedstrom and the Company as in effect
on the Issue Date.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a State thereof
or the District of Columbia and with respect to which more than 80% of its
assets (determined on a consolidated basis in accordance with GAAP) are located
in territories outside of the United States of America and jurisdictions
outside of the United States of America.
<PAGE> 18
12
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date hereof, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or the SEC or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and 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 Indebtedness of such other Person (whether arising by virtue
of partnership arrangements, or 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 purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedstrom" means Hedstrom Corporation, a Delaware corporation
and Wholly Owned Subsidiary of the Company.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Hicks Muse Partners" means Hicks Muse & Co. Partners, L.P.,
an affiliate of Hicks Muse.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. The term
<PAGE> 19
13
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated
Maturity of the Securities (but excluding, in each case, any accrued dividends)
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding principal
amount of all unconditional obligations as described above, as such amount
would be reflected on a balance sheet prepared in accordance with GAAP, and the
maximum liability of such Person, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above at such
date.
<PAGE> 20
14
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a
bank deposit other than a time deposit) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of Section 4.04, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to
be designated as an Unrestricted Subsidiary) of the fair market value of the
net assets of such Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors
and evidenced by a resolution of such Board of Directors certified in an
Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Initial Notes are
originally issued.
<PAGE> 21
15
"Legal Holiday" has the meaning ascribed in Section 10.08.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Merger" means the merger of ERO, Inc., with and into HC
Acquisition Corp., a Wholly Owned Subsidiary of Hedstrom, pursuant to the
Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger,
dated April 10, 1997 between Hedstrom, HC Acquisition Corp. and ERO, Inc.
"Monitoring and Oversight Agreement" means the Monitoring and
Oversight Agreement between Hicks Muse Partners and Hedstrom and the Company as
in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to the properties or assets subject to such Asset
Disposition), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to any Person owning a beneficial interest in assets subject to sale or
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, (iv) the deduction of appropriate amounts to be provided by
the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained
by the Company or any Restricted Subsidiary of the Company after such Asset
Disposition and (v) any portion of the purchase price from an Asset Disposition
placed in escrow (whether as a reserve
<PAGE> 22
16
for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or otherwise in connection with such Asset
Disposition); provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company, as applicable.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Permitted Holders" means Hicks Muse, Arnold E. Ditri or any
of their respective Affiliates, officers and directors.
"Permitted Indebtedness" means (i) Indebtedness of the Company
owing to and held by any Wholly Owned Subsidiary
<PAGE> 23
17
or Indebtedness of a Restricted Subsidiary owing to and held by Hedstrom or any
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the issuer thereof; (ii) Indebtedness represented by
(x) the Securities and the Senior Subordinated Notes, (y) any Indebtedness
(other than the Indebtedness described in clauses (i), (ii) and (iv) of Section
4.03(b) and other than Indebtedness Incurred pursuant to clause (i) above or
clauses (iv), (v) or (vi) below) outstanding on the Issue Date and (z) any
Refinancing Indebtedness Incurred in respect of any Indebtedness described in
this clause (ii) or Incurred pursuant to Section 4.03(a); (iii) (A)
Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on
which such Restricted Subsidiary was acquired by the Company or a Restricted
Subsidiary (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Subsidiary or was otherwise acquired by the Company or a
Restricted Subsidiary); provided, however, that at the time such Restricted
Subsidiary is acquired by the Company or a Restricted Subsidiary, the Company
would have been able to Incur $1.00 of additional Indebtedness pursuant to
Section 4.03(a) after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (iii) and (B) Refinancing Indebtedness Incurred by the
Company or a Restricted Subsidiary in respect of Indebtedness Incurred by the
Company or such Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance bonds, bankers' acceptances and
surety or appeal bonds provided by the Company or any of its Restricted
Subsidiaries to their customers in the ordinary course of their business, (B)
in respect of performance bonds or similar obligations of the Company or any of
its Restricted Subsidiaries for or in connection with pledges, deposits or
payments made or given in the ordinary course of business in connection with or
to secure statutory, regulatory or similar obligations, including obligations
under health, safety or environmental obligations, (C) arising from Guarantees
to suppliers, lessors, licensees, contractors, franchisees or customers of
obligations (other than Indebtedness) incurred in the ordinary course of
business and (D) under Currency Agreements and Interest Rate Agreements;
provided, however, that in the case of Currency
<PAGE> 24
18
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements are entered into for bona fide hedging purposes of the Company
or its Restricted Subsidiaries (as determined in good faith by the Board of
Directors or senior management of the Company) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of the Company or its Restricted Subsidiaries Incurred without
violation of the Indenture or to business transactions of the Company or its
Restricted Subsidiaries on customary terms entered into in the ordinary course
of business; (v) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the disposition of
any business assets or Restricted Subsidiary of the Company (other than
Guarantees of Indebtedness or other obligations Incurred by any Person
acquiring all or any portion of such business assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the Company or any
of its Restricted Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness Incurred pursuant to
this clause (v), when taken together with all Indebtedness Incurred pursuant to
this clause (v) and then outstanding, shall not exceed $10 million; (vi)
Indebtedness consisting of (A) Guarantees by the Company or a Restricted
Subsidiary of Indebtedness Incurred by a Wholly Owned Subsidiary without
violation of this Indenture and (B) Guarantees by a Restricted Subsidiary of
Senior Indebtedness Incurred by the Company without violation of the Indenture
(so long as such Restricted Subsidiary could have Incurred such Indebtedness
directly without violation of this Indenture); and (vii) Indebtedness arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within ten Business
Days of its incurrence.
"Permitted Investment" means an Investment by the Company or
any of its Restricted Subsidiaries in (i) the Company or a Wholly Owned
Subsidiary of the Company; provided, however, that the primary business of such
Wholly Owned Subsidiary is a Related Business; (ii) another Person if as a
result of such Investment such other Person becomes a Wholly Owned Subsidiary
of the Company or is merged or consolidated with or into, or transfers or
conveys all or
<PAGE> 25
19
substantially all its assets to, the Company or a Wholly Owned Subsidiary of
the Company; provided, however, that in each case such Person's primary
business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any of its Restricted Subsidiaries, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and that
are made in the ordinary course of business; (vi) loans or advances to
employees for purposes of purchasing the Company's common stock in an aggregate
amount outstanding at any one time not to exceed $5 million and other loans and
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Restricted
Subsidiaries or in satisfaction of judgments or claims; (viii) a Person engaged
in a Related Business or a loan or advance to the Company the proceeds of which
are used solely to make an Investment in a Person engaged in a Related Business
or a Guarantee by the Company of Indebtedness of any Person in which such
Investment has been made; provided, however, that no Permitted Investments may
be made pursuant to this clause (viii) to the extent the amount thereof would,
when taken together with all other Permitted Investments made pursuant to this
clause (viii), exceed $10 million in the aggregate (plus, to the extent not
previously reinvested, any return of capital realized on Permitted Investments
made pursuant to this clause (viii), or any release or other cancelation of any
Guarantee constituting such Permitted Investment); (ix) Persons to the extent
such Investment is received by the Company or any Restricted Subsidiary as
non-cash consideration for asset dispositions effected in compliance with
Section 4.06; (x) prepayments and other credits to suppliers made in the
ordinary course of business consistent with the past practices of the Company
and its Restricted Subsidiaries; and (xi) Investments in connection with
pledges, deposits, payments or performance bonds made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or
environmental obligations.
"Permitted Liens" means, with respect to any Person, (a)
pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection
<PAGE> 26
20
with bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which such Person is a party, or deposits to secure public or
statutory obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business; (b)
Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens,
in each case for sums not yet due or being contested in good faith by
appropriate proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be proceeding
with an appeal or other proceedings for review; (c) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate proceedings; (d) Liens in favor of issuers of
surety bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the construction, purchase or lease of, or repairs,
improvements or additions to, property of such Person; provided, however, that
the Lien may not extend to any other property owned by such Person or any of
its Subsidiaries at the time the Lien is Incurred, and the Indebtedness (other
than any interest thereon) secured by the Lien may not be Incurred more than
180 days after the later of the acquisition, completion of construction,
repair, improvement, addition or commencement of full operation of the property
subject to the Lien; (g) Liens to secure Indebtedness permitted under Section
4.03(b)(i); (h) Liens existing on the Issue Date; (i) Liens on property or
shares of Capital Stock of another Person at the time such other Person becomes
a Subsidiary of such Person; provided, however, that such Liens are not
created, incurred or assumed in connection with, or in contemplation of, such
other Person becoming such a Subsidiary; provided further, however, that such
Lien may not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens
<PAGE> 27
21
on property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (k) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a Wholly Owned Subsidiary of
such Person; (1) Liens securing Interest Rate Agreements and Currency
Agreements so long as such Interest Rate Agreements and Currency Agreements
relate to Indebtedness that is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing such Interest Rate Agreements
and Currency Agreements; and (m) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (f), (h), (i) and (j); provided, however,
that (x) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements to or on such property) and
(y) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (A) the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clauses (f), (h),
(i) or (j) at the time the original Lien became a Permitted Lien and (B) an
amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement. Notwithstanding
the foregoing, "Permitted Liens" will not include any Lien described in clauses
(f), (i) or (j) above to the extent such Lien applies to any Additional Assets
acquired directly or indirectly from Net Available Cash pursuant to Section
4.06. For purposes of this definition, the term "Indebtedness" shall be deemed
to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution
<PAGE> 28
22
of such corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by
the Company and its Restricted Subsidiaries in the Company's business or any
Related Business.
A "Public Market" exists at any time with respect to the
common stock of the Company if (a) the common stock of the Company is then
registered with the Securities and Exchange Commission pursuant to Section
12(b) or 12(g) of the Exchange Act and traded either on a national securities
exchange or in the National Association of Securities Dealers Automated
Quotation System and (b) at least 15% of the total issued and outstanding
common stock of the Company has been distributed prior to such time by means of
an effective registration statement under the Securities Act, or pursuant to
sales pursuant to Rule 144 under the Securities Act.
"Redemption Date" means the date specified by the Company in a
notice delivered pursuant to Section 3.03 as the date on which the Company has
elected to redeem all of the Securities pursuant to the third paragraph of
paragraph 5 of the Securities after the occurrence of a Change of Control.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness of the Company
or any Restricted Subsidiary existing on the date of the Indenture or Incurred
in compliance with the Indenture (including Indebtedness of the Company that
refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any
Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Securities and (B) the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
lesser of (A) the Average Life of the Securities and (B) the Average Life of
the Indebtedness being refinanced, and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to (or 101% of, in the case
of a refinancing of the
<PAGE> 29
23
Securities in connection with a Change of Control) or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being
refinanced, plus applicable premium and defeasance costs and reasonable fees
and expenses paid in connection with such refinancing.
"Registered Exchange Offer" shall have the meaning set forth
in the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated June 9, 1997, among the Company, Hedstrom, the Subsidiary
Guarantors (as defined in the Senior Subordinated Notes Indenture), Credit
Suisse First Boston Corporation, Societe Generale Securities Corporation and
UBS Securities.
"Related Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date hereof, as reasonably determined by the
Company's Board of Directors.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company
or a Subsidiary Guarantor secured by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means, whether outstanding on the Issue
Date or thereafter Incurred, Indebtedness of the Company, including interest
and fees thereon, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
in respect of such Indebtedness are subordinate in right of payment to the
Securities; provided, however,
<PAGE> 30
24
that Senior Indebtedness will not include (1) any obligation of the Company to
any Subsidiary, (2) any liability for Federal, state, foreign, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), or (4) any
Indebtedness (and any accrued and unpaid interest in respect thereof),
Guarantee or obligation of the Company that is expressly subordinate or junior
in right of payment to any other Indebtedness, Guarantee or obligation of the
Company, including any Subordinated Obligations.
"Senior Subordinated Notes" means the 10% Senior Subordinated
Notes Due 2007 issued by Hedstrom under the Senior Subordinated Notes
Indenture.
"Senior Subordinated Notes Indenture" means the indenture
dated the date hereof among Hedstrom, the Company, the Subsidiary Guarantors
(as defined therein) and IBJ Schroder Bank and Trust Company, as trustee.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
<PAGE> 31
25
"Temporary Cash Investments" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act), (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v)
above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two business days prior
to the Redemption Date (or, if such Statistical Release is no longer published,
any publicly available
<PAGE> 32
26
source or similar market data)) most nearly equal to the period from the
Redemption Date to June 1, 2002; provided, however, that if the period from the
Redemption Date to June 1, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to June 1, 2002 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to
a constant maturity of one year shall be used.
"Trustee" means United States Trust Company of New York until
a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Units" means the Units sold by the Company consisting of the
Initial Notes and shares of common stock of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under
<PAGE> 33
27
Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary;
provided, however, that until the date that is 180 days following the Issue
Date, ERO, Inc. shall be deemed to be a Wholly Owned Subsidiary of the Company
so long as the Company or a Wholly Owned Subsidiary owns at least 98% of the
Capital Stock of ERO, Inc.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
----------
Term Section
---- -------
<S> <C>
"Affiliate Transaction" . . . . . .. . . . . . . 4.07
"Bankruptcy Law" . . . . . . . . .. . . . . . . 6.01
"covenant defeasance option" . . .. . . . . . . 8.01(b)
"Custodian" . . . . . . . . . . . .. . . . . . . 6.01
"Default Amount" . . . . . . . . .. . . . . . . 6.02
"Event of Default" . . . . . . . .. . . . . . . 6.01
"legal defeasance option" . . . . .. . . . . . . 8.01(b)
"Offer" . . . . . . . . . . . . . .. . . . . . . 4.06
"Paying Agent" . . . . . . . . . .. . . . . . . 2.03
"Registrar" . . . . . . . . . . . .. . . . . . . 2.03
"Restricted Payment" . . . . . . .. . . . . . . 4.04
"Successor Company" . . . . . . . .. . . . . . . 5.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory
<PAGE> 34
28
provisions of the TIA which are incorporated by reference in and made a part of
this Indenture. The following TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by the TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP;
<PAGE> 35
29
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation preference of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect
to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Notes were originally issued.
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Notes, the Private Exchange Notes and the Exchange Notes are set forth
in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which
is hereby incorporated in and expressly made part of this Indenture. The
Initial Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Notes, the Private Exchange Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities
may have notations, legends or endorsements required by law, stock exchange
rule, agreements to which the Company is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Company). Each Security shall be dated the date of its authentication. The
terms of the Securities set forth in the Appendix and Exhibit A are part of the
terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers
shall sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually authenticates the Security. The signature of the Trustee
on a Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
<PAGE> 36
30
The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent.
SECTION 2.03. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more coregistrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or coregistrar not a party to this Indenture,
which shall incorporate the terms of the TIA. Such agreement shall implement
the provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of each such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.07. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar, coregistrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent for the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. By at
least 11:00 a.m. (New York City time) on the date on which any principal of or
interest on any Security is due and payable, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal or interest when due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that such Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by such Paying Agent for the
payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund. The Company at any
time may require a Paying Agent (other than the Trustee) to pay all money held
by it
<PAGE> 37
31
to the Trustee and to account for any funds disbursed by such Paying Agent.
Upon complying with this Section, the Paying Agent (if other than the Company
or a Subsidiary) shall have no further liability for the money delivered to the
Trustee. Upon any bankruptcy, reorganization or similar proceeding with
respect to the Company, the Trustee shall serve as Paying Agent for the
Securities.
SECTION 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee, in writing at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Replacement Securities. If a mutilated
Security is surrendered to the Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Security if the
requirements of Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the Trustee. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any coregistrar from
any loss which any of them may suffer if a Security is replaced. The Company
and the Trustee may charge the Holder for their expenses in replacing a
Security. Every replacement Security is an additional obligation of the
Company.
SECTION 2.07. Outstanding Securities. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.06, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or
<PAGE> 38
32
maturity date money sufficient to pay all principal and interest payable on
that date with respect to the Securities (or portions thereof) to be redeemed
or maturing, as the case may be, then on and after that date such Securities
(or portions thereof) cease to be outstanding and interest on them ceases to
accrue.
SECTION 2.08. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and the Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities. After the preparation of definitive
Securities, the temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at any office or agency
maintained by the Company for that purpose and such exchange shall be without
charge to the Holder. Upon surrender for cancelation of any one or more
temporary Securities, the Company shall execute, and the Trustee shall
authenticate and deliver in exchange therefor, one or more definitive
Securities representing an equal principal amount of Securities. Until so
exchanged, the Holder of temporary Securities shall in all respects be entitled
to the same benefits under this Indenture as a holder of definitive Securities.
SECTION 2.09. Cancelation. The Company at any time may
deliver Securities to the Trustee for cancelation. The Registrar and the
Paying Agent shall forward to the Trustee any Securities surrendered to them
for registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancelation and deliver a certificate of such destruction
to the Company unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancelation.
SECTION 2.10. Defaulted Interest. If the Company defaults in
a payment of interest on the Securities, the Company shall pay defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company may pay the defaulted interest to the persons who
are Securityholders on a subsequent special record date. The Company shall fix
or cause to be fixed (or upon the Company's failure to do so the Trustee shall
fix)
<PAGE> 39
33
any such special record date and payment date to the reasonable satisfaction of
the Trustee which specified record date shall not be less than 10 days prior to
the payment date for such defaulted interest and shall promptly mail or cause
to be mailed to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid. The
Company shall notify the Trustee in writing of the amount of defaulted interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such defaulted
interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when so deposited
to be held in trust for the benefit of the Person entitled to such defaulted
interest as provided in this Section.
SECTION 2.11. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify
the Trustee in writing of the redemption date and the principal amount of
Securities to be redeemed.
The Company shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply
with the conditions herein. If fewer than all the Securities are to be
redeemed, the record date relating to such redemption shall be selected by the
Company and set forth in the related notice given to the Trustee,
<PAGE> 40
34
which record date shall be not less than 15 days after the date of such notice.
SECTION 3.02. Selection of Securities To Be Redeemed. If
fewer than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of such Securities the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(e) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(f) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on Securities
(or
<PAGE> 41
35
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(g) the CUSIP number, if any, printed on the Securities being
redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice
of redemption is mailed, Securities called for redemption become due and
payable on the redemption date and at the redemption price stated in the
notice. Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price stated in the notice, plus accrued interest to the
redemption date; provided, however, that if the redemption date is after a
regular record date and on or prior to the interest payment date, the accrued
interest shall be payable to the Securityholder of the redeemed Securities
registered on the relevant record date. Failure to give notice or any defect
in the notice to any Holder shall not affect the validity of the notice to any
other Holder.
SECTION 3.05. Deposit of Redemption Price. Not later than
11:00 a.m. (New York City time) on the date on which any principal of or
interest on any Security is due and payable, the Company shall deposit with the
Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which are owned by
the Company or a Subsidiary and have been delivered by the Company or such
Subsidiary to the Trustee for cancelation.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such redemption price, interest
on the Securities to be redeemed will cease to accrue on and after the
applicable redemption date, whether or not such Securities are presented for
payment.
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36
SECTION 3.06. Securities Redeemed in Part. Upon surrender of
a Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in a principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall
promptly pay the principal of and interest on the Securities on the dates and
in the manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the Trustee
or the Paying Agent holds in accordance with this Indenture money sufficient to
pay all principal and interest then due.
The Company shall pay interest on overdue principal at the
rate specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States
of America from principal or interest payments hereunder.
SECTION 4.02. SEC Reports. The Company shall file with the
Trustee and provide to the holders of the Securities, within 15 days after it
files them with the SEC, copies of its annual report and the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide the Trustee and Securityholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections. Upon qualification of this
Indenture under the TIA, the
<PAGE> 43
37
Company also shall comply with the other provisions of TIA Section 314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, Incur,
directly or indirectly, any Indebtedness; provided, however, that the Company
and any of its Restricted Subsidiaries may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 1.75 : 1.00, if
such Indebtedness is Incurred on or prior to December 31, 1999 or 2.00: 1.00,
if such Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to (A) the Credit Agreement (including, without limitation,
any renewal, extension, refunding, restructuring, replacement or refinancing
thereof referred to in clause (ii) of the definition thereof) or (B) any other
agreements or indentures governing Senior Indebtedness; provided, however, that
the aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i) does not exceed $180 million at any time outstanding, less the
aggregate principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of a repayment of revolving credit
Indebtedness, the commitment to advance the loans repaid has been terminated);
(ii) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case Incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property used in a Related Business or Incurred to Refinance any
such purchase price or cost of construction or improvement, in each case
Incurred no later than 365 days after the date of such acquisition or the date
of completion of such construction or improvement; provided, however, that the
principal amount of any Indebtedness Incurred pursuant to this Section
4.03(b)(ii) shall not exceed $15 million at any time outstanding; (iii)
Permitted Indebtedness; and (iv) Indebtedness (other than Indebtedness
described in clauses (i) - (iii)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness Incurred pursuant
to this Section 4.03(b)(iv) and then outstanding, will not exceed $15 million
(it being understood that any Indebtedness Incurred under this clause (iv)
shall cease to be deemed Incurred or outstanding for purposes of this clause
(iv) (but shall be deemed to be Incurred for purposes of Section 4.03(a)) from
and after the first date on which the Company or its Restricted Subsidiaries
could have
<PAGE> 44
38
Incurred such Indebtedness under Section 4.03(a) without reliance upon this
clause (iv)).
(c) Notwithstanding the foregoing, neither the Company nor
any Restricted Subsidiary shall Incur any Indebtedness under Section 4.03(b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company unless such Indebtedness shall be
subordinated to the Securities to at least the same extent as such Subordinated
Obligations.
(d) The Company will not permit any Unrestricted Subsidiary
to incur any Indebtedness other than Non- Recourse Debt; provided, however,
that if any such Indebtedness ceases to be Non-Recourse Debt, such event shall
be deemed to constitute an Incurrence of Indebtedness by the Company or a
Restricted Subsidiary.
(e) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Company, in its
sole discretion, will classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
SECTION 4.04. Limitation on Restricted Payments. (a) The
Company shall not, and shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) except (A) dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock; and
(B) dividends or distributions payable solely to the Company or a
Restricted Subsidiary (and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro
rata basis);
(ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company held by any Person other than a
Restricted Subsidiary of the Company or any Capital Stock of a
Restricted Subsidiary
<PAGE> 45
39
held by any Affiliate of the Company, other than another Restricted
Subsidiary (in either case, other than in exchange for its Capital Stock
(other than Disqualified Stock));
(iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of purchase, repurchase or
acquisition); or
(iv) make any Investment (other than a Permitted Investment)
in any Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to in clauses (i) through (iv) as a "Restricted
Payment"), if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom); or
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue Date
would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the Issue
Date to the end of the most recent fiscal quarter ending prior
to the date of such Restricted Payment as to which financial
results are available (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate net proceeds received by the
Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received
from an issuance or sale of such Capital Stock to a Subsidiary
of
<PAGE> 46
40
the Company or an employee stock ownership plan or similar
trust); provided, however, that the value of any non-cash net
proceeds shall be as determined by the Board of Directors in
good faith, except that in the event the value of any non-cash
net proceeds shall be $10 million or more, the value shall be
as determined in writing by an independent investment banking
firm of nationally recognized standing;
(C) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) to an employee stock ownership plan
or similar trust subsequent to the Issue Date; provided,
however, that if such plan or trust Incurs any Indebtedness to
or Guaranteed by the Company or any of its Restricted
Subsidiaries to finance the acquisition of such Capital Stock,
such aggregate amount shall be limited to such Net Cash
Proceeds less such Indebtedness Incurred to or Guaranteed by
the Company or any of its Restricted Subsidiaries and any
increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such plan or trust
with respect to Indebtedness Incurred by it to finance the
purchase of such Capital Stock;
(D) the amount by which Indebtedness of the Company
is reduced on the Company's balance sheet upon the conversion
or exchange (other than by a Restricted Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of
the Company for Capital Stock of the Company (less the amount
of any cash, or other property, distributed by the Company
upon such conversion or exchange);
(E) the amount equal to the net reduction in
Investments (other than Permitted Investments) made by the
Company or any of its Restricted Subsidiaries in any Person
resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of
such Investment to an unaffiliated purchaser, and repayments
of loans or advances or other transfers of assets by such
Person to the Company or any Restricted Subsidiary of the
Company or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investment") not to exceed, in the case of
any Unrestricted
<PAGE> 47
41
Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments; provided, however, that no
amount shall be included under this clause (E) of this Section
4.04(a) to the extent it is already included in Consolidated
Net Income;
(F) the aggregate Net Cash Proceeds received by a
Person in consideration for the issuance of such Person's
Capital Stock (other than Disqualified Stock) which are held
by such Person at the time such Person is merged with and into
the Company in accordance with Section 5.01 subsequent to the
Issue Date; provided, however, that concurrently with or
immediately following such merger the Company uses an amount
equal to such Net Cash Proceeds to redeem or repurchase the
Company's Capital Stock; and
(G) $5 million.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan or
similar trust); provided, however, that (A) such purchase or redemption
shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded
from clause (3)(B) of Section 4.04(a);
(ii) any purchase or redemption of Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Company; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations
from Net Available Cash to the extent permitted under Section 4.06;
provided, however, that
<PAGE> 48
42
such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this provision; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments;
(v) payments of dividends on the Company's common stock after
an initial public offering of common stock of the Company in an annual
amount not to exceed 6% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of
the offering) received by the Company from shares of common stock sold
for the account of the Company (and not for the account of any
stockholder) in such initial public offering;
(vi) payments by the Company to repurchase Capital Stock or
other securities of the Company from members of management of the
Company in an aggregate amount not to exceed $5 million;
(vii) payments to enable the Company to redeem or repurchase
stock purchase or similar rights granted by the Company with respect to
its Capital Stock in an aggregate amount not to exceed $1 million;
(viii) payments, not to exceed $200,000 in the aggregate, to
enable the Company to make cash payments to holders of its Capital Stock
in lieu of the issuance of fractional shares of its Capital Stock;
(ix) payments made pursuant to any merger, consolidation or
sale of assets effected in accordance with Section 5.01; provided,
however, that no such payment may be made pursuant to this clause (ix)
unless, after giving effect to such transaction (and the incurrence of
any Indebtedness in connection therewith and the use of the proceeds
thereof), the Company would be able to Incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.03(a) such that, after Incurring that $1.00 of additional
Indebtedness, the Consolidated Coverage Ratio would be greater than
3.50:1.00; and
<PAGE> 49
43
(x) purchase or redemption by the Company or a Restricted
Subsidiary of Capital Stock of ERO, Inc. contemplated by the Merger
Agreement;
provided, however, that in the case of clauses (v), (vi), (vii), (viii) and
(ix) no Default or Event of Default shall have occurred or be continuing at the
time of such payment or as a result thereof.
SECTION 4.05. Limitation on Restrictions on Distributions
from Restricted Subsidiaries. The Company shall not, and shall not permit any
of its Restricted Subsidiaries to, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any such
Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its
Capital Stock or pay any Indebtedness or other obligation owed to the
Company;
(ii) make any loans or advances to the Company; or
(iii) transfer any of its property or assets to the Company;
except:
(a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date,
including the Senior Subordinated Notes Indenture and the
Credit Agreement;
(b) any encumbrance or restriction with respect to
such a Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness Incurred or Preferred Stock issued and
outstanding by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the
Company and outstanding on such date (other than Indebtedness
Incurred or Preferred Stock issued as consideration in, or to
provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary of the Company or was acquired
by the Company);
(c) any encumbrance or restriction with respect to
such a Restricted Subsidiary pursuant to an agreement
evidencing Indebtedness Incurred without violation of the
Indenture or effecting a refinancing of Indebtedness issued
pursuant to an
<PAGE> 50
44
agreement referred to in clauses (a) or (b) or this clause
(c); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment, taken as a whole, are
no less favorable to the Holders in any material respect, as
determined in good faith by the senior management of the
Company or Board of Directors of the Company, than
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in agreements in effect at, or entered
into on, the Issue Date;
(d) in the case of clause (iii) of this Section 4.05,
any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any
transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (C) that is included in a licensing agreement to
the extent such restrictions limit the transfer of the
property subject to such licensing agreement or (D) arising or
agreed to in the ordinary course of business and that does
not, individually or in the aggregate, detract from the value
of property or assets of the Company or any of its
Subsidiaries in any manner material to the Company or any such
Restricted Subsidiary as determined in good faith by the
senior management of the Company;
(e) in the case of clause (iii) of this Section 4.05,
restrictions contained in security agreements, mortgages or
similar documents securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements;
(f) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition;
<PAGE> 51
45
(g) any encumbrance or restriction imposed solely
upon a Foreign Subsidiary; provided, however, that immediately
after giving effect to such encumbrance or restriction, the
Company would be able to Incur at least $1.00 of Indebtedness
pursuant to Section 4.03(a); and
(h) encumbrances or restrictions arising or existing
by reason of applicable law.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary
Stock. (a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Asset Disposition unless:
(i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Company's
senior management or the Board of Directors (including as to the value
of all non-cash consideration), of the shares and assets subject to such
Asset Disposition;
(ii) at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents; and
(iii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be):
(A) first, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of
any Senior Indebtedness), to prepay, repay or purchase (x)
Senior Indebtedness or (y) Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case
other than Indebtedness owed to the Company) within 180 days
from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash;
(B) second, within one year from the receipt of such
Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause
(A), at the Company's election either (x) to the investment in
or acquisition of Additional Assets or (y) to prepay, repay or
purchase (1) Senior Indebtedness or (2) Indebtedness (other
than any Disqualified
<PAGE> 52
46
Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company); and
(C) third, within 45 days after the later of the
application of Net Available Cash in accordance with clauses
(A) and (B) and the date that is one year from the receipt of
such Net Available Cash, to the extent of the balance of such
Net Available Cash after application in accordance with
clauses (A) and (B), to make an offer (each, an "Offer") to
purchase Securities (and other Senior Indebtedness designated
by the Company), pro rata tendered at 100% of the accreted
value thereof (or 100% of the principal amount of such other
Senior Indebtedness, if such Senior Indebtedness was not
issued at a substantial discount from its principal amount)
plus accrued and unpaid interest, if any, thereon to the date
of purchase.
The balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C) may be
used by the Company in any manner not otherwise prohibited
under this Indenture. Notwithstanding anything contained
herein to the contrary, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A),
(B) or (C) above, the Company or such Restricted Subsidiary
shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or
purchased. Notwithstanding the foregoing provisions, the
Company and its Restricted Subsidiaries shall not be required
to apply any Net Available Cash in accordance herewith except
to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with
this covenant at any time exceeds $5 million. The Company
shall not be required to make an offer for Securities pursuant
to this covenant if the Net Available Cash available therefor
(after application of the proceeds as provided in clauses (A)
and (B)) is less than $10 million for any particular Asset
Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset
Disposition).
<PAGE> 53
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For the purposes of this covenant, the following will be
deemed to be cash or cash equivalents: (x) the assumption by the transferee of
Indebtedness of the Company or any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition (in which case the
Company shall, without further action, be deemed to have applied such assumed
Indebtedness in accordance with clause (A) of the preceding paragraph) and (y)
securities received by the Company or any Restricted Subsidiary of the Company
from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries will be permitted to consummate an Asset Swap if (i) immediately
after giving effect to such Asset Swap, no Default or Event of Default shall
have occurred or be continuing, (ii) in the event such Asset Swap involves an
aggregate amount in excess of $5 million, the terms of such Asset Swap have
been approved by a majority of the members of the Board of Directors of the
Company, and (iii) in the event such Asset Swap involves an aggregate amount in
excess of $20 million, the Company has received a written opinion from an
independent investment banking firm of nationally recognized standing that such
Asset Swap is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to Section 4.06(a)(iii)(C), the Company will be
required to purchase Securities (and any other Senior Indebtedness tendered for
by the Company) tendered pursuant to an offer by the Company for the Securities
(and any other Senior Indebtedness) at a purchase price of 100% of their
accreted value (or 100% of the principal amount of such other Senior
Indebtedness if such Senior Indebtedness was not issued at a substantial
discount) on the date of purchase plus accrued and unpaid interest, if any, to
the purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in Section 4.06(c). If the aggregate
purchase price of the Securities (and any other Senior Indebtedness) tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase thereof, the Company may use the remaining Net Available Cash for any
purpose not prohibited by this Indenture and any remaining Net Available Cash
will not be subject to any future offer to purchase.
<PAGE> 54
48
(c) (1) Promptly, and in any event within 10 days after the
Company is required to make an Offer, the Company shall deliver to the Trustee
and send, by first-class mail to each Holder, a written notice stating that the
Holder may elect to have his Securities purchased by the Company either in
whole or in part (subject to prorating as hereinafter described in the event
the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date").
(2) Not later than the date upon which such written notice of
an Offer is delivered to the Trustee and the Holders, the Company shall deliver
to the Trustee an Officers, Certificate setting forth (i) the amount of the
Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from
the Asset Dispositions as a result of which such Offer is being made and (iii)
the compliance of such allocation with the provisions of Section 4.06(a). Upon
the expiration of the period (the "Offer Period") for which the Offer remains
open, the Company shall deliver to the Trustee for cancelation the Securities
or portions thereof which have been properly tendered to and are to be accepted
by the Company. The Trustee shall, on the Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price of the
Securities tendered by such Holder to the extent such funds are available to
the Trustee.
(3) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice prior to the expiration of
the Offer Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one Business Day prior to the
expiration of the Offer Period, a telegram, telex, facsimile transmission or
letter from such Holder setting forth the name of such Holder, the principal
amount of the Security or Securities which were delivered for purchase by such
Holder and a statement that such Holder is withdrawing his election to have
such Security or Securities purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities
are purchased only in part will be issued new Securities equal in
<PAGE> 55
49
principal amount to the unpurchased portion of the Securities surrendered.
(d) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.06. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.06, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service), with any Affiliate of the Company
other than a Wholly Owned Subsidiary (an "Affiliate Transaction") unless:
(i) the terms of such Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction or
series of related transactions, in arm's-length dealings with a Person
who is not such an Affiliate;
(ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $5 million, the terms of such transaction
or series of related transactions have been approved by a majority of
the members of the Board of Directors of the Company and by a majority
of the disinterested members of such Board, if any (and such majority or
majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and
(iii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $15 million, the Company has received a
written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair
to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
(b) The foregoing provision of Section 4.07(a) shall not
apply to:
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(i) any Restricted Payment permitted to be made pursuant to
Section 4.04;
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company;
(iii) loans or advances to employees in the ordinary course of
business of the Company or any of its Restricted Subsidiaries;
(iv) any transaction between Wholly Owned Subsidiaries;
(v) indemnification agreements with, and the payment of fees
and indemnities to, directors, officers and employees of the Company and
its Restricted Subsidiaries, in each case in the ordinary course of
business;
(vi) transactions pursuant to agreements as in existence on
the Issue Date;
(vii) any employment, noncompetition or confidentiality
agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business;
(viii) payments made in connection with the transactions,
including fees to Hicks Muse;
(ix) the issuance of Capital Stock of the Company (other than
Disqualified Stock);and
(x) any obligations of the Company pursuant to the Monitoring
and Oversight Agreement and the Financial Advisory Agreement.
SECTION 4.08. Change of Control. (a) Upon the occurrence of
a Change of Control, each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Securities at a purchase price in
cash equal to 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive accrued and unpaid interest due
on the relevant interest payment date in respect of outstanding Securities),
such repurchase to be made in accordance with Section 4.08(b).
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(b) Within 30 days following any Change of Control, unless
the Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the Accreted
Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on a record date to
receive accrued and unpaid interest on the relevant interest payment
date in respect of outstanding Securities);
(2) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(3) the procedures determined by the Company, consistent with
this Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly
completed, to the Company at the address specified in the notice at
least three Business Days prior to the purchase date. Each Holder will
be entitled to withdraw its election if the Company receives, not later
than one Business Day prior to the purchase date, a telegram, telex,
facsimile transmission or letter from such Holder setting forth the name
of such Holder, the Accreted Value of the Security or Securities which
were delivered for purchase by such Holder and a statement that such
Holder is withdrawing his election to have such Security or Securities
purchased.
(d) On the purchase date, all Securities purchased by the
Company under this Section shall be delivered to the Trustee for
cancelation, and the Company shall pay the purchase price plus accrued
and unpaid interest, if any, to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of
Securities pursuant to this Section 4.08. To the extent that the
provisions of any securities laws or regulations conflict with
provisions of this Section 4.08, the Company shall comply with the
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applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Indenture by virtue thereof.
SECTION 4.09. Limitation on Liens. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
incur or permit to exist any Lien of any nature whatsoever on any of its
properties (including Capital Stock of a Restricted Subsidiary), whether owed
at the Issue Date or thereafter acquired, other than Permitted Liens, without
effectively providing that the Securities will be secured equally and ratably
with (or prior to) the obligations so secured for so long as such obligations
are so secured.
SECTION 4.10. Limitation on Sale/Leaseback Transactions. The
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any Sale/Leaseback Transaction with respect to any property unless
(i) the Company or such Restricted Subsidiary would be entitled to (A) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to Section 4.03 and (B) create a Lien on
such property securing such Attributable Debt without equally and ratably
securing the Securities pursuant to Section 4.09, (ii) the net proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
by the Board of Directors) of such property and (iii) the Company applies the
proceeds of such transaction in compliance with Section 4.06.
SECTION 4.11. Limitation on Capital Stock of Restricted
Subsidiaries. The Company will not, nor will it permit any Restricted
Subsidiary to, sell or otherwise dispose of any Capital Stock (other than
Preferred Stock) of a Restricted Subsidiary to any Person (other than to the
Company or a Wholly Owned Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly Owned Subsidiary of the Company) to own any
Capital Stock (other than Preferred Stock) of a Restricted Subsidiary of the
Company, if in either case as a result thereof such Restricted Subsidiary would
no longer be a Restricted Subsidiary of the Company; provided, however, that
this Section 4.11 shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with this Indenture.
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SECTION 4.12. Compliance Certificate. The Company shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Company an Officers' Certificate stating that in the course of the performance
by the signers of their duties as Officers of the Company they would normally
have knowledge of any Default or Event of Default and whether or not the
signers know of any Default or Event of Default that occurred during such
period. If they do, the certificate shall describe the Default or Event of
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA Section
314(a)(4).
SECTION 4.13. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. The
Company shall not consolidate with or merge with or into, or convey, transfer
or lease, in one transaction or a series of related transactions, all or
substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or
limited liability company organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been Incurred by the Successor Company or such
Subsidiary at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
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(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); and
(iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture.
The Successor Company will succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture,
but, in the case of a lease of all or substantially all its assets, the Company
will not be released from the obligation to pay the principal of and interest
on the Securities.
Notwithstanding clauses (ii) and (iii) of the first sentence
of this Section 5.01: (1) any Restricted Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company; and (2) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default"
occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of principal of any
Security when the same becomes due and payable at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10 or 4.11 (in each case other than a
failure to repurchase
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Securities when required pursuant to Section 4.06 or 4.08 which failure
shall constitute an Event of Default under Section 6.01(2)) and such
failure continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in
the Securities or this Indenture (other than those referred to in (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the holders thereof because of a default and the total
amount of such unpaid or accelerated Indebtedness exceeds $10 million or
its foreign currency equivalent at the time and such default shall not
have been cured or such acceleration rescinded within a 10-day period;
(7) the Company or a Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary;
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56
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess
of $10 million or its foreign currency equivalent at the time (to the
extent not covered by insurance) is entered against the Company or any
Significant Subsidiary and such judgment or decree remains undischarged
or unstayed for a period of 60 days after such judgment becomes final
and non-appealable.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under clause (4) or
(5) of this Section 6.01 will not constitute an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified in said clause (4) or (5) after receipt of
such notice. Such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clauses (4), (5), (6) or (9) of this Section
6.01.
SECTION 6.02. Acceleration. If an Event of Default (other
than an Event of Default specified in Section 6.01(7) or (8) with respect to
the Company) occurs and is continuing, the Trustee by notice to the Company, or
the Holders of at least 25% in outstanding principal amount of the Securities
by notice to the Company and the Trustee, may declare the Accreted Value of and
accrued and unpaid interest, if any, on all the Securities (the "Default
Amount") to be due and payable immediately. Upon such a declaration, the
Default Amount shall be due and payable
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immediately. If an Event of Default specified in Section 6.01(7) or (8) with
respect to the Company occurs, the Default Amount shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Securityholders. The Holders of a majority in principal
amount at maturity of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of acceleration. No such rescission shall affect any subsequent
Default or Event of Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount at maturity of the Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences
except (i) a Default or Event of Default in the payment of the principal of or
interest on a Security or (ii) a Default or Event of Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default or Event of Default is waived, it is
deemed cured but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount at maturity of the Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or,
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subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in outstanding principal
amount at maturity of the Securities make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount at maturity
of the outstanding Securities do not give the Trustee a direction that,
in the opinion of the Trustee, is inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its
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own name and as trustee of an express trust against the Company for the whole
amount then due and owing (together with interest on any unpaid interest to the
extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, any Subsidiary or
their respective creditors or properties and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder
to make payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money
or property pursuant to this Article VI, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion
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may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to
a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in outstanding principal amount at maturity of the
Securities.
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer
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unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely
on any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it
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believes to be authorized or within its rights or powers; provided, however,
that the Trustee's conduct does not constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar,
coregistrar or copaying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default or Event of
Default occurs and is continuing and if a Trust Officer has actual knowledge
thereof, the Trustee shall mail to each Securityholder notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal of, premium (if any) or
interest on any Security (including payments pursuant to the optional
redemption or required repurchase provisions of such Security, if any), the
Trustee may withhold the notice if and so long as its board of directors, a
committee of its board of directors or a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such
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May 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b). The Trustee shall also transmit by mail all reports
required by TIA Section 313(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC if required by law and each stock
exchange (if any) on which the Securities are listed. The Company agrees to
notify promptly the Trustee whenever the Securities become listed on any stock
exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time reasonable compensation for its services.
The Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, costs of preparing and reviewing reports,
certificates and other documents, costs of preparation and mailing of notices
to Securityholders and reasonable costs of counsel retained by the Trustee in
connection with the delivery of an Opinion of Counsel or otherwise, in addition
to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall
indemnify the Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder,
including the costs and expenses of enforcing this Indenture (including this
Section 7.07) and of defending itself against any claims (whether asserted by
any Securityholder, the Company or otherwise). The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee may
have separate counsel and the Company shall pay the fees and expenses of such
counsel. The Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities. The
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Trustee's right to receive payment of any amounts due under this Section 7.07
shall not be subordinate to any other liability or indebtedness of the Company.
The Company's payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs
expenses after the occurrence of a Default specified in Section 6.01(7) or (8)
with respect to the Company, the expenses are intended to constitute expenses
of administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Company. The Holders of a majority in
principal amount at maturity of the Securities may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee. The Company shall
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed by the Company or by the
Holders of a majority in principal amount at maturity of the Securities and
such Holders do not reasonably promptly appoint a successor Trustee, or if a
vacancy exists in the office of Trustee for any reason (the Trustee in such
event being referred to herein as the retiring Trustee), the Company shall
promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal
<PAGE> 71
65
amount at maturity of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Trustee
shall have a combined capital and surplus of at least $50 million as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be excluded
from the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
<PAGE> 72
66
SECTION 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.06) for
cancelation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article III hereof and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Securities (other than Securities replaced pursuant to Section 2.06), including
interest thereon to maturity or such redemption date, and if in either case the
Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 8.01(c), cease to be of further effect.
The Trustee shall acknowledge satisfaction and discharge of this Indenture on
demand of the Company (accompanied by an Officers' Certificate and an Opinion
of Counsel stating that all conditions precedent specified herein relating to
the satisfaction and discharge of this Indenture have been complied with) and
at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 5.01(iii) and
5.01(iv) and the operation of Sections 6.01(4), 6.01(6), 6.01(7) (but only with
respect to a Significant Subsidiary), 6.01(8) (but only with respect to a
Significant Subsidiary) and 6.01(9) ("covenant defeasance option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option, payment of the Securities
<PAGE> 73
67
may not be accelerated because of an Event of Default specified in Sections
6.01(4), 6.01(6), 6.01(7) (but only with respect to a Significant Subsidiary),
6.01(8) (but only with respect to a Significant Subsidiary) and 6.01(9) or
because of the failure of the Company to comply with Section 5.01(iii) and
Section 5.01(iv).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 8.01(a) and
(b), the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08,
8.04, 8.05 and 8.06 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may
be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and
in such amounts as will be sufficient to pay principal and interest when
due on all the Securities to maturity or redemption, as the case may be;
(3) the Company shall have delivered to the Trustee an Opinion
of Counsel, subject to certain customary qualifications, to the effect
that (i) the funds so deposited will not be subject to any rights of any
other holders of Indebtedness of the Company, and (ii) the funds so
deposited will not be subject to avoidance under applicable Bankruptcy
Law;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
<PAGE> 74
68
(5) the Company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under the
Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for U.S. Federal income tax purposes as a result of
such legal defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such legal defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such covenant
defeasance and will be subject to U.S. Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities and this
Indenture as contemplated by this Article VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article III.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article VIII. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with
this Indenture to the payment of principal of and interest on the Securities.
<PAGE> 75
69
SECTION 8.04. Repayment to Company. The Trustee and the
Paying Agent shall promptly turn over to the Company upon request any excess
money or securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon request any money held by
them for the payment of principal of or interest on the Securities that remains
unclaimed for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors.
SECTION 8.05. Indemnity for U.S. Government Obligations. The
Company shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent
is unable to apply any money or U.S. Government Obligations in accordance with
this Article VIII by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Obligations of the Company under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article VIII until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article VIII; provided, however, that, if
the Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its Obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders. The Company and
the Trustee may amend this Indenture or the Securities without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
<PAGE> 76
70
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add Guarantees with respect to the Securities or to
secure the Securities;
(5) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA; or
(7) to make any change that does not adversely affect the
rights of any Securityholder.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
SECTION 9.02. With Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount at maturity of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Securities). However, without the consent of each Securityholder affected,
an amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the stated rate of or extend the stated time for
payment of interest on any Security;
(3) reduce the principal or Accreted Value of or extend the
Stated Maturity of any Security;
<PAGE> 77
71
(4) reduce the premium payable upon the redemption or
repurchase of any Security or change the time at which any Security may
be redeemed as set forth in paragraph 5 of the Securities;
(5) make any Security payable in money other than that stated
in the Security;
(6) impair the right of any Holder to receive the due and
punctual payment of the principal of or interest on Securities; or
(7) make any change in Section 6.04 or 6.07 or the second
sentence of this Section.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers.
A consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding
<PAGE> 78
72
paragraph, those Persons who were Securityholders at such record date (or their
duly designated proxies), and only those Persons, shall be entitled to give
such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall become valid or effective more than 120 days after
such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder
of the Security to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Security regarding the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article IX if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
ARTICLE X
Miscellaneous
SECTION 10.01. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
provision required by the TIA shall control.
SECTION 10.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attention of Chief Financial Officer
<PAGE> 79
73
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1552
Attention of Corporate Trust Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears
on the registration books of the Registrar and shall be sufficiently given if
so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.03. Communication by Holders With Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in
<PAGE> 80
74
the opinion of such counsel, all such conditions precedent have been
complied with.
SECTION 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 10.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at
the time shall be considered in any such determination.
SECTION 10.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 10.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to
be open in the State of New York. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal
<PAGE> 81
75
Holiday, and no interest shall accrue for the intervening period. If a regular
record date is a Legal Holiday, the record date shall not be affected.
SECTION 10.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
SECTION 10.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any Obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
Obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be
part of the consideration for the issue of the Securities.
SECTION 10.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. one signed copy is enough to
prove this Indenture.
SECTION 10.13. Variable Provisions. The Company initially
appoints the Trustee as Paying Agent and Registrar and custodian with respect
to any Global Securities.
SECTION 10.14. Qualification of Indenture. The Company shall
qualify this Indenture under the TIA in accordance with the terms and
conditions of the Registration Rights Agreement and shall pay all reasonable
costs and expenses (including attorneys' fees for the Company, the Trustee and
the Holders) incurred in connection therewith, including, but not limited to,
costs and expenses of qualification of the Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel
or other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
<PAGE> 82
76
SECTION 10.15. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
HEDSTROM HOLDINGS, INC.,
by
/s/ ALAN PLOTKIN
-----------------------------------------
Name: Alan Plotkin
Title:
UNITED STATES TRUST COMPANY OF NEW YORK,
by
/s/ MARGARET M. CIESMELEWSKI
-----------------------------------------
Name: MARGARET M. CIESMELEWSKI
Title: ASSISTANT VICE PRESIDENT
<PAGE> 83
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS
PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN
OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL NOTES,
PRIVATE EXCHANGE NOTES
AND EXCHANGE NOTES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall
have the meanings indicated below:
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Notes" means the 12% Senior Discount Notes Due 2009
to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Rights Agreement.
"Initial Notes" means the 12% Senior Discount Notes Due 2009,
issued under this Indenture on or about the date hereof.
"Initial Purchasers" means Credit Suisse First Boston
Corporation, Societe Generale Securities Corporation and UBS Securities.
"Private Exchange" means the offer by the Company, pursuant to
the Registration Rights Agreement, to the Initial Purchasers to issue and
deliver to each Initial Purchaser, in exchange for the Initial Notes held by
the Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Notes.
"Private Exchange Notes" means the 12% Senior Discount Notes
Due 2009 to be issued pursuant to this Indenture to the Initial Purchasers in a
Private Exchange.
"Purchase Agreement" means the Purchase Agreement dated June
9, 1997, between the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
A-1
<PAGE> 84
"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Notes, to issue and deliver to such Holders, in exchange for the Initial Notes,
a like aggregate principal amount of Exchange Notes registered under the
Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated June 9, 1997, among the Company and the Initial Purchasers.
"Securities" means the Initial Notes, the Exchange Notes and
the Private Exchange Notes, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depositary), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration
statement issued by the Company, in connection with the offer and sale of
Initial Notes or Private Exchange Notes, pursuant to the Registration Rights
Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(b)hereto.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
----------
Term Section:
---- -------
<S> <C>
"Agent Members" . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Global Security" . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Regulation S" . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
2. The Securities.
2.1 Form and Dating.
The Initial Notes are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) Global Securities. Initial Notes offered and sold to a
QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in
reliance on Regulation S under the
A-2
<PAGE> 85
Securities Act ("Regulation S"), in each case as provided in the Purchase
Agreement, shall be issued initially in the form of one or more permanent
global Securities in definitive, fully registered form without interest coupons
with the global securities legend and restricted securities legend set forth in
Exhibit 1 hereto (each, a "Global Security"), which shall be deposited on
behalf of the purchasers of the Initial Notes represented thereby with the
Trustee, at its New York office, as custodian for the Depositary (or with such
other custodian as the Depositary may direct), and registered in the name of
the Depositary or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount at maturity of the Global Securities may from time to time be increased
or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in Section
2.3 or 2.4, owners of beneficial interests in Global Securities will not be
entitled to receive physical delivery of certificated Securities.
A-3
<PAGE> 86
2.2 Authentication. The Trustee shall authenticate and
deliver: (1) Initial Notes for original issue in an aggregate principal amount
at maturity of $44,612,000 and (2) Exchange Notes or Private Exchange Notes for
issue only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount at
maturity of Initial Notes, in each case upon a written order of the Company
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Notes, Exchange Notes or Private Exchange Notes. The aggregate principal
amount at maturity of Securities outstanding at any time may not exceed
$44,612,000 except as provided in Section 2.07 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange
of Global Securities. (i) The transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depositary, in
accordance with this Indenture (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Depositary therefor. A
transferor of a beneficial interest in a Global Security shall deliver to the
Registrar a written order given in accordance with the Depositary's procedures
containing information regarding the participant account of the Depositary to
be credited with a beneficial interest in the Global Security. The Registrar
shall, in accordance with such instructions instruct the Depositary to credit
to the account of the Person specified in such instructions a beneficial
interest in the Global Security and to debit the account of the Person making
the transfer the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.4), a Global Security
may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depository or a nominee of such successor
Depositary.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 or
Section 2.09 of the Indenture, prior to the consummation of a Registered
Exchange Offer or the effectiveness of a Shelf Registration Statement
with respect to such Securities, such Securities may be
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exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial Notes
intended to ensure that such transfers comply with Rule 144A or
Regulation S, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(b) Legends.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Global
Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS
SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED
THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
ISSUERS THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE U.S. TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (ii) OUTSIDE THE U.S. IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE),
(iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (v) TO THE ISSUERS, IN EACH OF CASES (i)
THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
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(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act, in the
case of any Transfer Restricted Security that is represented by a Global
Security, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a certificated Security that does not
bear the legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder certifies
in writing to the Registrar that its request for such exchange was made
in reliance on Rule 144 (such certification to be in the form set forth
on the reverse of the Security).
(iii) After a transfer of any Initial Notes or Private
Exchange Notes during the period of the effectiveness of a Shelf
Registration Statement with respect to such Initial Notes or Private
Exchange Notes, as the case may be, all requirements pertaining to
legends on such Initial Note or such Private Exchange Note will cease to
apply, the requirements requiring any such Initial Note or such Private
Exchange Note issued to certain Holders be issued in global form will
cease to apply, and a certificated Initial Note or Private Exchange Note
without legends will be available to the transferee of the Holder of
such Initial Notes or Private Exchange Notes upon exchange of such
transferring Holder's certificated Initial Note or Private Exchange Note
or directions to transfer such Holder's interest in the Global Security,
as applicable.
(iv) Upon the consummation of a Registered Exchange Offer
with respect to the Initial Notes pursuant to which Holders of such
Initial Notes are offered Exchange Notes in exchange for their Initial
Notes, all requirements pertaining to such Initial Notes that Initial
Notes issued to certain Holders be issued in global form will cease to
apply and certificated Initial Notes with the restricted securities
legend set forth in Exhibit 1 hereto will be available to Holders of
such Initial Notes that do not exchange their Initial Notes, and
Exchange Notes in certificated or global form will be available to
Holders that exchange such Initial Notes in such Registered Exchange
Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Notes pursuant to which Holders of such Initial Notes are
offered Private Exchange Notes in exchange for their Initial Notes, all
requirements pertaining to such Initial Notes that Initial
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Notes issued to certain Holders be issued in global form will still
apply, and Private Exchange Notes in global form with the Restricted
Securities Legend set forth in Exhibit 1 hereto will be available to
Holders that exchange such Initial Notes in such Private Exchange.
(c) Cancelation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been
exchanged for certificated Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depositary for cancelation or retained
and canceled by the Trustee. At any time prior to such cancelation, if any
beneficial interest in a Global Security is exchanged for certificated
Securities, redeemed, repurchased or canceled, the principal amount at maturity
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such
reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.06, 4.08 and 9.05 of the
Indenture).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated Security
selected for redemption in whole or in part pursuant to Article III of
this Indenture, except the unredeemed portion of any certificated
Security being redeemed in part, or (b) any Security for a period
beginning 15 Business Days before the mailing of a notice of an offer to
repurchase or redeem Securities or 15 Business Days before an interest
payment date.
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(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in whose
name a Security is registered as the absolute owner of such Security for
the purpose of receiving payment of principal of and interest on such
Security and for all other purposes whatsoever, whether or not such
Security is overdue, and none of the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by notice to
the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt and
shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a participant
in the Depositary or other Person with respect to the accuracy of the
records of the Depositary or its nominee or of any participant or member
thereof, with respect to any ownership interest in the Securities or
with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount, under
or with respect to such Securities. All notices and communications to
be given to the Holders and all payments to be made to Holders under the
Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any
Global Security shall be exercised only through the Depositary subject
to the applicable rules and procedures of the Depositary. The Trustee
may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers
between or among Depositary participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or
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evidence as are expressly required by, and to do so if and when expressly
required by, the terms of this Indenture, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depositary or
with the Trustee as custodian for the Depositary pursuant to Section 2.1 shall
be transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount at maturity equal to the principal
amount at maturity of such Global Security, in exchange for such Global
Security, only if such transfer complies with Section 2.3 and (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time such Depositary ceases to
be a "clearing agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, or
(ii) an Event of Default has occurred and is continuing or (iii) the Company,
in its sole discretion, notifies the Trustee in writing that it elects to cause
the issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the
beneficial owners thereof pursuant to this Section shall be surrendered by the
Depositary to the Trustee located in the Borough of Manhattan, The City of New
York, to be so transferred, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such transfer of
each portion of such Global Security, an equal aggregate principal amount at
maturity of certificated Initial Notes of authorized denominations. Any
portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and registered in such names as the Depositary shall
direct. Any certificated Initial Note delivered in exchange for an interest in
the Global Security shall, except as otherwise provided by Section 2.3(b), bear
the restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
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<PAGE> 92
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL NOTE]
THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE INITIALLY
ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF THE
SECURITIES AND SHARES OF COMMON STOCK (EACH, A "SHARE"). THE SECURITIES AND
SHARES WILL NOT TRADE SEPARATELY UNTIL THE EARLIER OF (I) THE COMMENCEMENT OF
AN EXCHANGE OFFER OR THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT FOR
THE SECURITIES OR (I) SUCH DATE AFTER JULY 12, 1997, AS THE INITIAL PURCHASERS
MAY DETERMINE.
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
ISSUERS THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD,
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PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE U.S. TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (ii) OUTSIDE THE U.S. IN A TRANSACTION IN ACCORDANCE WITH RULE
904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (IF AVAILABLE), (iv)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR
(v) TO THE ISSUER, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.
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<PAGE> 94
HEDSTROM HOLDINGS, INC.
No. ___ Principal Amount at Maturity $____________
CUSIP NO.
12% Senior Discount Note Due 2009
Hedstrom Holdings, Inc., a Delaware corporation, promises to
pay to _______________, or registered assigns, the principal sum of
________________ Dollars on June 1, 2009.
Interest Payment Dates: June 1 and December 1, commencing
December 1, 2002.
Record Dates: May 15 and November 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: HEDSTROM HOLDINGS, INC.
by
----------------------------
by
----------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF
NEW YORK
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
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<PAGE> 95
[REVERSE SIDE OF INITIAL NOTE]
12% Senior Discount Note Due 2009
1. Interest
Hedstrom Holdings, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above;
provided, however, that (i) if a Registration Default (as defined in the
Registration Rights Agreement) occurs, additional interest will accrue on this
Security at a rate of 0.50% per annum from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured and (ii) except as set forth in the
foregoing clause (i), no interest will accrue on the Securities prior to June
1, 2002. The Company will pay interest hereon, if any, semiannually on June 1
and December 1 of each year; provided, however, that except for any additional
interest payable pursuant to clause (i) of the proviso to the immediately
preceding sentence, the first such interest payment date shall be December 1,
2002. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid or provided for,
(i) in the case of interest payable upon a Registration Default, from the date
of such default, and (ii) in the case of cash interest, from June 1, 2002.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the May 15 or November 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
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<PAGE> 96
payments in respect of a certificated Security (including principal, premium
and interest) by mailing a check to the registered address of each Holder
thereof; provided, however, that payments on a certificated Security will be
made by wire transfer to a U.S. dollar account maintained by the payee with a
bank in the United States if such Holder elects payment by wire transfer by
giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a New York
corporation (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of June 1, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the
Indenture (the "Act"). Capitalized terms used herein and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the Act for a statement of those terms.
The Securities are general unsecured senior obligations of the
Company limited to $44,612,000 aggregate principal amount at maturity (subject
to Section 2.7 of the Indenture). This Security is one of the Initial Notes
referred to in the Indenture. The Securities include the Initial Notes and any
Exchange Notes and Private Exchange Notes issued in exchange for the Initial
Notes pursuant to the Indenture and the Registration Rights Agreement. The
Initial Notes, the Exchange Notes and the Private Exchange Notes are treated as
a single class of securities under the Indenture. The Indenture imposes
certain limitations on the Incurrence of Indebtedness by the Company and its
Restricted Subsidiaries,
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<PAGE> 97
the payment of dividends and other distributions on the Capital Stock of the
Company and its Restricted Subsidiaries, the purchase or redemption of Capital
Stock of the Company and Capital Stock of such Restricted Subsidiaries, certain
purchases or redemptions of Subordinated Obligations, the sale or transfer of
assets and Capital Stock of Restricted Subsidiaries, the issuance or sale of
Capital Stock of Restricted Subsidiaries, the investments of the Company and
its Restricted Subsidiaries, transactions with Affiliates, the Incurrence of
Liens by the Company and its Restricted Subsidiaries and Sale/Leaseback
Transactions. In addition, the Indenture limits the ability of the Company and
its Restricted Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will
not be redeemable at the option of the Company prior to June 1, 2002. On and
after such date, the Securities will be redeemable, at the Company's option, in
whole or in part, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's registered address, at the
following redemption prices (expressed as percentages of principal amount at
maturity), plus accrued and unpaid interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date):
<TABLE>
<CAPTION>
if redeemed during the 12-month period commencing
on June 1 of the years set forth below Redemption Price
------------------------------------------------- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.000%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.000
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.000
2005 and thereafter . . . . . . . . . . . . . . . . . . . . 100.000
</TABLE>
At any time or from time to time prior to June 1, 2000, the
Company may redeem in the aggregate up to 40% of the Accreted Value of the
Securities with the proceeds of one or more Equity Offerings by the Company so
long as there is a Public Market at the time of such redemption, at a
redemption price (expressed as a percentage of Accreted Value on the redemption
date) of 112%, plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders
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<PAGE> 98
of record on the relevant record date to receive accrued and unpaid interest
due on the relevant interest payment date); provided, however, that after
giving effect to such redemption, at least $26,767,200 principal amount at
maturity of the Securities remain outstanding.
At any time on or prior to June 1, 2002, the Securities may be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the Accreted Value thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued and unpaid interest on
all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the Accreted Value
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
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8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to
be redeemed) or any Securities for a period beginning 15 days before a
selection of Securities to be redeemed or beginning 15 days before an interest
payment date.
9. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
11. Discharge and Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on
the Securities to redemption or maturity, as the case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount at maturity of the
outstanding Securities and (ii) any default or noncompliance with any provision
may be waived with the written consent of the Holders of a
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<PAGE> 100
majority in principal amount at maturity of the outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent
of any Securityholder, the Company and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to
add additional covenants for the benefit of the Holders or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder, or to provide
for the issuance of Exchange Notes.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company to comply with other agreements in the Indenture
or the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Indebtedness of the Company or its Restricted
Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million and
such acceleration or failure to pay is not rescinded or cured within a 10-day
period; (v) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary; and (vi) certain final, non-appealable
judgments or decrees for the payment of money in excess of $10.0 million
against the Company or any Significant Subsidiary. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount at maturity of the Securities may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy or insolvency
are Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
principal amount
E1-9
<PAGE> 101
at maturity of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines that withholding notice is
in their interest.
14. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
16. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
17. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
E1-10
<PAGE> 102
18. Holders' Compliance with Registration Rights Agreement
Each holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEDSTROM CORPORATION, 300 CORPORATE CENTER DRIVE, SUITE 110, CORAOPOLIS,
PENNSYLVANIA 15108, ATTENTION: CHIEF FINANCIAL OFFICER.
E1-11
<PAGE> 103
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
----------------------- ------------------------
Signature Guarantee:
----------------------------------------------------------
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under
the Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities
Act of 1933) that purchases for its own account or for
the account of a qualified institutional buyer to whom
notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in
compliance with Rule 144A under the Securities Act of
1933; or
E1-12
<PAGE> 104
(4) [ ] outside the United States in an offshore transaction
within the meaning of Regulation S under the
Securities Act in compliance with Rule 904 under the
Securities Act of 1933; or
(5) [ ] pursuant to another available exemption from
registration provided by Rule 144 under the Securities
Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however, that
if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
-----------------------------
Signature
Signature Guarantee:
- ----------------------------- -----------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
-------------------- ------------------------------------
NOTICE: To be executed by
an executive officer
E1-13
<PAGE> 105
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal Amount this Global authorized officer
Amount of this of this Global Security following of Trustee or
Global Security Security such decrease or Securities
increase) Custodian
<S> <C> <C> <C> <C>
</TABLE>
E1-14
<PAGE> 106
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount
in principal amount (must be integral multiple of $1,000): $
Date: Your Signature:
------------------- ------------------------------------
(Sign exactly as your name appears
on the other side of this Security.)
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed by a member firm of the New
York Stock Exchange or a commercial bank or trust company)
E1-15
<PAGE> 107
EXHIBIT A
[FORM OF FACE OF EXCHANGE NOTE
OR PRIVATE EXCHANGE NOTE]
[*]
[**]
HEDSTROM HOLDINGS, INC.
No.___ Principal Amount at Maturity $_____________
CUSIP NO.
12% Senior Discount Note Due 2009
Hedstrom Holdings, Inc., a Delaware corporation, promises to
pay to ____________, or registered assigns, the principal sum of
_________________________Dollars on June 1, 2009.
Interest Payment Dates: June 1 and December 1, commencing
December 1, 2002.
Record Dates: May 15 and November 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: HEDSTROM HOLDINGS, INC.
by
-------------------------------
by
-------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY
OF NEW YORK
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
----------------------------
Authorized Signatory
- ---------------
*[If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its initial
allotment, add the Restricted Securities Legend from Exhibit 1 to Appendix A
and replace the Assignment Form included in this Exhibit A with the Assignment
Form included in such Exhibit 1.]
**[If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to the Appendix A and the attachment from such
Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".]
EA-1
<PAGE> 108
[REVERSE SIDE OF EXCHANGE NOTE
OR PRIVATE EXCHANGE NOTE]
HEDSTROM HOLDINGS, INC.
12% Senior Discount Note Due 2009
1. Interest
Hedstrom Holdings, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above;
provided, however, that if (i) a Registration Default (as defined in the
Registration Rights Agreement) occurs, additional interest will accrue on this
Security at a rate of 0.50% per annum from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured and (ii) except as set forth in the
foregoing clause (i), no interest will accrue on the Securities prior to June
1, 2002. The Company will pay interest hereon, if any, semiannually on June 1
and December 1 of each year; provided, however, that except for any additional
interest payable pursuant to clause (i) of the proviso to the immediately
preceding sentence, the first such interest payment date shall be December 1,
2002. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid or provided for,
(i) in the case of interest payable upon a Registration Default, from the date
of such default, and (ii) in the case of cash interest, from June 1, 2002.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the May 15 or November 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer
EA-2
<PAGE> 109
of immediately available funds to the accounts specified by The Depository
Trust Company. The Company will make all payments in respect of a certificated
Security (including principal, premium and interest) by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
a certificated Security will be made by wire transfer to a U.S. dollar account
maintained by the payee with a bank in the United States if such Holder elects
payment by wire transfer by giving written notice to the Trustee or the Paying
Agent to such effect designating such account no later than 30 days immediately
preceding the relevant due date for payment (or such other date as the Trustee
may accept in its discretion).
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a New York
corporation (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Securityholder. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of June 1, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the
Indenture (the "Act"). Capitalized terms used herein and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the Act for a statement of those terms.
The Securities are general unsecured senior obligations of the
Company limited to $44,612,000 aggregate principal amount at maturity (subject
to Section 2.7 of the Indenture). This Security is one of the Initial Notes
referred to in the Indenture. The Securities include the Initial Notes and any
Exchange Notes and Private Exchange Notes issued in exchange for the Initial
Notes pursuant to the Indenture and the Registration Rights Agreement. The
Initial Notes, the Exchange Notes and the Private Exchange Notes are treated as
a single class of securities under the Indenture.
EA-3
<PAGE> 110
The Indenture imposes certain limitations on the Incurrence of Indebtedness by
the Company and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Subordinated Obligations, the sale or transfer of assets and Capital Stock
of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the investments of the Company and its Restricted Subsidiaries,
transactions with Affiliates, the Incurrence of Liens by the Company and its
Restricted Subsidiaries and Sale/Leaseback Transactions. In addition, the
Indenture limits the ability of the Company and its Restricted Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will
not be redeemable at the option of the Company prior to June 1, 2002. On and
after such date, the Securities will be redeemable, at the Company's option, in
whole or in part, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's registered address, at the
following redemption prices (expressed as percentages of principal amount at
maturity), plus accrued and unpaid interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date):
<TABLE>
<CAPTION>
if redeemed during the 12-month
period commencing on June 1 of the years set forth below Redemption Price
-------------------------------------------------------- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.000%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.000
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.000
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.000
</TABLE>
At any time or from time to time prior to June 1, 2000, the
Company may redeem in the aggregate up to 40% of the Accreted Value of the
Securities with the proceeds of one or more Equity Offerings by the Company so
long as there is a Public Market at the time of such redemption, at a
redemption price (expressed as a percentage of Accreted Value on the
EA-4
<PAGE> 111
redemption date) of 112%, plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive accrued and unpaid interest due on the relevant interest
payment date); provided, however, that after giving effect to such redemption,
at least $26,767,200 principal amount at maturity of the Securities remain
outstanding.
At any time on or prior to June 1, 2002, the Securities may be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the Accreted Value thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued and unpaid interest on
all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the Accreted Value
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
EA-5
<PAGE> 112
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities, for a period beginning 15 days before a selection of Securities to
be redeemed or beginning 15 days before an interest payment date.
9. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
11. Discharge and Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on
the Securities to redemption or maturity, as the case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount at maturity of the
outstanding Securities and (ii) any default or noncompliance with any provision
may be waived with the written consent of the Holders of
EA-6
<PAGE> 113
a majority in principal amount at maturity of the outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent
of any Securityholder, the Company and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to
add additional covenants for the benefit of the Holders or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder, or to provide
for the issuance of Exchange Notes.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company to comply with other agreements in the Indenture
or the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Indebtedness of the Company or its Restricted
Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million and
such acceleration or failure to pay is not rescinded or cured within a 10 day
period; (v) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary; and (vi) certain final, non-appealable
judgments or decrees for the payment of money in excess of $10.0 million
against the Company or any Significant Subsidiary. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount at maturity of the Securities may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy or insolvency
are Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
principal amount
EA-7
<PAGE> 114
at maturity of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines that withholding notice is
in their interest.
14. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
16. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
17. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
EA-8
<PAGE> 115
18. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEDSTROM CORPORATION, 300 CORPORATE CENTER DRIVE, SUITE 110, CORAOPOLIS,
PENNSYLVANIA 15108, ATTENTION: CHIEF FINANCIAL OFFICER.
EA-9
<PAGE> 116
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
----------------------- ----------------------------------
(Sign exactly as your name appears on the other
side of the Security)
Signature Guarantee:
------------------------------------------------
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
EA-10
<PAGE> 117
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount
in principal amount (must be integral multiple of $1,000): $
Date: Your Signature:
----------------------- ----------------------------------
(Sign exactly as your name appears on the other
side of the Security)
Signature Guarantee:
-------------------------------------------------
(Signature must be guaranteed by a member firm of
the New York Stock Exchange or a commercial bank
or trust company)
EA-11
<PAGE> 1
EXHIBIT 4.7
HEDSTROM CORPORATION
$110,000,000 10% SENIOR SUBORDINATED NOTES DUE 2007
HEDSTROM HOLDINGS, INC.
$44,612,000 REPRESENTING 44,612 UNITS
CONSISTING OF
12% SENIOR DISCOUNT NOTES DUE 2009
AND
2,705,896 SHARES OF COMMON STOCK
PURCHASE AGREEMENT
June 9, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
SOCIETE GENERALE SECURITIES CORPORATION
UBS SECURITIES LLC
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010
Dear Sirs:
1. Introductory. Hedstrom Corporation, a Delaware corporation
("Hedstrom"), and Hedstrom Holdings, Inc., a Delaware corporation ("Holdings"
and, together with Hedstrom, the "Issuers"), propose, subject to the terms and
conditions stated herein, to issue and sell to the several initial purchasers
named in Schedule A hereto (the "Purchasers") $110,000,000 in aggregate
principal amount of Hedstrom's 10% Senior Subordinated Notes Due 2007 (the
"Senior Subordinated Notes") and 44,612 Units (the "Units"), each Unit
consisting of one of Holdings' 12% Senior Discount Notes Due 2009 (a "Discount
Note") with a principal amount at maturity of $1,000 and 60.654 shares
(collectively, the "Shares") of common stock, par value $.01 per share, of
Holdings ("Holdings Voting Common Stock"). The Senior Subordinated Notes and
the Discount Notes are collectively referred to herein as the "Offered Notes,"
and the Offered Notes, the Units and the Shares are collectively referred to
herein as the "Offered Securities." The Senior Subordinated Notes will be
unconditionally guaranteed on a senior basis (the "Holdings Guaranty") by
Holdings and on a senior subordinated basis (the "Subsidiary Guaranties" and,
together with the Holdings Guaranty, the "Guaranties") by each domestic
subsidiary of Hedstrom (the "Subsidiary Guarantors," and, together with
Holdings, the "Guarantors"). The Senior Subordinated Notes are to be issued
under an
<PAGE> 2
2
indenture dated as of June 1, 1997 (the "Senior Subordinated Notes Indenture"),
among Hedstrom, the Guarantors and IBJ Schroder Bank & Trust Company, as
trustee (the "Senior Subordinated Notes Trustee"). The Discount Notes are to be
issued under an indenture dated as of June 1, 1997 (the "Discount Notes
Indenture" and, together with the Senior Subordinated Notes Indenture, the
"Indentures"), between Holdings and United States Trust Company of New York, as
trustee (the "Discount Notes Trustee" and, together with the Senior
Subordinated Notes Trustee, the "Trustees"). The United States Securities Act
of 1933, as amended, is herein referred to as the "Securities Act."
Holders of the Notes will be entitled to the benefit of a Registration
Rights Agreement (the "Notes Registration Rights Agreement") dated the date
hereof, among the Issuers and the Purchasers. Holders of Shares will be
entitled to the benefits of a Common Stock Registration Rights Agreement (the
"Common Stock Registration Rights Agreement" and, together with the Notes
Registration Rights Agreement, the "Registration Rights Agreements") dated the
date hereof among Holdings and the Initial Purchasers.
This Agreement, the Indentures and the Registration Rights Agreements
are referred to herein collectively as the "Operative Documents."
The Offered Securities are being issued and sold in connection with
the consummation of the transactions contemplated by the Agreement and Plan of
Merger (the "Merger Agreement") dated as of April 10, 1997, among Hedstrom, HC
Acquisition Corp., a wholly owned subsidiary of Hedstrom ("Acquisition Co.")
and ERO, Inc. ("ERO"), pursuant to which Hedstrom has agreed, subject to
certain conditions, to acquire ERO (the "Acquisition").
As used in this Agreement, references to (i) the term "Company" mean
Hedstrom Holdings, Inc. and Hedstrom Corporation, including their subsidiaries
after giving effect to the Acquisition; (ii) the term "Issuers" mean Hedstrom
Holdings, Inc. and Hedstrom Corporation, each on a stand-alone basis and
excluding any of their respective subsidiaries; (iii) the term "ERO" mean ERO,
Inc., on a stand-alone basis excluding any subsidiaries; and (iv) the term
"Subsidiaries" mean all subsidiaries of the Issuers after giving effect to the
Acquisition.
Each of the Issuers hereby agrees with the several Purchasers as
follows:
2. Representations and Warranties of the Issuers. The Issuers
represent and warrant to, and agree with, the several Purchasers that:
(a) A preliminary offering circular and an offering circular relating
to the Offered Securities to be offered by the Purchasers have been prepared by
the Issuers. Such preliminary offering circular and offering circular, as both
are supplemented as of the date of this Agreement, together with any other
document approved by the Issuers for use in connection with the contemplated
resale of the Offered Securities are hereinafter collectively referred to as
the "Offering Document." On the date of this Agreement, the Offering Document
does not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The preceding
sentence does not apply to statements in or omissions from the Offering
Document based upon written information furnished to the Issuers by any
Purchaser through Credit Suisse First Boston Corporation ("CSFBC") specifically
for use therein,
<PAGE> 3
3
it being understood and agreed that the only such information is that described
as such in Section 7(b) hereof.
(b) Each of the Issuers, ERO and each Subsidiary has been duly
incorporated and is a validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own its properties and conduct its business as described
in the Offering Document; and each of the Issuers, ERO and each Subsidiary is
duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification, except where the failure to so
qualify could not reasonably be expected to have a material adverse effect upon
the condition (financial or other), results of operations, business affairs or
business prospects of the Company, taken as a whole (a "Material Adverse
Effect").
(c) All of the issued and outstanding capital stock of each Subsidiary
has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each Subsidiary owned by the Issuers or
ERO, directly or through subsidiaries, is owned (except as disclosed in the
Offering Document) free from liens, encumbrances and defects.
(d) Each of the Indentures has been duly authorized; the Offered Notes
have been duly authorized; and when the Offered Notes are delivered and paid
for pursuant to this Agreement on the Closing Date (as defined below), the
Indentures will have been duly executed and delivered, such Offered Notes will
have been duly executed, authenticated, issued and delivered and will conform
in all material respects to the description thereof contained in the Offering
Document, and assuming the due authorization, execution and delivery thereof by
all parties other than the Issuers, the Indentures and such Offered Notes will
constitute valid and legally binding obligations of the Issuers, enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(regardless of whether enforceability is considered in a proceeding at law or
in equity).
(e) The Registration Rights Agreements have been duly authorized,
executed and delivered by the Issuers (to the extent a party thereto), and
conform in all material respects to the descriptions thereof contained in the
Offering Document. Assuming the due authorization, execution and delivery
thereof by all parties other than the Issuers, the Registration Rights
Agreements constitute valid and legally binding obligations of the Issuers (to
the extent a party thereto), and are enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(f) The Shares have been duly authorized; and when the Shares are
delivered and paid for pursuant to this Agreement on the Closing Date, the
Shares will have been validly issued, fully paid and nonassessable; the
outstanding Holdings Voting Common Stock has been duly authorized and validly
issued, is fully paid and nonassessable and conforms in all material respects
to the description thereof contained in the Offering Document; and the
stockholders of Holdings have no preemptive rights with respect to the Offered
Notes or the Shares.
<PAGE> 4
4
(g) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Issuers and any person that
would give rise to a valid claim against the Issuers or any Purchaser for a
brokerage commission, finder's fee or other like payment in connection with the
issuance and sale of the Offered Securities.
(h) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the consummation
of the transactions contemplated by the Operative Documents or in connection
with the issuance and sale of the Offered Securities by the Issuers, other than
those that have been obtained or made, or as may be required under the
Securities Act and the Rules and Regulations of the Commission thereunder with
respect to the Registration Rights Agreements and the transactions contemplated
thereunder and such as may be required by securities or blue sky laws of any
state of the United States or of any foreign jurisdiction in connection with
the offer and sale of the Offered Securities.
(i) The execution, delivery and performance by the Issuers of the
Operative Documents, and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof, will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (i) any statute, rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over either of the
Issuers, ERO or any Subsidiary or any of their properties, (ii) any agreement
or instrument to which either of the Issuers, ERO or any such Subsidiary is a
party or by which either of the Issuers, ERO or any such Subsidiary is bound or
to which any of the properties of either of the Issuers, ERO or any such
Subsidiary is subject, or (iii) the charter or by-laws of either of the
Issuers, ERO or any such Subsidiary, except, in the case of clause (i) or (ii),
such breaches, violations or defaults that individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect; and each of
the Issuers has full corporate power and authority to authorize, issue and sell
the Offered Securities to be sold by such Issuer as contemplated by this
Agreement.
(j) The execution, delivery and performance by the Issuers, ERO and
each Subsidiary (to the extent a party thereto) of the Merger Agreement and the
Credit Agreement dated as of June 12, 1997, among Hedstrom, Credit Suisse First
Boston, as agent, and the other lenders party thereto (and the related
guarantees and security documents) (collectively, the "Credit Agreement"), will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over either of the Issuers, ERO or any Subsidiary or any of their
properties, (ii) any agreement or instrument to which either of the Issuers,
ERO or any such Subsidiary is a party or by which either of the Issuers, ERO or
any such Subsidiary is bound or to which any of the properties of either of the
Issuers, ERO or any such Subsidiary is subject, or (iii) the charter or by-laws
of either of the Issuers, ERO or any such Subsidiary, except, in the case of
clause (i) or (ii), such breaches, violations or defaults that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect.
(k) The Merger Agreement and the Credit Agreement have been duly
authorized, executed and delivered by the Issuers (to the extent a party
thereto) and conform in all material respects to the descriptions thereof in
the Offering Document. The Merger Agreement and the Credit Agreement constitute
valid and legally binding obligations of
<PAGE> 5
5
the Issuers and each is enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). The Issuers
have delivered to the Purchasers true and correct copies of the Merger
Agreement (and all tender offer documentation filed with the Commission in
connection therewith), in the form as originally executed (or filed), and there
have been no amendments or waivers to the Merger Agreement (or exhibits and
schedules thereto) other than those as to which the Purchasers shall have been
advised.
(l) This Agreement has been duly authorized, executed and delivered
by each of the Issuers.
(m) The Issuers, ERO and the Subsidiaries have good and marketable
title to all material real properties and good title to all other material
properties and assets owned by each of them, in each case free from liens,
encumbrances and defects that would have a Material Adverse Effect; and the
Issuers, ERO and the Subsidiaries hold any material leased real or personal
property under valid and enforceable leases with no exceptions that would have
a Material Adverse Effect.
(n) The Issuers, ERO and the Subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by each of
them, except where the failure to possess such certificates, authorities or
permits could not reasonably be expected to result in a Material Adverse
Effect, and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit that,
if determined adversely to the Issuers, ERO or any of the Subsidiaries, could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(o) No labor dispute with the employees of the Issuers, ERO or any of
the Subsidiaries exists or, to the knowledge of the Issuers, is imminent that
could reasonably be expected to have a Material Adverse Effect.
(p) The Issuers, ERO and the Subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights") necessary
to conduct the business now operated by each of them, or presently employed by
each of them, except where the failure to possess or acquire such intellectual
property rights could not reasonably be expected to result in a Material
Adverse Effect, and have not received any notice of infringement of or conflict
with asserted rights of others with respect to any intellectual property rights
that, if determined adversely to the Issuers, ERO or any of the Subsidiaries,
could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
(q) Except as disclosed in the Offering Document, neither the Issuers,
ERO nor any of the Subsidiaries is in violation of any applicable statute,
rule, regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates
<PAGE> 6
6
any real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any pending, or to the
knowledge of the Issuers, threatened claim relating to any environmental laws,
which violation, contamination, liability or claim could reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect.
(r) Except as disclosed in the Offering Document, there are no pending
actions, suits or proceedings against or affecting the Issuers, ERO, any of the
Subsidiaries or any of their respective properties that, individually or in the
aggregate, if determined adversely to the Issuers, ERO or any such Subsidiary,
could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect, or to materially and adversely affect the ability of
either of the Issuers to perform its obligations under any of the Operative
Documents or which are otherwise material in the context of the sale of the
Offered Securities and no such actions, suits or proceedings are, to the
Issuers' knowledge, threatened or contemplated.
(s) The financial statements of the Issuers included in the Offering
Document present fairly the financial position of the Issuers and their
consolidated subsidiaries as of the dates shown and their results of operations
and cash flows for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis, except as noted therein; and the
assumptions used in preparing the pro forma financial statements included in
the Offering Document provide a reasonable basis for presenting the significant
effects directly attributable to the transactions and other events and items
described therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical financial
statement amounts.
(t) The financial statements of ERO included in the Offering Document
present fairly the financial position of ERO and its consolidated subsidiaries
as of the dates shown and their results of operations and cash flows for the
periods shown, and such financial statements have been prepared in conformity
with the generally accepted accounting principles in the United States applied
on a consistent basis, except as noted therein.
(u) Since the date of the latest respective audited financial
statements of the Issuers and ERO included in the Offering Document, there have
been no developments or events that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and, except as
disclosed in or contemplated by the Offering Document, there has been no
dividend or distribution of any kind declared, paid or made by the Issuers or
ERO on any class of their respective capital stock.
(v) Neither of the Issuers is an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to
be registered under Section 8 of the United States Investment Company Act of
1940 (as amended, the "Investment Company Act"), nor are either of them a
closed-end investment company required to be registered, but not registered,
thereunder; and neither of the Issuers is and, after giving effect to the
offering and sale of the Offered Securities and the application of the proceeds
thereof as described in the Offering Document, neither Issuer will be an
"investment company" as defined in the Investment Company Act.
<PAGE> 7
7
(w) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities are listed on
any national securities exchange registered under Section 6 of the Exchange Act
or quoted in a U.S. automated inter-dealer quotation system.
(x) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act; and it is not necessary to qualify an
indenture in respect of the Offered Securities under the United States Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") other than in
connection with the Issuers' obligations under the Registration Rights
Agreements.
(y) Neither the Issuers, nor any of their affiliates, nor any person
acting on their behalf (i) has, within the six-month period prior to the date
hereof, offered or sold in the United States or to any U.S. person (as such
terms are defined in Regulation S under the Securities Act) the Offered
Securities or any security of the same class or series as the Offered
Securities (A) in the United States by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act or (B) with respect to any such securities sold in reliance on
Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of
any directed selling efforts within the meaning of Rule 902(b) of Regulation S.
The Issuers, their affiliates and any person acting on their behalf have
complied and will comply with the offering restrictions requirement of
Regulation S. The Issuers have not entered and will not enter into any
contractual arrangement with respect to the distribution of the Offered
Securities except for this Agreement and the Registration Rights Agreement.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Issuers agree to sell to the
Purchasers, and the Purchasers agree, severally and not jointly, to purchase
from the Issuers, at a purchase price of (i) 97% of the principal amount
thereof plus accrued interest, if any, from June 12, 1997 to the Closing Date,
the Senior Subordinated Notes set forth opposite the names of the several
Purchasers on Schedule A hereto and (ii) $540.7738 per Unit plus the increase
in accreted value of the Discount Notes, if any, from June 12, 1997 to the
Closing Date, the Units set forth opposite the names of the several Purchasers
on Schedule A hereto.
The Issuers will deliver against payment of the purchase price the
Offered Securities in the form of one or more permanent global securities in
registered form (the "Global Securities") which will be deposited with the
applicable Trustee as custodian for The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee for DTC. Interests in any
permanent Global Securities will be held only in book-entry form through DTC
except in the limited circumstances described in the Offering Document. Payment
for the Offered Securities shall be made by the Purchasers in Federal
(same-day) funds by wire transfer to an account in New York previously
designated to CSFBC by the Issuers at a bank acceptable to CSFBC, at the office
of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, NY
10019-7475 at 10:00 A.M. (New York time), on June 12, 1997, or at such other
time not later than seven full business days thereafter as CSFBC and the
Issuers determine, such time being herein referred to as the "Closing Date,"
against delivery to the applicable Trustee as custodian for DTC of the
applicable Global Securities representing all of the Offered Securities. The
Global Securities will be made available for checking at the
<PAGE> 8
8
above office of Cravath, Swaine & Moore (or at another office in New York
designated by the Issuers) at least 24 hours prior to the Closing Date.
4. Representations by Purchasers; Resale by Purchasers. (a) Each
Purchaser severally represents and warrants to the Issuers that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered Securities
have not been registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Regulation S or pursuant to an exemption from
the registration requirements of the Securities Act. Each Purchaser severally
represents and agrees that it has offered and sold the Offered Securities, and
will offer and sell the Offered Securities (i) as part of its distribution at
any time and (ii) otherwise until 40 days after the later of the commencement
of the offering and the Closing Date, only in accordance with Rule 903 or Rule
144A under the Securities Act ("Rule 144A"). Accordingly, neither such
Purchaser nor its affiliates, nor any persons acting on its or their behalf,
have engaged or will engage in any directed selling efforts with respect to the
Offered Securities, and such Purchaser, its affiliates and all persons acting
on its or their behalf have complied and will comply with the offering
restrictions requirement of Regulation S. Each Purchaser severally agrees that,
at or prior to confirmation of sale of the Offered Securities, other than a
sale pursuant to Rule 144A, such Purchaser will have sent to each distributor,
dealer or person receiving a selling concession, fee or other remuneration that
purchases the Offered Securities from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the date of the commencement of
the offering and the closing date, except in either case in accordance
with Regulation S (or Rule 144A if available) under the Securities
Act. Terms used above have the meanings given to them by Regulation
S."
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) CSFBC and any other Purchaser authorized by CSFBC may offer and
sell Offered Securities in definitive, fully registered form to a limited
number of institutions, each of which is reasonably believed by the applicable
Purchaser to be an "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act or an entity in which all the equity
owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the Securities Act (each, an "Institutional Accredited Investor");
provided, however, that each such Institutional Accredited Investor executes
and delivers to such Purchaser and the applicable Issuer, prior to the
consummation of any sale of Offered Securities to such Institutional Accredited
Investor, an Accredited Investor Letter in substantially the form attached as
Annex A to the Offering Document.
(d) Each Purchaser severally agrees that it and each of its affiliates
has not entered and will not enter into any contractual arrangement with
respect to the
<PAGE> 9
9
distribution of the Offered Securities except for any such arrangements with
the other Purchasers or affiliates of the other Purchasers or with the prior
written consent of the Issuers.
(e) Each Purchaser severally agrees that it and each of its affiliates
will not offer or sell the Offered Securities in the United States by means of
any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act, including, but not limited to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Each Purchaser severally agrees, with
respect to resales made in reliance on Rule 144A of any of the Offered
Securities, to deliver either with the confirmation of such resale or otherwise
prior to settlement of such resale a notice to the effect that the resale of
such Offered Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A. Each
Purchaser also severally agrees, in connection with each initial resale of the
Offered Securities, to deliver to the purchaser of such Offered Securities
either with the confirmation of such resale or otherwise prior to settlement of
such resale an Offering Document.
(f) Each of the Purchasers severally represents and agrees that (i) it
has not offered or sold and prior to the date six months after the date of
issue of the Offered Securities will not offer or sell any Offered Securities
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Offered Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Offered Securities to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
5. Certain Agreements of the Issuers. The Issuers agree with the
several Purchasers that:
(a) The Issuers will advise CSFBC promptly of any proposal to amend or
supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's consent (which consent shall not be
unreasonably withheld). If, at any time prior to the completion of the resale
of the Offered Securities by the Purchasers, any event occurs as a result of
which the Offering Document as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any such time to amend or supplement the Offering Document to comply with
any applicable law, the Issuers promptly will notify CSFBC of such event and
promptly will prepare, at their own expense, an amendment or supplement which
will correct such statement or omission or effect such compliance. Neither
CSFBC's consent to, nor the
<PAGE> 10
10
Purchasers' delivery to offerees or investors of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in
Section 6.
(b) The Issuers will furnish to CSFBC copies of any preliminary
offering circular, the Offering Document and all amendments and supplements to
such documents, in each case as soon as available and in such quantities as
CSFBC reasonably requests, and the Issuers will furnish to CSFBC on the date
hereof four copies of the Offering Document signed by a duly authorized officer
of each of the Issuers, one of which will include the independent accountants'
reports therein manually signed by such independent accountants. At any time
when either of the Issuers is not subject to Section 13 or 15(d) of the
Exchange Act, such Issuer will promptly furnish or cause to be furnished to
CSFBC (and, upon request, to each of the other Purchasers) and, upon request of
holders and prospective purchasers of the Offered Securities, to such holders
and purchasers, copies of the information required to be delivered to holders
and prospective purchasers of the Offered Securities pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto) in
order to permit compliance with Rule 144A in connection with resales by such
holders of the Offered Securities. Hedstrom will pay the expenses of printing
and distributing to the Purchasers all such documents.
(c) The Issuers will arrange for the qualification of the Offered
Securities for sale and the determination of their eligibility for investment
under the laws of such jurisdictions in the United States and Canada as CSFBC
designates and will continue such qualifications in effect so long as required
for the resale of the Offered Securities by the Purchasers, provided that the
Issuers will not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such state.
(d) During the period of five years hereafter, the Issuers will
furnish to CSFBC and, upon request, to each of the other Purchasers, as soon as
available, a copy of each report and any definitive proxy statement of either
of the Issuers filed with the Commission under the Exchange Act or mailed to
stockholders.
(e) During the period of two years after the Closing Date, the Issuers
will, upon request, furnish to CSFBC, each of the other Purchasers and any
holder of Offered Securities a copy of the restrictions on transfer applicable
to the Offered Securities.
(f) During the period of two years after the Closing Date, the Issuers
will not, and will not permit any of their affiliates (as defined in Rule 144
under the Securities Act) to, resell any of the Offered Securities that have
been reacquired by any of them.
(g) During the period of two years after the Closing Date, neither of
the Issuers will be or become, an open-end investment company, unit investment
trust or face-amount certificate company that is or is required to be registered
under Section 8 of the Investment Company Act, and neither of the Issuers is,
or will be or become, a closed-end investment company required to be
registered, but not registered, under the Investment Company Act.
(h) Hedstrom will pay all expenses incidental to the performance of
the Issuers' obligations under this Agreement and the Indentures, including (i)
the fees and expenses of the Trustees and their professional advisers; (ii) all
expenses in connection with the execution, issue, authentication, packaging and
initial delivery of the Offered Securities, the preparation and printing of
this Agreement, the Offered Securities, the Indentures, the Offering Document
and amendments and supplements thereto, and any other document
<PAGE> 11
11
relating to the issuance, offer, sale and delivery of the Offered Securities;
and (iii) the cost of qualifying the Offered Securities for trading in the
Private Offerings, Resale and Trading through Automated Linkages (PORTAL)
market and any expenses incidental thereto. The Issuers will also pay or
reimburse the Purchasers (to the extent incurred by them) for any reasonable
expenses (including reasonable fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions in the United States and Canada as CSFBC designates and
the printing of memoranda relating thereto, for any fees charged by investment
rating agencies for the rating of the Offered Securities, for all travel
expenses of the Issuers' officers and employees and any other expenses of the
Issuers in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities from the Purchasers and for expenses
incurred in distributing preliminary offering circulars and the Offering
Document (including any amendments and supplements thereto).
(i) In connection with the offering, until CSFBC shall have notified
the Issuers and the other Purchasers of the completion of the resale of the
Offered Securities, neither the Issuers nor any of their affiliates has or
will, either alone or with one or more other persons, bid for or purchase for
any account in which it or any of their affiliates has a beneficial interest
any Offered Securities or attempt to induce any person to purchase any Offered
Securities; and neither they nor any of their affiliates will make bids or
purchases for the purpose of creating actual, or apparent, active trading in,
or of raising the price of, the Offered Securities.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of
the Issuers herein, to the accuracy of the statements of officers of the
Issuers made pursuant to the provisions hereof, to the performance by the
Issuers of their obligations hereunder and to the following additional
conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of
this Agreement, of Arthur Anderson LLP confirming that they are independent
public accountants under Rule 101 of the AICPA's Code of Professional Conduct,
and its rulings and interpretations, and to the effect that:
(i) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the
Issuers who have responsibility for financial and accounting matters
and other specified procedures, nothing came to their attention that
caused them to believe that:
(A) any material modifications should be made to the
unaudited consolidated financial statements included in the
Offering Document for them to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent specified
date not more than five days prior to the date of this
Agreement, there was any change in the capital stock, any
increase in short-term indebtedness or long-term debt or any
decrease in consolidated net current assets, total assets or
stockholders' equity of the Issuers and their consolidated
subsidiaries, as compared with amounts shown on the latest
balance sheet included in the Offering Document; or
<PAGE> 12
12
(C) for the period of the closing date of the latest
income statement included in the Offering Document to the
closing date of the latest available income statement read by
such accountants, or to a subsequent specified date not more
than five days prior to the date of this Agreement, there
were any decreases, as compared with the corresponding period
of the previous year, in consolidated net sales, operating
income, net income or in the ratio of earnings to fixed
charges;
except in all cases as set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such letter;
(ii) on the basis of specified procedures, including (A) a
reading of the unaudited pro forma consolidated financial statements
of the Issuers included in the Offering Document; (B) inquiries of
certain officials of the Issuers who have responsibility for financial
and accounting matters about the basis for the determination of the
pro forma adjustments and whether all significant assumptions
regarding the 1996 Cost Reduction Plan (as defined in the Offering
Document), the Acquisition and the offering of the Offered Securities
contemplated by this Agreement had been reflected in the pro forma
adjustments; and (C) proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the unaudited pro forma financial statements referred to in clause
(A), nothing came to their attention that caused them to believe that
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Offering Document (in each case to the
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Issuers and their subsidiaries subject to the internal controls of the
Issuers' accounting system or are derived directly from such records
by analysis or computation) with the results obtained from inquiries,
a reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
(b) The Initial Purchasers shall have received a letter, dated the
date of this Agreement, of Price Waterhouse LLP confirming that they are
independent public accountants under Rule 101 of the AICPA's Code of
Professional Conduct, and its rulings and interpretations, and to the effect
that:
(i) on the basis of a reading of the latest available interim
financial statements of ERO, inquiries of officials of ERO who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) any material modifications should be made to the
unaudited consolidated financial statements included in the
Offering Document for them to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent specified
date not more than five days prior
<PAGE> 13
13
to the date of this Agreement, there was any change in the
capital stock, any increase in short-term indebtedness or
long-term debt or any decrease in consolidated net current
assets, total assets or stockholders' equity of ERO and its
consolidated subsidiaries, as compared with amounts shown on
the latest balance sheet included in the Offering Document;
or
(C) for the period of the closing date of the latest
income statement included in the Offering Document to the
closing date of the latest available income statement read by
such accountants, or to a subsequent specified date not more
than five days prior to the date of this Agreement, there
were any decreases, as compared with the corresponding period
of the previous year, in consolidated net sales, net
operating income, net income or in the ratio of earnings to
fixed charges;
except in all cases as set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such letter;
and
(ii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Offering Document (in each case to the
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of ERO and
its subsidiaries subject to the internal controls of ERO's accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBC, be likely to prejudice materially
the success of the proposed issue, sale or distribution of the Offered
Securities, whether in the primary market or in respect of dealings in the
secondary market, or (ii) (A) any change, or any development or event involving
a prospective change, in the condition (financial or other), business,
properties or results of operations of either of the Issuers or their
subsidiaries, or ERO or its subsidiaries which, in the judgment of a majority
in interest of the Purchasers including CSFBC, could result in a prospective
Material Adverse Effect and makes it impractical or inadvisable to proceed with
completion of the offering or the sale of and payment for the Offered
Securities; (B) any downgrading in the rating of any debt securities of either
of the Issuers or ERO or any of their respective subsidiaries by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities of either of the Issuers, ERO or any of their respective
subsidiaries (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (C) any suspension or limitation of trading in securities generally on
the New York Stock Exchange or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of either of the
Issuers on any exchange or in the over-the-counter market; (D) any banking
moratorium declared by U.S. Federal or New York authorities; or (E) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international
<PAGE> 14
14
calamity or emergency if, in the judgment of a majority in interest of the
Purchasers including CSFBC, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the offering or sale of and payment for the Offered
Securities.
(d) The Purchasers shall have received an opinion, dated the Closing
Date, of Weil, Gotshal & Manges LLP, counsel for the Issuers, substantially in
the form attached hereto as Exhibit A.
(e) The Purchasers shall have received from Cravath, Swaine & Moore,
counsel for the Purchasers, such opinion or opinions, dated the Closing Date,
with respect to the incorporation of the Issuers, the validity of the Offered
Securities, the Offering Document, the exemption from registration for the
offer and sale of the Offered Securities by the Issuers to the several
Purchasers and the resales by the several Purchasers as contemplated hereby and
other related matters as CSFBC may reasonably require, and the Issuers shall
have furnished to such counsel such documents as they request for the purpose
of enabling them to pass upon such matters.
(f) The Purchasers shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal financial
or accounting officer of each of the Issuers in which such officers, to the
best of their knowledge after reasonable investigation, shall state that the
representations and warranties of such Issuer in this Agreement are true and
correct, that such Issuer has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date, and that, subsequent to the date of the most recent financial
statements in the Offering Document there has been no change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of such
Issuer, ERO and any Subsidiary which, in the judgment of a majority in interest
of the Purchasers including CSFB could result in a prospective Material Adverse
Effect, except as set forth in or contemplated by the Offering Document or as
described in such certificate.
(g) Concurrently with or prior to the issue and sale of the Offered
Securities by the Issuers, Hedstrom shall have entered into the Credit
Agreement and, to the extent required as of the Closing Date to consummate the
Acquisition, the initial borrowings thereunder shall have occurred. The
Purchasers shall have received conformed counterparts thereof and all other
documents and agreements entered into and received thereunder in connection
with the Credit Agreement. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and the
Acquisition) no condition that would constitute a default (or an event that
with notice a lapse of time, or both, would constitute a default) under the
Credit Agreement.
(h) The issuance and sale of the Senior Subordinated Notes and the
Units by the Issuers shall be consummated concurrently in accordance with the
terms of this Agreement and the description thereof in the Offering Document.
(i) Concurrently with or prior to the issuance and sale of the Offered
Securities by the Issuers, the Issuers shall have consummated an offer to
purchase (the "Offer to Purchase") any and all shares of capital stock of ERO
in accordance with the Merger Agreement and on terms that conform in all
material respects to the description thereof in the Offering Document; the
Issuers shall have acquired at least a majority of common stock of ERO; and the
Issuers shall have acquired all shares of such capital stock validly tendered
<PAGE> 15
15
and not withdrawn pursuant to such Offer to Purchase. The Purchasers shall have
received true and correct copies of all documents pertaining to the Offer to
Purchase and the Acquisition and evidence reasonably satisfactory to the
Purchasers of the consummation of the Offer to Purchase.
(j) Concurrently with or prior to the issuance and sale of the Offered
Securities by the Issuers, Holdings shall have received $40 million of gross
proceeds from the private placement of shares of its non-voting common stock,
and Holdings shall have contributed such proceeds (net of fees and expenses) to
the equity capital of Hedstrom.
(k) The Purchasers shall have received letters, dated the Closing
Date, of each of Arthur Andersen LLP and Price Waterhouse LLP, which meet the
requirements of subsections (a) and (b) of this Section, except that the
specified date referred to in such subsection will be a date not more than five
days prior to the Closing Date for the purposes of this subsection.
The Issuers will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchaser's
compliance with any conditions of the Purchasers hereunder, whether in respect
of the Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Issuers will jointly and
severally indemnify and hold harmless each Purchaser against any losses,
claims, damages or liabilities, joint or several, to which such Purchaser may
become subject, under the Securities Act or the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any of the
representations and warranties of the Issuers contained herein or any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Document, 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 necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse
each Purchaser for any legal or other expenses reasonably incurred by such
Purchaser in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Issuers will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Issuers by any Purchaser through CSFBC
specifically for use therein, it being understood and agreed that the only such
information consists of the information described as such in subsection (b)
below; provided further, that with respect to any untrue statement or alleged
untrue statement in or omission or alleged omission from any preliminary
offering circular the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Purchaser that sold the Offered
Securities concerned to the person asserting any such losses, claims, damages
or liabilities, to the extent that such sale was an initial resale by such
Purchaser and any such loss, claim, damage or liability of such Purchaser
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Offered Securities to
such person, a copy of the Offering Document (exclusive of any material
included therein but not attached thereto) if the Issuers had previously
furnished copies thereof to such Purchaser.
<PAGE> 16
16
(b) Each Purchaser will severally and not jointly indemnify and hold
harmless the Issuers against any losses, claims, damages or liabilities to
which the Issuers may become subject, under the Securities Act or the Exchange
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 the Offering
Document, or any amendment or supplement thereto, or any related preliminary
offering circular, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Issuers by such Purchaser specifically for use therein, and
will reimburse any legal or other expenses reasonably incurred by the Issuers
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Purchaser consists of
the following information in the Offering Document furnished on behalf of each
Purchaser: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Purchasers, the legends concerning over-allotments
and stabilizing on the inside front cover page and the fourth and seventh
paragraphs under the caption "Plan of Distribution".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (in which case, such
indemnified party shall be entitled, at its option, to engage at the
indemnifying party's cost, separate counsel reasonably satisfactory to the
indemnifying party to act on behalf of all indemnified parties in connection
with such action), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion
as is appropriate to reflect the relative benefits received by the Issuers on
the one hand and the Purchasers on the other from the offering
<PAGE> 17
17
of the Offered 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 Issuers on the one hand and the Purchasers on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Issuers on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received
by the Issuers bear to the total discounts and commissions received by the
Purchasers from the Issuers under this Agreement. 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 Issuers or the
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the
Offered Securities purchased by it were resold exceeds the amount of any
damages which such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Purchasers' obligations in this subsection (d) to contribute are several in
proportion to their respective purchase obligations and not joint. Any party
entitled to contribution will, promptly after receipt of notice of the
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 7(d), notify such party or parties from whom contribution
may be sought, but the failure to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 7(d) or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.
(e) The obligations of the Issuers under this Section shall be in
addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Purchaser within the meaning of the Securities Act or the Exchange
Act; and the obligations of the Purchasers under this Section shall be in
addition to any liability which the respective Purchasers may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls the Issuers within the meaning of the Securities Act or the
Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in
their obligations to purchase Offered Securities hereunder and the aggregate
principal amount of Offered Securities that such defaulting Purchaser or
Purchasers agreed but failed to purchase does not exceed 10% of the total
principal amount of Offered Securities, CSFBC may make arrangements
satisfactory to the Issuers for the purchase of such Offered Securities by
other persons, including any of the Purchasers, but if no such arrangements are
made by the Closing Date, the non-defaulting Purchasers shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Offered Securities that such defaulting Purchasers agreed but failed to
purchase. If any Purchaser or Purchasers so default and the aggregate principal
amount of Offered
<PAGE> 18
18
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Offered Securities and arrangements satisfactory
to CSFBC and the Issuers for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Purchaser or the
Issuers, except as provided in Section 9. As used in this Agreement, the term
"Purchaser" includes any person substituted for a Purchaser under this Section.
Nothing herein will relieve a defaulting Purchaser from liability for its
default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
the Issuers or their officers and of the several Purchasers set forth in or
made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made
by or on behalf of any Purchaser, the Issuers or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement
is terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Purchasers is not consummated, the Issuers shall
remain responsible for the expenses to be paid or reimbursed by them pursuant
to Section 5 and the respective obligations of the Issuers and the Purchasers
pursuant to Section 7 shall remain in effect and if any Offered Securities have
been purchased hereunder the representations and warranties in Section 2 and
all obligations under Section 5 shall also remain in effect. If the purchase of
the Offered Securities by the Purchasers is not consummated for any reason
other than solely because of the termination of this Agreement pursuant to
Section 8 or the occurrence of any event specified in clause (C), (D) or (E) of
Sec tion 6(c)(ii), the Issuers will reimburse the Purchasers for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Purchasers will be mailed, delivered or telecopied and confirmed to
the Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010, Attention: Investment Banking
Department-Transactions Advisory Group, or, if sent to the Issuers, will be
mailed, delivered or telegraphed and confirmed to them at:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attn: David Crowley
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
with copies to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Attn: Alan B. Menkes
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
<PAGE> 19
19
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr.
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: Glenn D. West
Telephone: (214) 746-7700
Telecopy: (214) 746-7777
Alan Plotkin, Esq.
18 East 48th Street
New York, NY 10012
Telephone: (212) 758-2008
Telecopy: (212) 758-2268
provided, however, that any notice to a Purchaser pursuant to Section 7 will be
mailed, delivered or telegraphed and confirmed to such Purchaser.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Issuers as if such
holders were parties thereto.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Issuers hereby submit to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
<PAGE> 20
20
If the foregoing is in accordance with the Purchasers' understanding
of our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Issuers and the
several Purchasers in accordance with its terms.
Very truly yours,
HEDSTROM CORPORATION,
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title:
HEDSTROM HOLDINGS, INC.,
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title:
The foregoing Purchase Agreement is hereby
confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SOCIETE GENERALE SECURITIES CORPORATION
UBS SECURITIES LLC
By CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ SEAN P. MADDEN
-----------------------------------
Name: Sean P. Madden
Title:
<PAGE> 21
21
Schedule A
<TABLE>
<CAPTION>
Principal Amount of
Senior Subordinated
Purchaser Notes Number of Units
--------- ----- ---------------
<S> <C> <C>
Credit Suisse First Boston $77,000,000 31,228.40
Corporation
Societe Generale Securities $16,500,000 6,691.80
Corporation
UBS Securities LLC $16,500,000 6,691.80
</TABLE>
<PAGE> 1
EXHIBIT 4.8
HEDSTROM CORPORATION
$110,000,000 10% SENIOR SUBORDINATED NOTES DUE 2007
HEDSTROM HOLDINGS, INC.
$44,612,000 12% SENIOR DISCOUNT NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
June 9, 1997
Credit Suisse First Boston Corporation
Societe Generale Securities Corporation
UBS Securities LLC
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
Dear Sirs:
Hedstrom Corporation, a Delaware corporation ("Hedstrom"), and
Hedstrom Holdings, Inc., a Delaware corporation ("Holdings" and, together with
Hedstrom, the "Issuers"), propose to issue and sell to Credit Suisse First
Boston Corporation, Societe Generale Securities Corporation and UBS Securities
(the "Initial Purchasers"), upon the terms set forth in a purchase agreement of
even date herewith (the "Purchase Agreement"), $110,000,000 aggregate principal
amount of Hedstrom's 10% Senior Subordinated Notes Due 2007 (the "Senior
Subordinated Notes"); and $44,612,000 aggregate principal amount at maturity of
Holdings' 12% Senior Discount Notes Due 2009 (the "Discount Notes" and,
together with the Senior Subordinated Notes, the "Notes"). The Senior
Subordinated Notes will be unconditionally guaranteed on a senior basis by
Holdings (in such capacity, the "Guarantor") and on a senior subordinated basis
by each domestic subsidiary of Hedstrom (the "Subsidiary Guarantors").
References herein to the Senior Subordinated Notes shall be deemed to include
the guarantees by the Guarantor and the Subsidiary Guarantors. Each of the
Senior Subordinated Notes and the Discount Notes will be issued pursuant to a
separate Indenture, dated as of June 1, 1997 (each, an "Indenture" and
collectively, the "Indentures"), among, in the case of the Indenture governing
the Senior Subordinated Notes, Hedstrom, the Guarantor, the Subsidiary
Guarantors and IBJ Schroder Bank & Trust Company, as Trustee (the "Senior
Subordinated Notes Trustee"), and, in the case of the Indenture governing the
Discount Notes, Holdings and the United States Trust Company of New York, as
Trustee (together with the Senior Subordinated Notes Trustee, the "Trustees").
As an inducement to the Initial Purchasers, the Issuers agree with the Initial
Purchasers, for the benefit of the holders of the Notes (including, without
limitation, the Initial Purchasers), the Exchange Securities (as defined below)
and the Private Exchange Securities (as defined below) (collectively, the
"Holders"), as follows:
1. Registered Exchange Offer. The Issuers shall, at their cost,
prepare and, not later than 45 days after (or if the 45th day is not a business
day, the first business day thereafter) the date of original issue of the Notes
(the "Issue Date"), file with the Securities and Exchange Commission (the
"Commission") a registration statement or statements (the "Exchange Offer
Registration Statement") on an appropriate form under the Securities Act of
1933, as amended (the "Securities Act"), with respect to a proposed offer
(each, a "Registered Exchange Offer" and, collectively, the "Registered
Exchange Offers") to the Holders of each of the Senior Subordinated Notes and
the Discount Notes, who are not prohibited by any law or policy of the
Commission from participating in such a Registered Exchange Offer, to issue and
deliver to such Holders, in exchange for their respective Notes, a like
aggregate principal amount (or principal amount at maturity) of debt securities
of the applicable Issuer (collectively, the "Exchange Securities") issued under
the relevant Indenture and identical in all material respects to the Senior
Subordinated Notes or the Discount Notes (except for
<PAGE> 2
2
the transfer restrictions relating to such Notes), as the case may be, that
would be registered under the Securities Act. The Issuers shall use their best
efforts to cause such Exchange Offer Registration Statement to become effective
under the Securities Act within 150 days (or if the 150th day is not a business
day, the first business day thereafter) after the Issue Date of the Notes and
shall keep such Exchange Offer Registration Statement effective for not less
than 30 days (or longer, if required by applicable law) after the date notice
of the Registered Exchange Offers is mailed to the Holders (such period being
called the "Exchange Offer Registration Period").
If the Issuers effect the Registered Exchange Offers, the Issuers will
be entitled to close such Registered Exchange Offers 30 days after the
commencement thereof provided that the applicable Issuer has accepted all the
Notes theretofore validly tendered in accordance with the terms of the relevant
Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Issuers shall promptly commence the Registered
Exchange Offers, it being the objective of such Registered Exchange Offers to
enable each Holder of the Notes electing to exchange such Notes for Exchange
Securities (assuming that such Holder is not an affiliate of the Issuers within
the meaning of the Securities Act, acquires the Exchange Securities in the
ordinary course of such Holder's business and has no arrangements with any
person to participate in the distribution of the Exchange Securities and is not
prohibited by any law or policy of the Commission from participating in the
Registered Exchange Offers) to trade such Exchange Securities from and after
their receipt without any limitations or restrictions under the Securities Act
and without material restrictions under the securities laws of the several
states of the United States.
The Issuers acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Notes, acquired for its own account as a result of
market-making activities or other trading activities, for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing the
information set forth in Annex A hereto on the cover, in Annex B hereto in the
"Exchange Offer Procedures" section and the "Purpose of the Exchange Offer"
section, and in Annex C hereto in the "Plan of Distribution" section of such
prospectus in connection with a sale of any such Exchange Securities received
by such Exchanging Dealer pursuant to a Registered Exchange Offer and (ii) an
Initial Purchaser that elects to sell Exchange Securities acquired in exchange
for Notes constituting any portion of an unsold allotment is required to
deliver a prospectus containing the information required by Items 507 or 508 of
Regulation S-K under the Securities Act, as applicable, in connection with such
sale.
The Issuers shall use their best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided, however,
that (i) in the case where such prospectus and any amendment or supplement
thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such
period shall be the lesser of 180 days and the date on which all Exchanging
Dealers and the Initial Purchasers have sold all Exchange Securities held by
them (unless such period is extended pursuant to Section 3(j) below) and (ii)
the Issuers shall make such prospectus and any amendment or supplement thereto,
available to any broker-dealer for use in connection with any resale of any
Exchange Securities for a period not less than 90 days after the consummation
of the Registered Exchange Offers.
If, upon consummation of the Registered Exchange Offers, any Initial
Purchaser holds Senior Subordinated Notes or Discount Notes acquired by it as
part of its initial distribution, the applicable Issuer, simultaneously with
the delivery of the Exchange Securities pursuant to the relevant Registered
Exchange Offer, shall issue and deliver to such Initial Purchaser upon the
written request of such Initial Purchaser, in exchange (each, a "Private
Exchange" and, collectively, the "Private Exchanges") for the respective Notes
held by such Initial Purchaser, a like principal amount
<PAGE> 3
3
(or principal amount at maturity) of debt securities of the applicable Issuer
issued under the relevant Indenture and identical in all material respects
(including the existence of restrictions on transfer under the Securities Act
and the securities laws of the several states of the United States) to the
Senior Subordinated Notes or the Discount Notes, as the case may be
(collectively, the "Private Exchange Securities"). The Notes, the Exchange
Securities and the Private Exchange Securities are herein collectively called
the "Securities".
In connection with each Registered Exchange Offer, the applicable
Issuer shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date notice thereof is
mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York, which
may be the relevant Trustee or an affiliate of such Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of a Registered Exchange Offer
or Private Exchange, as the case may be, the applicable Issuer shall:
(x) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer or the Private Exchange, as
the case may be;
(y) deliver to the relevant Trustee for cancelation all the Notes so
accepted for exchange;
and
(z) cause the relevant Trustee to authenticate and deliver promptly to
each Holder that validly tendered Notes, Exchange Securities or Private
Exchange Securities, as the case may be, equal in principal amount, or, in the
case of the Discount Notes (or the relevant Exchange Securities or Private
Exchange Securities) principal amount at maturity, to the Notes of such Holder
so accepted for exchange.
Each Indenture will provide that the Exchange Securities subject to
such Indenture will not be subject to the transfer restrictions set forth in
such Indenture. Each Indenture will also provide that all the Notes, Exchange
Securities and Private Exchange Securities subject to such Indenture will vote
and consent together on all matters as one class and that none of the Notes,
Exchange Securities or Private Exchange Securities subject to such Indenture
will have the right to vote or consent as a separate class from one another on
any matter.
Interest on each Exchange Security or Private Exchange Security issued
pursuant to a Registered Exchange Offer or Private Exchange will accrue from
the last interest payment date on which interest was paid on the Note
surrendered in exchange therefor or, if no interest has been paid on such Note,
from the date of original issue of such Note.
Each Holder tendering Notes in a Registered Exchange Offer shall be
required to represent to the applicable Issuer that at the time of the
consummation of such Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate
<PAGE> 4
4
in the distribution of the Notes or the Exchange Securities within the meaning
of the Securities Act, (iii) such Holder is not an "affiliate," as defined in
Rule 405 of the Securities Act, of such Issuer or if it is an affiliate, such
Holder will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities and (v) if such Holder is a
broker-dealer, that it will receive Exchange Securities for its own account in
exchange for Notes that were acquired as a result of market-making activities
or other trading activities and that it will be required to acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities.
Notwithstanding any other provisions hereof, the Issuers will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies in
all material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
prospectus forming part of any Exchange Offer Registration Statement, and any
supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Issuers
are not permitted to effect the Registered Exchange Offers, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offers are not consummated
within 180 days of the date hereof, (iii) any Initial Purchaser so requests
with respect to the Notes (or the Private Exchange Securities) not eligible to
be exchanged for Exchange Securities in a Registered Exchange Offer and held by
it following consummation of the Registered Exchange Offers or (iv) any Holder
of Notes (other than an Exchanging Dealer) is not eligible to participate in
the relevant Registered Exchange Offer or, in the case of any Holder (other
than an Exchanging Dealer) that participates in a Registered Exchange Offer,
such Holder does not receive freely tradeable Exchange Securities on the date
of the exchange, the Issuers shall take the following actions:
(a) The Issuers shall, at their cost, as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to this
Section 2) file with the Commission and thereafter shall use their best efforts
to cause to be declared effective a registration statement or statements (the
"Shelf Registration Statement" and, together with the Exchange Offer
Registration Statement, a "Registration Statement") on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined in Section 6 hereof) by the Holders thereof
from time to time in accordance with the methods of distribution set forth in
the Shelf Registration Statement and Rule 415 under the Securities Act
(hereinafter, the "Shelf Registration"); provided, however, that no Holder
(other than an Initial Purchaser) shall be entitled to have the Securities held
by it covered by such Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to such
Holder.
(b) The Issuers shall use their best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
included therein to be lawfully delivered by the Holders of the relevant
Securities, for a period of two years (or for such longer period if extended
pursuant to Section 3(j) below) from the date of its effectiveness or such
shorter period that will terminate when all the Securities covered by the Shelf
Registration Statement have been sold pursuant thereto. The Issuers shall be
deemed not to have used their best efforts to keep the Shelf Registration
Statement effective during the requisite period if they voluntarily take any
action that would result in Holders of Securities covered thereby not being
able to offer and sell such Securities during that period, unless such action
is required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Issuers shall
<PAGE> 5
5
cause the Shelf Registration Statement and the related prospectus and any
amendment or supplement thereto, as of the effective date of the Shelf
Registration Statement, amendment or supplement, (i) to comply in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations of the Commission and (ii) not to contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable,
any Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The applicable Issuer or Issuers shall (i) furnish to each
Initial Purchaser, prior to the filing thereof with the Commission, a copy of
the Registration Statement and each amendment thereof and each supplement, if
any, to the prospectus included therein and, in the event that an Initial
Purchaser (with respect to any portion of an unsold allotment from the original
offering) is participating in the Registered Exchange Offer or the Shelf
Registration shall use their best efforts to reflect in each such document,
when so filed with the Commission, such comments as such Initial Purchaser
reasonably may propose; (ii) include the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto
in the "Plan of Distribution" section of the prospectus forming a part of the
Exchange Offer Registration Statement and include the information set forth in
Annex D hereto in the Letter of Transmittal delivered pursuant to such
Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include
the information required by Items 507 or 508 of Regulation S-K under the
Securities Act, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement; (iv) include within the prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the
staff of the Commission with respect to the potential "underwriter" status of
any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
Exchange Securities received by such broker-dealer in such Registered Exchange
Offer (a "Participating Broker-Dealer"), whether such positions or policies
have been publicly disseminated by the staff of the Commission or such
positions or policies, in the reasonable judgment of the Initial Purchasers
based upon advice of counsel (which may be in-house counsel), represent the
prevailing views of the staff of the Commission; and (v) in the case of a Shelf
Registration, include the names of the Holders, who propose to sell Securities
pursuant to the Shelf Registration Statement, as selling securityholders.
(b) The Issuers shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer from whom the
Issuers have received prior written notice that it will be a Participating
Broker-Dealer in a Registered Exchange Offer (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use of
the prospectus until the requisite changes have been made):
(i) when the Registration Statement or any amendment thereto has been
filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to
the Registration Statement or the prospectus included therein or for additional
information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by the Issuers or their legal counsel of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
<PAGE> 6
6
(v) of the happening of any event that requires the Issuers to make
changes in the Registration Statement or the prospectus in order that the
Registration Statement or the prospectus does not contain an untrue statement
of a material fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
prospectus, in light of the circumstances under which they were made) not
misleading.
(c) The Issuers shall use their best efforts to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of the
Registration Statement.
(d) The Issuers shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one
copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Issuers shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without charge, at
least one copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if any Initial Purchaser or any such Holder requests, all exhibits thereto
(including those, if any, incorporated by reference).
(f) The Issuers shall, during the Shelf Registration Period, deliver
to each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including each
preliminary prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request. The
Issuers consent, subject to the provisions of this Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling
Holders of the Securities in connection with the offering and sale of the
Securities covered by the prospectus, or any amendment or supplement thereto,
included in the Shelf Registration Statement.
(g) The Issuers shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offers,
without charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement and any amendment or supplement thereto as such
persons may reasonably request. The Issuers consent, subject to the provisions
of this Agreement, to the use of the prospectus or any amendment or supplement
thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer
and such other persons required to deliver a prospectus following the
Registered Exchange Offers in connection with the offering and sale of the
Exchange Securities covered by the prospectus, or any amendment or supplement
thereto, included in such Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Issuers shall register or qualify or cooperate with
the Holders of the Securities included therein and their respective counsel in
connection with the registration or qualification of the Securities for offer
and sale under the securities or "blue sky" laws of such states of the United
States as any Holder of the Securities reasonably requests in writing and do
any and all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Securities covered by such Registration
Statement; provided, however, that the Issuers shall not be required to (i)
qualify generally to do business in any jurisdiction where they are not then so
qualified or (ii) take any action which would subject them to general service
of process or to taxation in any jurisdiction where they are not then so
subject.
(i) The Issuers shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
the Holders may request a reasonable period of time prior to sales of the
Securities pursuant to such Registration Statement.
<PAGE> 7
7
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Issuers are
required to maintain an effective Registration Statement, the Issuers shall
promptly prepare and file a post-effective amendment to the Registration
Statement or a supplement to the related prospectus and any other required
document so that, as thereafter delivered to Holders of the Notes or purchasers
of Securities, the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. If the Issuers notify the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b)
above to suspend the use of the prospectus until the requisite changes to the
prospectus have been made, then the Initial Purchasers, the Holders of the
Securities and any such Participating Broker-Dealers shall suspend use of such
prospectus, and the period of effectiveness of the Shelf Registration Statement
provided for in Section 2(b) above or the Exchange Offer Registration Statement
provided for in Section 1 above, as the case may be, shall be extended by the
number of days from and including the date of the giving of such notice to and
including the date when the Initial Purchasers, the Holders of the Securities
and any known Participating Broker-Dealer shall have received such amended or
supplemented prospectus pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide CUSIP numbers for the Notes, the Exchange
Securities or the Private Exchange Securities, as the case may be, and provide
the applicable Trustee with printed certificates for the Notes, the Exchange
Securities or the Private Exchange Securities, as the case may be, in forms
eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registered
Exchange Offers or the Shelf Registration, and Holdings will make generally
available to the Issuers' securityholders (or otherwise provide in accordance
with Section 11(a) of the Securities Act) an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act, no later than 45 days after
the end of a 12-month period (or 90 days, if such period is a fiscal year)
beginning with the first month of Holdings' first fiscal quarter commencing
after the effective date of the Registration Statement, which statement shall
cover such 12-month period.
(m) The Issuers shall cause the Indentures to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a
timely manner and containing such changes, if any, as shall be reasonably
necessary for such qualification. In the event that such qualification would
require the appointment of a new trustee under any of the Indentures, the
Issuers shall appoint a new trustee thereunder pursuant to the applicable
provisions of such Indenture.
(n) The Issuers may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Issuers such
information regarding the Holder and the distribution of the Securities as the
Issuers may from time to time reasonably require for inclusion in the Shelf
Registration Statement, and the Issuers may exclude from such registration the
Securities of any Holder that unreasonably fails to furnish or, if necessary,
update such information within a reasonable time after receiving such request.
(o) The Issuers shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all such
other action, if any, as any Holder of the Securities shall reasonably request
in order to facilitate the disposition of the Securities pursuant to any Shelf
Registration.
(p) In the case of any Shelf Registration, the Issuers shall (i) make
reasonably available for inspection by the Holders of the Securities, any
underwriter participating in any disposition pursuant to the Shelf Registration
Statement and any attorney, accountant or other agent retained by the Holders
of the Securities or any such underwriter all relevant financial and other
records, pertinent
<PAGE> 8
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corporate documents and properties of the Issuers and (ii) cause the Issuers'
officers, directors, employees, accountants and auditors to supply all relevant
information reasonably requested by the Holders of the Securities or any such
underwriter, attorney, accountant or agent in connection with the Shelf
Registration Statement, in each case, as shall be reasonably necessary to
enable such persons, to conduct a reasonable investigation within the meaning
of Section 11 of the Securities Act; provided, however, that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Initial Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in Section 4
hereof.
(q) In the case of any Shelf Registration, the Issuers, if requested
by any Holder of Securities covered thereby, shall cause (i) their counsel to
deliver an opinion and updates thereof relating to the Securities in customary
form addressed to such Holders and the managing underwriters, if any, thereof
and dated, in the case of the initial opinion, the effective date of such Shelf
Registration Statement (it being agreed that the matters to be covered by such
opinion shall include, without limitation, the due incorporation and good
standing of the Issuers and their subsidiaries; the qualification of the
Issuers and their subsidiaries to transact business as foreign corporations;
the due authorization, execution and delivery of the relevant agreement of the
type referred to in Section 3(o) hereof; the due authorization, execution,
authentication and issuance, and the validity and enforceability, of the
applicable Securities; the absence of material legal or governmental
proceedings involving the Issuers and their subsidiaries; the absence of
governmental approvals required to be obtained in connection with the Shelf
Registration Statement, the offering and sale of the applicable Securities, or
any agreement of the type referred to in Section 3(o) hereof and the compliance
as to form of such Shelf Registration Statement and any documents incorporated
by reference therein and of the Indentures with the requirements of the
Securities Act and the Trust Indenture Act, respectively. Such opinion shall
also state that no facts have come to its attention which lead such counsel to
believe that, as of the date of the opinion and as of the effective date of the
Shelf Registration Statement or most recent post-effective amendment thereto,
as the case may be, the Shelf Registration Statement and the prospectus
included therein, as then amended or supplemented, and from any documents
incorporated by reference therein contain any untrue statement of a material
fact or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances existing at the time that such documents were filed with the
Commission under the Exchange Act (it being understood that such counsel shall
not be required to express any opinion as to the financial statements and
related notes, the financial projections and other financial, statistical and
accounting data included therein or appended thereto); (ii) their officers to
execute and deliver all customary documents and certificates and updates
thereof requested by any underwriters of the applicable Securities and (iii)
their independent public accountants to provide to the selling Holders of the
applicable Securities and any underwriter therefor a comfort letter in
customary form and covering matters of the type customarily covered in comfort
letters in connection with primary underwritten offerings, subject to receipt
of appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested by any
Initial Purchaser or any known Participating Broker-Dealer, the Issuers shall
cause (i) their counsel to deliver to such Initial Purchaser or such
Participating Broker-Dealer a signed opinion in the form set forth in Section
6(c) of the Purchase Agreement with such changes as are customary in connection
with the preparation of a Registration Statement and (ii) their independent
public accountants to deliver to such Initial Purchaser or such Participating
Broker-Dealer a comfort letter, in customary form, meeting the requirements as
to the substance thereof as set forth in Sections 6(a) and (k) of the Purchase
Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Issuers (or to such
other Person as directed by the Issuers) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the Issuers
shall mark, or cause to be marked, on the Notes so exchanged that such Notes
are being canceled in exchange for the Exchange Securities or the Private
Exchange Securities, as the case
<PAGE> 9
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may be; in no event shall the Notes be marked as paid or otherwise satisfied.
(t) The Issuers shall use their best efforts to (a) if the Notes have
been rated prior to the initial sale of such Notes, confirm such ratings will
apply to the Securities covered by a Registration Statement, or (b) if the
Notes were not previously rated, cause the Securities covered by a Registration
Statement to be rated with the appropriate rating agencies, if so requested by
Holders of a majority in aggregate principal amount (or principal amount at
maturity) of Securities covered by such Registration Statement, or by the
managing underwriters, if any.
(u) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution" (within
the meaning of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as
an underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Issuers shall assist such broker-dealer in complying
with the requirements of such Conduct Rules, including, without limitation, by
(i) if Rule 2720 thereto shall so require, engaging a "qualified independent
underwriter" (as defined in Rule 2720) to participate in the preparation of the
Registration Statement relating to such Securities, to exercise usual standards
of due diligence in respect thereto and, if any portion of the offering
contemplated by such Registration Statement is an underwritten offering or is
made through a placement or sales agent, to recommend the yield of such
Securities, (ii) indemnifying any such qualified independent underwriter to the
extent of the indemnification of underwriters provided in Section 5 hereof and
(iii) providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the Conduct
Rules of the NASD.
(v) The Issuers shall use their best efforts to take all other steps
necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. Registration Expenses. The Issuers shall bear all fees and expenses
incurred in connection with the performance of their obligations under Sections
1 through 3 hereof (including the reasonable fees and expenses, if any, of
Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in
connection with the Registered Exchange Offers), whether or not a Registered
Exchange Offer or a Shelf Registration is filed or becomes effective, and, in
the event of a Shelf Registration, shall bear or reimburse the Holders of the
Securities covered thereby for the reasonable fees and disbursements of one
firm of counsel designated by the Holders of a majority in principal amount (or
principal amount at maturity) of the Securities covered thereby to act as
counsel for the Holders of the Securities in connection therewith, provided
that such Holders shall be responsible for any and all (i) underwriting
discounts and commissions and (ii) other out-of-pocket expenses of such Holders
incurred in connection with the Shelf Registration.
5. Indemnification. (a) The Issuers severally and jointly agree to
indemnify and hold harmless each Holder of the Securities, any Participating
Broker-Dealer and each person, if any, who controls such Holder or such
Participating Broker-Dealer within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each such
indemnified party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in
any amendment or supplement thereto or in any preliminary prospectus relating
to a Shelf Registration, or arise out of, or are based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall
reimburse, as incurred, the such indemnified parties for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action in respect thereof;
provided, however, that (i) the Issuers shall not be liable in any such case to
the extent that such loss, claim, damage or
<PAGE> 10
10
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in a Registration Statement or
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus relating to a Shelf Registration in reliance upon and in conformity
with written information pertaining to such Holder and furnished to the Issuers
by or on behalf of such Holder specifically for inclusion therein and (ii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any prospectus relating to a Shelf Registration Statement, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Holder or Participating Broker-Dealer from whom the person
asserting any such losses, claims, damages or liabilities purchased the
Securities concerned, to the extent that a prospectus relating to such
Securities was required to be delivered by such Holder or Participating
Broker-Dealer under the Securities Act in connection with such purchase and any
such loss, claim, damage or liability of such Holder or Participating
Broker-Dealer results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the final prospectus, as amended on supplement, if
the Issuers had previously furnished copies thereof to such Holder or
Participating Broker-Dealer; provided further, however, that this indemnity
agreement will be in addition to any liability which the Issuers may otherwise
have to such indemnified party. The Issuers shall also indemnify underwriters,
their officers and directors and each person who controls such underwriters
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders of the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Issuers and each person, if any, who controls
the Issuers within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act from and against any losses, claims, damages or
liabilities or any actions in respect thereof, to which the Issuers or any such
controlling person may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement or
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus relating to a Shelf Registration, or arise out of or are based upon
the omission or alleged omission to state therein a material fact necessary to
make the statements therein not misleading, in light of the circumstances under
which they were made, but in each case only to the extent that the untrue
statement or omission or alleged untrue statement or omission was made in
reliance upon and in conformity with written information pertaining to such
Holder and furnished to the Issuers by or on behalf of such Holder specifically
for inclusion therein; and, subject to the limitation set forth immediately
preceding this clause, shall reimburse, as incurred, the Issuers for any legal
or other expenses reasonably incurred by the Issuers or any such controlling
person in connection with investigating or defending any loss, claim, damage,
liability or action in respect thereof. This indemnity agreement will be in
addition to any liability which such Holder may otherwise have to the Issuers
or any of their controlling persons.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (in
which case, such indemnified party shall be entitled, at its option, to engage
at the indemnifying party's cost, separate counsel reasonably satisfactory to
the indemnifying party to act on behalf of all indemnified parties in
connection with such action), and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof the
<PAGE> 11
11
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the relevant
Notes, pursuant to the relevant Registered Exchange Offer, or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties 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 Issuers on the one hand or such Holder or such other indemnified party, as
the case may be, on the other, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 5(d), the Holders of the
Securities shall not be required to contribute any amount in excess of the
amount by which the net proceeds received by such Holders from the sale of the
Securities pursuant to a Registration Statement exceeds the amount of damages
which such Holders have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph
(d), each person, if any, who controls such indemnified party within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as such indemnified party and
each person, if any, who controls the Issuers within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act shall have the same
rights to contribution as the Issuers.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancelation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a) Additional
interest (the "Additional Interest") with respect to a series of Securities
shall be assessed as follows if any of the following events occur (each such
event in clauses (i) through (iii) below, a "Registration Default"):
(i) If by July 28, 1997, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement relating to such series of
Securities has been filed with the Commission;
(ii) If by December 9, 1997, neither the Registered Exchange Offer
relating to such series of Securities is consummated nor, if required in lieu
thereof, a Shelf Registration Statement relating
<PAGE> 12
12
to such series of Securities is declared effective by the Commission; or
(iii) If, after December 9, 1997, and after either the Exchange Offer
Registration Statement or the Shelf Registration Statement relating to such
series of Securities is declared effective (A) such Registration Statement
thereafter ceases to be effective (except as permitted in paragraph (b)); or
(B) such Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of Transfer
Restricted Securities during the periods specified herein because either (1)
any event occurs as a result of which the related prospectus forming part of
such Registration Statement would include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made not
misleading, or (2) it shall be necessary to amend such Registration Statement
or supplement the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
Additional Interest shall accrue on the Notes and any Private Securities
exchanged therefor, at a rate of 0.50% per annum (the "Additional Interest
Rate") over and above the interest set forth in the title of the Notes, in each
case, from and including the date on which any such Registration Default shall
occur to but excluding the date on which all such Registration Defaults
relating to the relevant Securities have been cured.
(b) A Registration Default referred to in Section 6(a)(iii) shall be
deemed not to have occurred and be continuing in relation to a Registration
Statement or the related prospectus if (i) such purported Registration Default
has occurred solely as a result of (x) the filing of a post-effective amendment
to such Shelf Registration Statement to incorporate annual audited financial
information with respect to the Issuers where such post-effective amendment is
not yet effective and needs to be declared effective to permit Holders to use
the related prospectus or (y) the occurrence of other material events with
respect to the Issuers that would need to be described in such Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Issuers are proceeding promptly and in good faith to amend or supplement such
Registration Statement and related prospectus to describe such events;
provided, however, that in any case if such purported Registration Default
occurs for a continuous period in excess of 45 days, Additional Interest shall
be payable in accordance with the above paragraph from the 46th day following
the day such Registration Default occurs until such Registration Default is
cured or until the relevant Issuer is no longer required pursuant to this
Agreement to keep such Registration Statement effective or such Registration
Statement or related prospectus usable.
(c) Any amounts of Additional Interest due pursuant to clause (a)(i),
(a)(ii) or (a)(iii) of Section 6 above will be payable in cash, (A) in the case
of the Senior Subordinated Notes and any Private Exchange Securities exchanged
therefor, on each scheduled interest payment date, commencing with the first
scheduled interest payment date following the applicable Registration Default,
and (B) in the case of the Discount Notes and any Private Exchange Securities
exchanged therefor, on each Semi-Annual Accrual Date (as defined in the
applicable Indenture) or scheduled interest payment date, as the case may be,
commencing with the first Semi-Annual Accrual Date following the applicable
Registration Default. The amount of Additional Interest will be determined by
multiplying the Additional Interest Rate by, (A) in the case of the Senior
Subordinated Notes and any Private Exchange Securities exchanged therefor, the
principal amount of such Securities, in each case, multiplied by a fraction
(the "Additional Interest Fraction"), the numerator of which is the number of
days the Additional Interest Rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360 and (B) in the case of the Discount Notes and any
Private Exchange Securities exchanged therefor, the Accreted Value of such
Securities on the date of payment of such Additional Interest, in each case,
multiplied by the Additional Interest Fraction.
(d) "Transfer Restricted Securities" means each Security until (i)
the date on which such Security has been exchanged by a person other than a
broker-dealer for a freely transferrable Exchange Security in a Registered
Exchange Offer, (ii) following the exchange by a broker-dealer
<PAGE> 13
13
in a Registered Exchange Offer of such Security for an Exchange Security, the
date on which such Exchange Security is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Security has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Security is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
7. Rules 144 and 144A. The Issuers shall use their best efforts to
file the reports required to be filed by them under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Issuers are not
required to file such reports, they will, upon the request of any Holder of
Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of their securities pursuant to Rules 144 and
144A. The Issuers covenant that they will take such further action as any
Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including the
requirements of Rule 144A(d)(4)). The Issuers will provide a copy of this
Agreement to prospective purchasers of Notes (or Private Exchange Securities)
identified to the Issuers by the Initial Purchasers upon request. Upon the
request of any Holder of Transfer Restricted Securities, the Issuers shall
deliver to such Holder a written statement as to whether they have complied
with such requirements. Notwithstanding the foregoing, nothing in this Section
7 shall be deemed to require the Issuers to register any of its securities
pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering (the "Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount (or
principal amount at maturity) of such Transfer Restricted Securities to be
included in such offering; provided that Managing Underwriters must be
reasonably satisfactory to the Issuers.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
reasonably required under the terms of such underwriting arrangements.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, except by the Issuers and the
written consent of the Holders of a majority in principal amount (or principal
amount at maturity) of the Securities affected by such amendment, modification,
supplement, waiver or consents (taken as a class).
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class
mail, facsimile transmission, or air courier which guarantees overnight
delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Issuers in accordance with the provisions of this
Section 9(b).
<PAGE> 14
14
(2) if to the Initial Purchasers, at the following address:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010
Telephone: (212) 325-2107
Telecopy.: (212) 325-8029
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: Kris F. Heinzelman
(3) if to the Issuers, at their address as follows:
Hedstrom Corporation
Hedstrom Holdings, Inc.
Cherrington Corporate Center
300 Corporate Center Drive
Suite 100
Coraopolis, PA 15108
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
Attention: David F. Crowley
with copies to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
Attention: Alan B. Menkes
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
<PAGE> 15
15
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, TX 75201-6950
Telephone: (214) 746-7700
Telecopy: (214) 746-7777
Attention: Glenn D. West
Alan Plotkin, Esq.
18 East 48th Street
New York, NY 10017
Telephone: (212) 758-2008
Telecopy: (212) 758-2268
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when
receipt is acknowledged by recipient's facsimile machine operator, if sent by
facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Issuers have not, as of the date
hereof, entered into, nor shall they, on or after the date hereof, enter into,
any agreement with respect to their securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Issuers and their successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Issuers. Whenever the consent or approval
of Holders of a specified percentage of principal amount (or principal amount
at maturity) of Securities is required hereunder, Securities held by the
Issuers or their affiliates (other than subsequent Holders of Securities if
such subsequent Holders are deemed to be affiliates solely by reason of their
holdings of such Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
<PAGE> 16
16
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuers a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the several Initial Purchasers and the Issuers in accordance
with its terms.
Very truly yours,
HEDSTROM CORPORATION, as an Issuer
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title:
HEDSTROM HOLDINGS, INC., as an
Issuer and a Guarantor
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title:
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SOCIETE GENERALE SECURITIES CORPORATION
UBS SECURITIES LLC
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ SEAN P. MADDEN
-----------------------------
Name: Sean P. Madden
Title:
<PAGE> 17
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to an Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Issuers
have agreed that, for a period of 180 days after the Expiration Date (as
defined herein), they will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
A-1
<PAGE> 18
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
B-1
<PAGE> 19
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to an Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus. [1]
The Issuers will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers
for their own account pursuant to an Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to an Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incidental to the Exchange Offers (including the expenses of one counsel for
the Holders of the Securities) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under
the Securities Act.
- ---------------
[1] In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
C-1
<PAGE> 20
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
--------------------------------------------------------
Address:
-----------------------------------------------------
-------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such
Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
D-1
<PAGE> 1
EXHIBIT 4.9
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
(this "Agreement") dated as of June 9, 1997, by and
among HEDSTROM HOLDINGS, INC., a Delaware corporation
(the "Company"), and Credit Suisse First Boston
Corporation ("CSFBC"), Societe Generale Securities
Corporation and UBS Securities LLC (collectively, the
"Initial Purchasers").
The Company is offering for sale (the "Offering") 44,612 Units (the
"Units"), consisting of $44,612,000 principal amount at maturity of the
Company's 12% Senior Discount Notes Due 2009 (the "Notes") and 2,705,896 shares
(the "Shares") of the Company's voting common stock, par value $0.01 per share
(the "Common Stock");
In connection with the Offering, the Initial Purchasers have entered
into a purchase agreement of even date herewith (the "Purchase Agreement")
with the Company to purchase the Units; and
In consideration of the mutual promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company hereby agrees, for the benefit of the holders of the
Shares (including, without limitation, the Initial Purchasers) (collectively,
the "Holders"), as follows:
SECTION 1. Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Board" means the Board of Directors of the Company or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"Commission" means the Securities and Exchange Commission, or any
successor agency or body performing substantially similar functions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Issue Date" means the date on which the Units are initially issued in
connection with the Offering.
"Securities Act" means the Securities Act of 1933, as amended.
"Transfer Restricted Share" means each Share until the earliest of (i)
such time as such Share has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement (as
defined below), (ii) such time as such Share is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act and (iii) such time as such Share can be sold
without registration under the Securities Act.
SECTION 2. Shelf Registration. (a) The Company shall, at its cost
and within 60 days of the Issue Date, file with the Commission a registration
statement (the "Shelf Registration Statement") on an appropriate form under
the Securities Act relating to the offer and sale of the Transfer Restricted
Shares by the Holders thereof from time to time in accordance with the methods
of distribution described in the Shelf Registration Statement and Rule 415 (or
any successor provision) under the Securities Act. The Company shall use its
best efforts to cause the Shelf Registration Statement to be declared effective
on or before 180 days after the Issue Date; provided, however, that no Holder
(other than an Initial Purchaser) shall be entitled to have the Shares held by
it covered by the Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to such
Holder.
<PAGE> 2
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(b) Subject to subsection (d) below, the Company shall use its best
efforts to keep the Shelf Registration Statement continuously effective in
order to permit the prospectus included therein to be lawfully delivered by the
Holders until the earlier of (i) such time as all the Shares have been sold
thereunder and (ii) such time as none of the Shares are Transfer Restricted
Shares. The Company shall be deemed not to have used its best efforts to keep
the Shelf Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Shares covered
thereby not being able to offer and sell such Shares pursuant to the Shelf
Registration Statement during that period, unless such action is permitted to
be taken pursuant to this Agreement or is otherwise required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement, (i) to
comply in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the Commission and (ii) not to
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) During any consecutive 365-day period, the Company shall be
entitled to suspend the availability of the Shelf Registration Statement for up
to two 45 consecutive-day periods if the Company's Board determines in the
exercise of its reasonable judgment that there is a valid business purpose for
such suspension and provides notice to the Holders that such determination was
made by the Company's Board; provided, however, that in no event shall the
Company be required to disclose the business purpose for such suspension if the
Company determines in good faith that such business purpose must remain
confidential.
SECTION 3. Registration Procedures. In connection with the
registration of the Shares contemplated by Section 2 hereof (the "Shelf
Registration"), the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Shelf Registration
Statement and each amendment thereto and each supplement, if any, to the
prospectus included therein and, in the event that an Initial Purchaser (with
respect to any portion of an unsold allotment from the original offering) is
selling Shares pursuant to the Shelf Registration Statement, shall use its best
efforts to reflect in each such document, when so filed with the Commission,
such comments as such Initial Purchaser may reasonably propose; and (ii)
include the names of the Holders, who propose to sell Shares pursuant to the
Shelf Registration Statement, as selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers
and the Holders (which notice pursuant to clauses (ii)-(v) hereof shall be
accompanied by an instruction to suspend the use of the prospectus until the
requisite changes have been made):
(i) when the Shelf Registration Statement or any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto has
become effective;
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or
the initiation of any proceedings for that purpose;
<PAGE> 3
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(iv) of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the Company
to make changes in the Shelf Registration Statement or the prospectus
in order that the Shelf Registration Statement or the prospectus does
not contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading.
(c) The Company shall use its best efforts to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of the
Shelf Registration Statement.
(d) The Company shall furnish to each Holder, without charge, at
least one copy of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if the
Holder so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Company shall, for so long as the Shelf Registration
Statement is effective, deliver to each Holder, without charge, as many copies
of the prospectus (including each preliminary prospectus) included in the Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request, and the Company consents, subject to the provisions of
this Agreement, to the use of the prospectus or any amendment or supplement
thereto by each of the selling Holders in connection with the offering and sale
of the Shares covered by the prospectus or any amendment or supplement thereto,
included in the Shelf Registration Statement.
(f) Prior to any public offering of the Shares pursuant to the Shelf
Registration Statement, the Company shall register or qualify or cooperate with
the Holders and their respective counsel in connection with the registration or
qualification of the Shares for offer and sale under the securities or "blue
sky" laws of such states of the United States as any Holder reasonably requests
in writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Shares; provided,
however, that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it is not then so qualified or (ii) take any
action which would subject it to general service of process or to taxation in
any jurisdiction where it is not then so subject.
(g) The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing the Shares to be
sold pursuant to the Shelf Registration Statement free of any restrictive
legends and in such denominations and registered in such names as the Holders
may request a reasonable period of time prior to sales of the Shares pursuant
to the Shelf Registration Statement.
(h) Upon the occurrence of any event contemplated by clauses (ii)
through (v) of subsection (b) above during the period for which the Company is
required to maintain the effectiveness of the Shelf Registration Statement, the
Company shall promptly prepare and file a post-effective amendment to the Shelf
Registration Statement or a supplement to the related prospectus and any other
required document so that, as thereafter delivered to Holders or purchasers of
Shares, the prospectus will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. If the Company notifies the Initial Purchasers and
the Holders in accordance with clauses (ii) through (v) of subsection (b) above
to suspend the use of the prospectus until the requisite changes to the
prospectus have been made, then the Initial Purchasers and the Holders shall
suspend use of such prospectus, and the period of effectiveness of the Shelf
Registration Statement provided for in
<PAGE> 4
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Section 2(b) hereof shall be extended by the number of days from and including
the date of the giving of such notice to and including the date when the
Initial Purchasers and the Holders shall have received such amended or
supplemented prospectus pursuant to this subsection (h).
(i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Shelf
Registration, and will make generally available to the Company's
securityholders (or otherwise provide in accordance with Section 11(a) of the
Securities Act) an earnings statement satisfying the provisions of Section
11(a) of the Securities Act, no later than 45 days after the end of a 12-month
period (or 90 days, if such period is a fiscal year) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the Shelf Registration Statement, which statement shall cover such 12-month
period.
(j) The Company may require each Holder to furnish to the Company
such information regarding the Holder and the distribution of the Shares to be
sold by such Holder as the Company may from time to time reasonably request for
inclusion in the Shelf Registration Statement, and the Company may exclude from
such registration the Shares of any Holder that unreasonably fails to furnish
such information within a reasonable time after receiving such request.
(k) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and take
all such other action, if any, as any Holder shall reasonably request in order
to facilitate the disposition of Shares in connection with the Shelf
Registration.
(l) The Company shall (i) make reasonably available for inspection by
the Holders, any underwriter participating in any disposition pursuant to the
Shelf Registration Statement and any attorney, accountant or other agent
retained by the Holders or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and
(ii) cause the Company's officers, directors, employees, accountants and
auditors to supply all relevant information reasonably requested by the Holders
or any such underwriter, attorney, accountant or agent in connection with the
Shelf Registration Statement, in each case, as shall be reasonably necessary to
enable such persons, to conduct a reasonable investigation within the meaning
of Section 11 of the Securities Act; provided, however, that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Initial Purchasers by CSFBC and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in Section 4
hereof.
(m) The Company, if requested by any Holder of Transfer Restricted
Shares, shall cause (i) its counsel to deliver an opinion and updates thereof
relating to the Shares in customary form addressed to such Holders and the
Managing Underwriters (as defined below), if any, thereof and dated, in the
case of the initial opinion, the effective date of such Shelf Registration
Statement (it being agreed that the matters to be covered by such opinion shall
include, without limitation, the due incorporation and good standing of the
Company and its subsidiaries; the qualification of the Company and its
subsidiaries to transact business as foreign corporations; the due
authorization, execution and delivery of the relevant agreement of the type
referred to in subsection (k) above; the due authorization and issuance, and
the full payment and nonassessability, of the Shares and all other outstanding
common stock of the Company; the absence of material legal or governmental
proceedings involving the Company and its subsidiaries; the absence of
governmental approvals required to be obtained in connection with the Shelf
Registration Statement, the offering and sale of the Shares, or any agreement
of the type referred to in subsection (k) above; the compliance as to form of
such Shelf Registration Statement and any documents incorporated by reference
therein with the requirements of the Securities Act; and, as of the date of the
opinion and as of the effective date of the Shelf Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from such Shelf Registration Statement and the prospectus included therein, as
then amended or supplemented,
<PAGE> 5
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and from any documents incorporated by reference therein of an untrue statement
of a material fact or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
(in the case of any such documents, in the light of the circumstances existing
at the time that such documents were filed with the Commission under the
Exchange Act); (ii) their officers to execute and deliver all customary
documents and certificates and updates thereof reasonably requested by any
underwriters of the Shares and (iii) their independent public accountants to
provide to the selling Holders and any underwriter therefor a comfort letter in
customary form and covering matters of the type customarily covered in comfort
letters in connection with primary underwritten offerings, subject to receipt
of appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
(n) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Shares or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution" (within the meaning
of the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD")) thereof, whether as a Holder or as an underwriter, a placement or
sales agent or a broker or dealer in respect thereof, or otherwise, the Company
shall assist such broker-dealer in complying with the requirements of such
Conduct Rules, including, without limitation, by (i) if Rule 2720 thereto shall
so require, engaging a "qualified independent underwriter" (as defined in Rule
2720) to participate in the preparation of the Shelf Registration Statement, to
exercise usual standards of due diligence in respect thereto and, if any
portion of the offering contemplated by the Shelf Registration Statement is an
underwritten offering or is made through a placement or sales agent, to
recommend the sale price of the Shares, (ii) indemnifying any such qualified
independent underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the Conduct Rules of the NASD.
(o) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Shares.
SECTION 4. Registration Expenses. The Company shall bear all fees
and expenses incurred in connection with the performance of its obligations
under Sections 2 and 3 hereof, whether or not the Shelf Registration Statement
is filed or becomes effective, and shall bear or reimburse the Holders for the
reasonable fees and disbursements of one firm of counsel designated by the
Holders of a majority in interest of the Shares to act as counsel for the
Holders in connection therewith, provided that such Holders shall be
responsible for any and all (i) underwriting discounts and commissions and (ii)
other out-of-pocket expenses of such Holders incurred in connection with the
Shelf Registration.
SECTION 5. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Holder and each person, if any, who controls such Holder
within the meaning of the Securities Act or the Exchange Act (each Holder and
such controlling persons are referred to collectively as the "Indemnified
Parties") from and against any losses, claims, damages or liabilities, joint or
several, or any actions in respect thereof (including, but not limited to, any
losses, claims, damages, liabilities or actions relating to purchases and sales
of the Shares) to which each Indemnified Party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to the Shelf Registration Statement,
or arise out of, or are based upon, the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse, as incurred, the
Indemnified Parties for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Company
shall not be liable in any such case to
<PAGE> 6
6
the extent that such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in the Shelf Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to
the Shelf Registration Statement in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the Company by
or on behalf of such Holder specifically for inclusion therein and (ii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus relating to the Shelf Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Holder from whom the person asserting any such
losses, claims, damages or liabilities purchased the Shares concerned, to the
extent that a prospectus relating to such Shares was required to be delivered
by such Holder under the Securities Act in connection with such purchase and
any such loss, claim, damage or liability of such Holder results from the fact
that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Shares to such person, a copy of the final
prospectus if the Company had previously furnished copies thereof to such
Holder; provided further, however, that this indemnity agreement will be in
addition to any liability which the Company may otherwise have to such
Indemnified Party. The Company shall also indemnify underwriters, their
officers and directors and each person who controls such underwriters within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders if requested by such Holders.
(b) Each Holder, severally and not jointly, will indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act from and against any
losses, claims, damages or liabilities or any actions in respect thereof, to
which the Company or any such controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to the Shelf Registration Statement,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
omission or alleged untrue statement or omission was made in reliance upon and
in conformity with written information pertaining to such Holder and furnished
to the Company by or on behalf of such Holder specifically for inclusion
therein; and, subject to the limitation set forth immediately preceding this
clause, shall reimburse, as incurred, the Company for any legal or other
expenses reasonably incurred by the Company or any such controlling person in
connection with investigating or defending any loss, claim, damage, liability
or action in respect thereof. This indemnity agreement will be in addition to
any liability which such Holder may otherwise have to the Company or any of
their controlling persons.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in subsections (a) or (b) above. In the
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (in
which case, such indemnified party shall be entitled, at its option, to engage
at the indemnifying party's cost, separate counsel reasonably satisfactory to
the indemnifying party to act on behalf of all indemnified parties in
connection with such action), and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to
<PAGE> 7
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such indemnified party under this Section 5 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsections (a) or (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party or parties on
the one hand and the indemnified party on the other from the registration of
the Shares pursuant to the Shelf Registration Statement, or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or such Holder or such other indemnified party, as
the case may be, on the other, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this subsection (d), the Holders shall
not be required to contribute any amount in excess of the amount by which the
net proceeds received by such Holders from the sale of the Shares pursuant to
the Shelf Registration Statement exceeds the amount of damages which such
Holders have otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this subsection
(d), each person, if any, who controls such indemnified party within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as such indemnified party and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act shall
have the same rights to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale
of the Shares pursuant to a Shelf Registration Statement and shall remain in
full force and effect, regardless of any termination or cancelation of this
Agreement or any investigation made by or on behalf of any indemnified party.
SECTION 7. Rules 144 and 144A. The Company shall use its best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the request of any Holder of
Transfer Restricted Shares, make publicly available other information so long
as necessary to permit sales of its securities pursuant to Rules 144 and 144A.
The Company covenants that it will take such further action as any Holder of
Transfer Restricted Shares may reasonably request, all to the extent required
from time to time to enable such Holder to sell Transfer Restricted Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rules 144 and 144A (including the requirements of
<PAGE> 8
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Rule 144A(d)(4)). The Company will provide a copy of this Agreement to
prospective purchasers of Shares identified to the Company by the Initial
Purchasers upon request. Upon the request of any Holder of Transfer Restricted
Shares, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements. Notwithstanding the foregoing,
nothing in this Section 7 shall be deemed to require the Company to register
any of its securities pursuant to the Exchange Act.
SECTION 8. Underwritten Registrations. If any of the Transfer
Restricted Shares covered by any Shelf Registration Statement are to be sold in
an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering (the "Managing
Underwriters") will be selected by the Holders of a majority in interest of
such Transfer Restricted Shares to be included in such offering, provided, that
the Managing Underwriters must be reasonably satisfactory to the Issuers.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Shares
on the basis reasonably provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
SECTION 9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and any waiver or consent to departures
from the provisions hereof may not be given, except by the Company and the
written consent of the Holders of a majority in interest of the Shares affected
by such amendment, modification, supplement, waiver or consent.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class
mail, facsimile transmission, or air courier which guarantees overnight
delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this
subsection (b).
(2) if to the Initial Purchasers, at the following address:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010
Telephone: (212) 325-2107
Telecopy: (212) 325-8029
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: Kris F. Heinzelman
<PAGE> 9
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(3) if to the Company, at its address as follows:
Hedstrom Holdings, Inc.
Cherrington Corporate Center
300 Corporate Center Drive
Suite 100
Coraopolis, PA 15108
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
Attention: David F. Crowley
with a copy to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
Attention: Alan B. Menkes
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, TX 75201-6950
Telephone: (214) 746-7700
Telecopy: (214) 746-7777
Attention: Glenn D. West
Alan Plotkin, Esq.
18 East 48th Street
New York, NY 10012
Telephone: (212) 758-2008
Telecopy: (212) 758-2268
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when
receipt is acknowledged by recipient's facsimile machine operator, if sent by
facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into,
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
<PAGE> 10
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(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Shares Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of Shares is required hereunder, the Shares
held by the Company or its affiliates (other than subsequent Holders if such
Holders are deemed to be affiliates solely by reason of their holdings of such
Shares) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
<PAGE> 11
11
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the several Initial Purchasers and the Company in accordance
with its terms.
Very truly yours,
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title:
The foregoing Common Stock Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SOCIETE GENERALE SECURITIES CORPORATION
UBS SECURITIES LLC
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:/s/ SEAN P. MADDEN
---------------------------------
Name: Sean P. Madden
Title:
<PAGE> 1
EXHIBIT 10.1
================================================================================
HEDSTROM HOLDINGS, INC.
HEDSTROM CORPORATION
-------------------------
$180,000,000
CREDIT AGREEMENT
dated as of June 12, 1997
-------------------------
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent,
SOCIETE GENERALE,
as Documentation Agent,
and
UBS SECURITIES LLC,
as Syndication Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Other Definitional Provisions . . . . . . . . . . . . . . 22
SECTION II. AMOUNT AND TERMS OF TRANCHE A LOAN COMMITMENTS . . . . . . . . 22
2.1. Tranche A Term Loans . . . . . . . . . . . . . . . . . . . 22
2.2. Procedure for Tranche A Loan Borrowing . . . . . . . . . . 22
2.3. Amortization of Tranche A Loans . . . . . . . . . . . . . 23
2.4. Use of Proceeds of Tranche A Loans . . . . . . . . . . . . 23
SECTION III. AMOUNT AND TERMS OF TRANCHE B LOAN COMMITMENTS . . . . . . . 24
3.1. Tranche B Term Loans . . . . . . . . . . . . . . . . . . . 24
3.2. Procedure for Tranche B Loan Borrowing . . . . . . . . . . 24
3.3. Amortization of Tranche B Loans . . . . . . . . . . . . . 24
3.4. Use of Proceeds of Tranche B Loans . . . . . . . . . . . . 25
SECTION IV. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS . . . . . . . 25
4.1. Revolving Credit Commitments . . . . . . . . . . . . . . . 25
4.2. Procedure for Revolving Credit Borrowing . . . . . . . . . 25
4.3. Use of Proceeds of Revolving Credit Loans . . . . . . . . 26
SECTION V. AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY . . . . . . . 26
5.1. L/C Commitment . . . . . . . . . . . . . . . . . . . . . . 26
5.2. Procedure for Issuance, Amendments and Terminations of
Letters of Credit . . . . . . . . . . . . . . . . . . . . 27
5.3. Fees, Commissions and Other Charges . . . . . . . . . . . 27
5.4. L/C Participations . . . . . . . . . . . . . . . . . . . . 28
5.5. Reimbursement Obligation of the Borrower . . . . . . . . . 29
5.6. Obligations Absolute . . . . . . . . . . . . . . . . . . . 29
5.7. Letter of Credit Payments . . . . . . . . . . . . . . . . 30
5.8. Application . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION VI. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY . . . . . . . . . 30
6.1. Swing Line Commitments . . . . . . . . . . . . . . . . . . 30
6.2. Procedure for Swing Line Loan Borrowing . . . . . . . . . 30
6.3. Refunding of Swing Line Loans . . . . . . . . . . . . . . 30
6.4. Unconditional Obligation to Refund Swing Line Loans . . . 31
6.5. Use of Proceeds of Swing Line Loans . . . . . . . . . . . 32
SECTION VII. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT;
FEES AND PAYMENTS . . . . . . . . . . . . . . . . . . . . 32
7.1. Repayment of Loans; Evidence of Debt . . . . . . . . . . . 32
7.2. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . 33
7.3. Optional Prepayments . . . . . . . . . . . . . . . . . . . 33
7.4. Optional Termination or Reduction of Aggregate
Revolving Credit Commitment . . . . . . . . . . . . . . . 34
7.5. Mandatory Reduction of Commitments and Prepayments . . . . 34
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.6. Conversion and Continuation Options . . . . . . . . . . . 36
7.7. Minimum Amounts and Maximum Number of Tranches . . . . . . 36
7.8. Interest Rates and Payment Dates . . . . . . . . . . . . . 37
7.9. Computation of Interest and Fees . . . . . . . . . . . . . 37
7.10. Inability to Determine Interest Rate . . . . . . . . . . . 37
7.11. Pro Rata Treatment and Payments . . . . . . . . . . . . . 38
7.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . 39
7.13. Requirements of Law . . . . . . . . . . . . . . . . . . . 40
7.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.15. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 42
7.16. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . 43
7.17. Change of Lending Office . . . . . . . . . . . . . . . . . 43
7.18. Replacement of Lenders . . . . . . . . . . . . . . . . . . 43
SECTION VIII. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 44
8.1. Financial Condition . . . . . . . . . . . . . . . . . . . 44
8.2. No Change . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3. Corporate Existence; Compliance with Law . . . . . . . . . 45
8.4. Corporate Power; Authorization; Enforceable
Obligations . . . . . . . . . . . . . . . . . . . . . . . 45
8.5. No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . 46
8.6. No Material Litigation . . . . . . . . . . . . . . . . . . 46
8.7. No Default . . . . . . . . . . . . . . . . . . . . . . . . 46
8.8. Ownership of Property; Liens . . . . . . . . . . . . . . . 46
8.9. Intellectual Property . . . . . . . . . . . . . . . . . . 46
8.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.11. Federal Regulations . . . . . . . . . . . . . . . . . . . 47
8.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.13. Investment Company Act; Other Regulations . . . . . . . . 47
8.14. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 47
8.15. Environmental Matters . . . . . . . . . . . . . . . . . . 48
8.16. Security Documents . . . . . . . . . . . . . . . . . . . . 48
8.17. Accuracy and Completeness of Information . . . . . . . . . 49
8.18. Acquisition Documents . . . . . . . . . . . . . . . . . . 49
8.19. Representations and Warranties in respect of the
Collateral . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION IX. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 51
9.1. Conditions to Initial Loans . . . . . . . . . . . . . . . 51
9.2. Conditions to Each Loan . . . . . . . . . . . . . . . . . 55
SECTION X. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 55
10.1. Financial Statements . . . . . . . . . . . . . . . . . . . 55
10.2. Certificates; Other Information . . . . . . . . . . . . . 56
10.3. Payment of Obligations . . . . . . . . . . . . . . . . . . 57
10.4. Conduct of Business and Maintenance of Existence . . . . . 57
10.5. Maintenance of Property; Insurance . . . . . . . . . . . . 58
10.6. Inspection of Property; Books and Records; Discussions . . 58
10.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.8. Environmental Laws . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.9. Further Assurances . . . . . . . . . . . . . . . . . . . . 60
10.10. Additional Collateral . . . . . . . . . . . . . . . . . . 60
10.11. Consummation of Merger . . . . . . . . . . . . . . . . . . 61
10.12. Covenants in respect of the Collateral . . . . . . . . . . 61
SECTION XI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 62
11.1. Financial Condition Covenants . . . . . . . . . . . . . . 62
11.2. Limitation on Indebtedness . . . . . . . . . . . . . . . . 63
11.3. Limitation on Liens . . . . . . . . . . . . . . . . . . . 65
11.4. Limitation on Guarantee Obligations . . . . . . . . . . . 67
11.5. Limitation on Fundamental Changes . . . . . . . . . . . . 68
11.6. Limitation on Sale of Assets . . . . . . . . . . . . . . . 68
11.7. Intentionally Deleted . . . . . . . . . . . . . . . . . . 69
11.8. Limitation on Dividends . . . . . . . . . . . . . . . . . 69
11.9. Limitation on Capital Expenditures . . . . . . . . . . . . 70
11.10. Limitation on Investments, Loans and Advances . . . . . . 70
11.11. Limitation on Transactions with Affiliates . . . . . . . . 72
11.12. Limitation on Sales and Leasebacks . . . . . . . . . . . . 73
11.13. Limitation on Changes in Fiscal Year . . . . . . . . . . . 73
11.14. Limitation on Negative Pledge Clauses . . . . . . . . . . 73
11.15. Limitation on Lines of Business . . . . . . . . . . . . . 73
11.16. Limitation on Modification of Agreements and Payments
on Account of Debt . . . . . . . . . . . . . . . . . . . 73
11.17. Rights under Acquisition Documents . . . . . . . . . . . . 74
11.18. Maintenance of Corporate Separateness . . . . . . . . . . 74
11.19. Limitation on Activities of the Parent . . . . . . . . . . 74
SECTION XII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 75
SECTION XIII. THE ADMINISTRATIVE AGENT; DOCUMENTATION
AGENT AND SYNDICATION AGENT . . . . . . . . . . . . . . . . 78
13.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . 78
13.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . 78
13.3. Exculpatory Provisions . . . . . . . . . . . . . . . . . . 78
13.4. Reliance by Administrative Agent . . . . . . . . . . . . . 78
13.5. Notice of Default . . . . . . . . . . . . . . . . . . . . 79
13.6. Non-Reliance on Administrative Agent and Other Lenders . . 79
13.7. Indemnification . . . . . . . . . . . . . . . . . . . . . 79
13.8. Administrative Agent in Its Individual Capacity . . . . . 80
13.9. Successor Administrative Agent . . . . . . . . . . . . . . 80
13.10. Documentation Agent and Syndicate Agent . . . . . . . . . 80
SECTION XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 80
14.1. Amendments and Waivers . . . . . . . . . . . . . . . . . . 80
14.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 81
14.3. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . 82
14.4. Survival of Representations and Warranties . . . . . . . . 82
14.5. Payment of Expenses and Taxes . . . . . . . . . . . . . . 82
14.6. Successors and Assigns; Participations and Assignments . . 83
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
14.7. Adjustments; Set-off . . . . . . . . . . . . . . . . . . . 85
14.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 86
14.9. Severability . . . . . . . . . . . . . . . . . . . . . . . 86
14.10. Integration . . . . . . . . . . . . . . . . . . . . . . . 86
14.11. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 86
14.12. Submission To Jurisdiction; Waivers . . . . . . . . . . . 86
14.13. Acknowledgements . . . . . . . . . . . . . . . . . . . . . 87
14.14. WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . 87
14.15. Confidentiality . . . . . . . . . . . . . . . . . . . . . 87
</TABLE>
SCHEDULES
Schedule 1.1A Lenders; Addresses; Commitments
Schedule 1.1B Mortgaged Properties
Schedule 5.2 Existing Letters of Credit
Schedule 8.4 Consents and Authorizations
Schedule 8.15 Subsidiaries
Schedule 8.16(a) UCC Filings and Other Actions
Schedule 8.16(c) Mortgage Filing Jurisdictions
Schedule 8.19(b) Chief Executive Office
Schedule 8.19(c) Locations of Inventory and Equipment
Schedule 8.19(f) Intellectual Property
Schedule 9.1(h) Additional Legal Counsel
Schedule 11.2(d) Existing Indebtedness
Schedule 11.3(f) Existing Liens
Schedule 11.4(a) Existing Guarantee Obligations
Schedule 11.10(f) Investments
EXHIBITS
Exhibit A Form of Tranche A Note
Exhibit B Form of Tranche B Note
Exhibit C Form of Revolving Credit Note
Exhibit D Form of Swing Line Note
Exhibit E Form of Master Guarantee and Collateral Agreement
Exhibit F Form of Mortgage
Exhibit G-1 Form of Opinion of Weil, Gotshal & Manges, LLP
Exhibit G-2 Form of Opinion of U.K. Counsel
Exhibit G-3 Form of Opinion of Canadian Counsel
Exhibit H Form of Assignment and Acceptance
Exhibit I-1 Form of Notice of Borrowing (Drawings)
Exhibit I-2 Form of Notice of Borrowing (Conversions)
Exhibit I-3 Form of Notice of Borrowing (Continuations)
Exhibit J Form of Borrowing Base Certificate
- iv -
<PAGE> 6
CREDIT AGREEMENT, dated as of June 12, 1997, among:
(a) HEDSTROM CORPORATION, a Delaware corporation (the "Borrower");
(b) HEDSTROM HOLDINGS, INC., a Delaware corporation (the "Parent");
(c) the Lenders (as hereinafter defined) from time to time parties hereto;
(d) SOCIETE GENERALE, as documentation agent (in such capacity, the
"Documentation Agent") for the Lenders;
(e) UBS SECURITIES LLC, as syndication agent (in such capacity, the
"Syndication Agent") for the Lenders; and
(f) CREDIT SUISSE FIRST BOSTON, as administrative agent (in such capacity,
the "Administrative Agent") for the Lenders.
W I T N E S S E T H:
WHEREAS, HC Acquisition Corp., a Delaware corporation and a wholly
owned Subsidiary of the Borrower ("AcquisitionCo"), intends to acquire all of
the issued and outstanding common stock of ERO, Inc., a Delaware corporation
("ERO"), pursuant to the Agreement and Plan of Merger, dated as of April 10,
1997 (the "Merger Agreement"), among the Borrower, AcquisitionCo and ERO for
aggregate consideration of approximately $200,000,000;
WHEREAS, such acquisition shall take the form of a tender offer by
AcquisitionCo for all of the issued and outstanding shares of common stock of
ERO (all of such common stock collectively, the "Shares") at a price of $11.25
per share (the "Tender Offer") and the purchase of the Shares tendered pursuant
to the Tender Offer and not validly withdrawn (the "Tendered Shares");
WHEREAS, as promptly as is practicable following the consummation of
the Tender Offer and the acquisition of the Tendered Shares (which includes
options in connection with the Tender Offer), AcquisitionCo shall be merged
with and into ERO, such that ERO shall survive as a wholly owned direct
Subsidiary of the Borrower (the "Merger"; collectively with the Tender Offer,
the "Acquisition");
WHEREAS, the Borrower has requested that the Lenders make Loans and
other extensions of credit available to it in order to finance the Acquisition
and to provide funds for other general corporate purposes of the Borrower; and
WHEREAS, the Lenders are willing to make such Loans and other
extensions of credit available to the Borrower only upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION I. DEFINITIONS
1.1. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
<PAGE> 7
2
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office
in New York City. The Prime Rate is not intended to be the lowest rate
of interest charged by the Administrative Agent in connection with
extensions of credit to debtors. "Federal Funds Effective Rate" shall
mean, for any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business Day
by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized
standing selected by it. Any change in the ABR due to a change in the
Prime Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans (including, without limitation, Swing Line
Loans) the rate of interest applicable to which is based upon the ABR.
"Accounting Changes": as defined in the definition of GAAP.
"Acquisition": as defined in the recitals hereto.
"AcquisitionCo": as defined in the recitals hereto.
"Acquisition Documents": the collective reference to the Tender
Offer Documents, the Merger Agreement and all other documents and
information sent by the Borrower or any of its Subsidiaries or ERO to the
shareholders of ERO or filed with the SEC in connection with the Tender
Offer and the Merger.
"Adjusted Consolidated Working Capital": at any time, the amount
equal to Consolidated Current Assets (but excluding therefrom all cash
and Cash Equivalents) minus Consolidated Current Liabilities.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 51% or more of the securities
having ordinary voting power for the election of directors of such Person
or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Aggregate Outstanding Extensions of Credit": as to any Revolving
Credit Lender at any time, an amount equal to the sum of (a) the
aggregate outstanding principal amount of all Revolving Credit Loans made
by such Revolving Credit Lender and (b) such Revolving Credit Lender's
Revolving Credit Commitment Percentage of the L/C Obligations and Swing
Line Loans then
<PAGE> 8
3
outstanding; provided that, only for purposes of calculating the
commitment fee owing pursuant to subsection 7.2, the aggregate amount of
Swing Line Loans then outstanding shall be deemed to be held entirely by
the Swing Line Lender and not by any other Lender.
"Aggregate Revolving Credit Commitment": $70,000,000, as such
amount may be reduced from time to time pursuant to this Agreement.
"Aggregate Tranche A Commitment": $75,000,000, as such amount may
be reduced from time to time pursuant to this Agreement.
"Aggregate Tranche B Commitment": $35,000,000, as such amount may
be reduced from time to time pursuant to this Agreement.
"Agreement": this Credit Agreement, as amended, supplemented,
amended and restated or otherwise modified from time to time.
"Applicable Margin": with respect to (a) Tranche B Loans, (i) 3%
per annum, in the case of Eurodollar Loans and (ii) 2% per annum, in the
case of ABR Loans and (b) with respect to Tranche A Loans and Revolving
Credit Loans:
(i) for each day prior to the date upon which the
Administrative Agent receives the financial statements required to
be delivered pursuant to subsection 10.1 for the first complete
fiscal quarter to occur after the Closing Date, (A) 2-1/2% per
annum, in the case of Eurodollar Loans and (B) 1-1/2% per annum, in
the case of ABR Loans; and
(ii) for each day thereafter, the rate per annum set
forth under the relevant column heading below opposite the Leverage
Ratio then in effect:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Applicable Margin
-----------------------------
Eurodollar
Leverage Ratio ABR Loans Loans
- --------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.0 to 1.00 1.50% 2.50%
- --------------------------------------------------------------------------------
Less than 5.0 to 1.0, but greater than or 1.25% 2.25%
equal to 4.5 to 1.0
- --------------------------------------------------------------------------------
Less than 4.5 to 1.0, but greater than or 1.00% 2.00%
equal to 4.0 to 1.0
- --------------------------------------------------------------------------------
Less than 4.0 to 1.0, but greater than or .75% 1.75%
equal to 3.5 to 1.0
- --------------------------------------------------------------------------------
Less than 3.5 to 1.0, but greater than or .50% 1.50%
equal to 3.0 to 1.0
- --------------------------------------------------------------------------------
Less than 3.0 to 1.0 .25% 1.25%
- --------------------------------------------------------------------------------
</TABLE>
; provided that (for purposes of this clause (b)(ii) only), any change in
the interest rate on a Loan resulting from a change in the Leverage Ratio
of the Borrower and its Subsidiaries shall
<PAGE> 9
4
become effective as of the opening of business on the date which is the
earlier of (A) the date upon which the Administrative Agent receives the
financial statements required to be delivered pursuant to subsection 10.1
which evidence such change in the Leverage Ratio and (B) the date upon
which such financial statements are required to be delivered pursuant to
subsection 10.1; provided, further, that, in the event that the financial
statements required to be delivered pursuant to subsection 10.1(a) or
(b), as applicable, are not delivered when due (after giving effect to
the applicable cure period), then during the period from the date upon
which such financial statements were required to be delivered until the
date upon which they actually are delivered, the Leverage Ratio shall be
deemed for purposes of this definition to be greater than or equal to 5.0
to 1.0; and provided, further, however, that the "Applicable Margin" from
time to time for Swing Line Loans shall be the same as the "Applicable
Margin" then in effect for ABR Loans.
"Application": an application, in such form as the relevant Issuing
Lender may specify from time to time, requesting such Issuing Lender to
open a Letter of Credit.
"Asset Swap": any substantially concurrent purchase and sale, or
exchange, of equipment used or usable in the business of the Borrower and
its Subsidiaries.
"Assignee": as defined in subsection 14.6(c).
"Available Revolving Credit Commitment": as to any Revolving Credit
Lender, at any time, an amount equal to the excess, if any, of (a) such
Revolving Credit Lender's Revolving Credit Commitment over (b) such
Revolving Credit Lender's Aggregate Outstanding Extensions of Credit.
"Borrower": as defined in the preamble hereto.
"Borrowing Base": as of the time any determination thereof is to be
made, the sum of (i) 50% of Eligible Inventory and (ii) 85% of the
Eligible Receivables, each as reported in the most recent Borrowing Base
Certificate delivered to the Administrative Agent.
"Borrowing Base Certificate": a certificate, in the form attached
hereto as Exhibit J, including with such changes as the Administrative
Agent may from time to time reasonably request for the purpose of
monitoring the Borrowing Base.
"Borrowing Date": any Business Day specified in a Notice of
Borrowing pursuant to subsection 2.2, 3.2, 4.2, 5.5 or 6.2 as a date on
which the Borrower requests the Lenders to make Loans hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close; provided, however, that, with respect to matters relating to
Eurodollar Loans, any day on which commercial banks in London, England
are authorized or required by law to close also shall not constitute a
"Business Day".
"Canadian Subsidiary Equivalent Outstandings": as defined in
subsection 11.2(p).
"Capital Expenditures": expenditures (including, without
limitation, obligations created under Financing Leases and purchase money
Indebtedness in the year in which created
<PAGE> 10
5
but excluding payments made thereon) of Borrower and its Subsidiaries in
respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired (w) in connection with normal
replacement and maintenance programs properly expensed in accordance with
GAAP, (x) with the proceeds of any casualty insurance or condemnation
award (with such expenditures to be made, to the extent subsection 7.5(i)
is applicable, in accordance with subsection 7.5(d)), (y) with the cash
proceeds of any asset sale made pursuant to subsections 11.6(a), (c), (j)
or (l) applied or contractually committed to be applied within 180 days
from receipt of such proceeds and (z) in any Permitted Acquisition).
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates
of deposit and eurodollar time deposits with maturities of one year or
less from the date of acquisition and overnight bank deposits of any
Lender or of any commercial bank having capital and surplus in excess of
$250,000,000, (c) repurchase obligations of any Lender or of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 90 days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of an issuer rated at least A-2 by
Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating
agencies cease publishing ratings of investments, (e) securities with
maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be)
are rated at least A by S&P or A by Moody's or carrying an equivalent
rating by a nationally recognized rating agency if both of the two named
rating agencies cease publishing ratings of investments, (f) securities
with maturities of one year or less from the date of acquisition backed
by standby letters of credit issued by any Lender or any commercial bank
satisfying the requirements of clause (b) of this definition or (g)
shares of money market mutual or similar funds which invest exclusively
in assets satisfying the requirements of clauses (a) through (f) of this
definition.
"Change of Control": the earlier to occur of (A) Hicks, Muse, Tate
& Furst Incorporated, Arnold E. Ditri, their principals and their
Affiliates and management ("HMTFI") shall cease to have the power,
directly or indirectly, to vote or direct the voting of securities having
a majority of the ordinary voting power for the election of directors of
Parent, provided that the occurrence of the foregoing event shall not be
deemed a Change of Control if (a) at any time prior to the consummation
of an Initial Public Offering, and for any reason whatever, (i) HMTFI
otherwise has the right to designate (and does so designate) a majority
of the board of directors of Parent or (ii) HMTFI and their employees,
directors and officers (the "HMTFI Group") own of record and beneficially
an amount of common stock of Parent equal to at least 50% of the amount
of common stock of Parent owned by the HMTFI Group of record and
beneficially as of the Closing Date and such ownership by the HMTFI Group
represents the largest single block of voting securities of Parent held
by any Person or
<PAGE> 11
6
related group for purposes of Section 13(d) of the Exchange Act, or (b)
at any time after the consummation of an Initial Public Offering, and for
any reason whatever, (i) no "Person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act), excluding the HMTFI
Group, shall have become the "beneficial owner" (as defined in Rules
13(d)-3 and 13(d)-5 under such Act), directly or indirectly of more than
the greater of (x) 15% of the shares outstanding or (y) the percentage of
the then outstanding voting stock of Parent owned by the HMTFI Group and
(ii) the board of directors of Parent shall consist of a majority of
Continuing Directors, and (B) of a Change of Control as defined in any
document pertaining to the Senior Discount Notes or the Senior
Subordinated Notes.
"Chattel Paper": as defined in the Master Guarantee and Collateral
Agreement.
"Clean-Down Amount": the amount equal to $10,000,000 for fiscal
years 1998 and 1999 and $15,000,000 for each fiscal year thereafter.
"Closing Date": the date on which the conditions precedent set
forth in subsection 9.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all assets of the Credit Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by any
Security Document; provided that for purposes of subsections 8.19 and
10.12 such term shall have the meaning provided for in the Master
Guarantee and Collateral Agreement.
"Commitment": as to any Lender, its Tranche A Commitment, Tranche B
Commitment or Revolving Credit Commitment, as the context shall require;
as to all Lenders, the "Commitments".
"Commitment Percentage": as to any Lender at any time, its Tranche
A Commitment Percentage, its Tranche B Commitment Percentage or its
Revolving Credit Commitment Percentage, as the context shall require.
"Commitment Period": the period from and including the date hereof
to but not including the Termination Date or such earlier date on which
the Aggregate Revolving Credit Commitment shall terminate as provided
herein.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of
the Code.
"Consolidated Current Assets": at any time, the consolidated
current assets (other than cash and Cash Equivalents) of the Borrower and
its Subsidiaries on a consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities": at any time, the consolidated
current liabilities of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP, but excluding (a) the current
portion of any Indebtedness under this Agreement and any other long-term
Indebtedness which would otherwise be included therein, (b) accrued but
unpaid
<PAGE> 12
7
interest with respect to the Indebtedness described in clause (a), and
(c) accrued income tax expense.
"Consolidated EBITDA": for any period, with respect to any Person,
Consolidated Net Income of such Person for such period (A) plus, without
duplication and to the extent reflected as a charge in the statement of
such Consolidated Net Income for such period, the sum of (i) total income
and franchise tax expense, (ii) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions and
discounts and other fees and charges associated with Indebtedness, (iii)
depreciation and amortization expense, (iv) amortization of intangibles
(including, but not limited to, goodwill), (v) other noncash charges and
(vi) any extraordinary expenses or losses (including losses on sales of
assets other than inventory sold in the ordinary course of business) and
(B) minus, without duplication, (i) any extraordinary income or gains
(including gains on the sales of assets, other than inventory sold in the
ordinary course of business) other than any income from discontinued
operations and (ii) noncash income included in Consolidated Net Income,
all as determined on a consolidated basis.
"Consolidated Interest Coverage Ratio:" as defined in subsection
11.1(a).
"Consolidated Interest Expense": for any period, total cash
interest expense (including that attributable to Financing Leases), net
of interest income, of the Borrower and its Subsidiaries for such period
with respect to all outstanding Indebtedness (including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptances and net costs
under Interest Rate Agreements to the extent such net costs are allocable
to such period in accordance with GAAP).
"Consolidated Net Income": for any period, the consolidated net
after tax income (or loss) of the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Indebtedness": at a particular date, with
respect to the Borrower and its Subsidiaries, the difference between (a)
the aggregate principal amount of Indebtedness under this Agreement,
Financing Leases, purchase money Indebtedness, the Senior Subordinated
Notes, and any other Indebtedness for borrowed money of the Borrower and
its Subsidiaries at such date in conformity with GAAP and (b) the
unencumbered cash and Cash Equivalent balances of the Borrower and its
Subsidiaries on such date; provided that, for purposes of the calculation
of Revolving Credit Loans under clause (a), the amount of Revolving
Credit Loans deemed outstanding on such date shall equal; (i) in the case
of the fiscal quarter ended September 30, 1997 (A) the sum of (w)
$6,600,000, plus (x) $8,500,000, plus (y) the total aggregate principal
amount of Revolving Credit Loans outstanding as of the last day of the
fiscal quarter of the Borrower ending June 30, 1997, plus (z) the sum of
the total aggregate principal amount of Revolving Credit Loans
outstanding on July 31, 1997, August 31, 1997 and September 30, 1997,
divided by three; divided by (B) four; (ii) in the case of the fiscal
quarter ended on December 31, 1997, (A) the sum of (x) $8,600,000, plus
(y) the total aggregate principal amount of Revolving Credit Loans
outstanding as of the last day of the fiscal quarter of the Borrower
ending June 30, 1997, plus (z) the sum of the aggregate principal amount
of the Revolving Credit Loans outstanding as of each of the months ended
July through December 1997 divided by six; divided by (b) three; (iii) in
the case of the fiscal quarter ended March 31, 1998, (A) the sum of (y)
the total aggregate principal amount of Revolving Credit Loans
outstanding as of the last day of the fiscal quarter
<PAGE> 13
8
of the Borrower ending June 30, 1997 plus (z) the sum of the aggregate
principal amount of the Revolving Credit Loans outstanding as of each of
the months ended July 1996 through March 1997 divided by nine; divided by
(b) two; and (iv) in the case of any fiscal quarter ended June 30, 1998
and thereafter, (A) the sum of the total aggregate principal amount of
the Revolving Credit Loans outstanding as of the month ended on such date
and for each of the prior eleven fiscal months, divided by (B) twelve.
"Consolidated Working Capital": the excess of Consolidated Current
Assets over Consolidated Current Liabilities.
"Continuing Directors": the directors of the Parent holding office
on the date which is six months prior to the consummation of an Initial
Public Offering and each other director whose nomination for election to
the Board of Directors of the Parent has been recommended by a majority
of the Continuing Directors then serving as such.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contributed Equity": (a) the proceeds of any capital contribution
made to the Borrower (or to the Parent and in turn contributed to the
Borrower) by any member of the HMTFI Group and (b) the proceeds of any
other private placement of Capital Stock of the Borrower (or of the
Parent and in turn contributed to the Borrower) consummated after the
Closing Date, provided that the aggregate amount of proceeds of sales of
Capital Stock to Persons other than members of the HMTFI Group that may
be included in "Contributed Equity" pursuant to this clause (b) shall not
exceed $10,000,000 during the term of this Agreement.
"Credit Documents": this Agreement, the Notes and the Applications
and the Security Documents.
"Credit Parties": the Borrower, the Parent and each Subsidiary
which is a party to a Credit Document.
"Default": any of the events specified in Section 12, whether or
not any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"Documentation Agent": as defined in the preamble hereto.
"Dollars" and "$": dollars in lawful currency of the United States.
"Domestic Subsidiary": any Subsidiary organized under the laws of
any jurisdiction within the United States.
"Eligible Inventory": the total dollar value (valued at the lower
of cost (determined on a first in-first out basis) or market value) of
the inventory of Borrower and its Domestic Subsidiaries, which conforms
to the representations and warranties contained in subsection 8.19, which
inventory constitutes raw materials, work-in-progress or finished goods
and which is not excess, obsolete or unmerchantable, less (i) any
supplies (other than raw materials and spare parts owned by the Borrower
and reflected in its balance sheet), (ii) goods
<PAGE> 14
9
returned or rejected by customers, (iii) goods to be returned to
suppliers, (iv) inventory subject to any Lien other than landlords' liens
and the Liens created under the Security Documents (including goods
subject to Liens arising out of conditional sales, title retention,
consignment or similar arrangements) or (v) any obsolescence reserves
maintained by the Borrower and its Domestic Subsidiaries.
"Eligible Receivables": the total face amount of the receivables of
Borrower and its Domestic Subsidiaries which conform to the
representations and warranties contained in subsection 8.19, and at all
times continue to be acceptable to the Administrative Agent in its
reasonable judgment (provided that any changes shall only be effective on
a prospective basis after 15 days' prior written notice) less any
returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted or outstanding) and amounts in respect of
receivables subject to the Federal Assignment of Claims Act in an amount
in excess of $3,000,000 and less reserves (including reserves for
receivables which have not been paid in full within 90 days after the due
date thereof or which amounts have been disputed by the account debtor)
for any other matter affecting the creditworthiness of account debtors
with respect to the receivables.
"Environmental Laws": any applicable foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health or the environment, as now or may at any time hereafter be in
effect.
"Equipment": as defined in the Master Guarantee and Collateral
Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERO": as defined in the recitals hereto.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": the rate per annum determined by the
Administrative Agent at approximately 11:00 a.m. (London time) on the
date which is two Business Days prior to the beginning of the relevant
Interest Period (as specified in the applicable Notice of Borrowing) by
reference to the "British Bankers' Association Interest Settlement Rates"
for deposits in Dollars (as set forth by any service selected by the
Administrative Agent which has been nominated by the British Bankers'
Association as an authorized information vendor for the purpose of
displaying such rates) for a period equal to such Interest Period
(rounded, if necessary, upward to the nearest whole multiple of 1/16th of
1%); provided that, to the extent that an interest rate is not
ascertainable pursuant to the foregoing provisions of this definition,
the "Eurodollar Base Rate" shall be the interest rate per annum
determined by the
<PAGE> 15
10
Administrative Agent to be the average (rounded, if necessary, upward to
the nearest whole multiple of 1/16th of 1% per annum, if such average is
not such a multiple) of the rates per annum at which deposits in Dollars
are offered for such relevant Interest Period to major banks in the
London interbank market in London, England by the Reference Banks at
approximately 11:00 a.m. (London time) on the date which is two Business
Days prior to the beginning of such Interest Period. If any of the
Reference Banks shall be unable or shall otherwise fail to supply such
rates to the Administrative Agent upon its request, the rate of interest
shall, subject to the provisions of subsection 7.10, be determined on the
basis of the quotations of the remaining Reference Banks or Reference
Bank. Any change in the Eurocurrency Base Rate resulting from a change
in the Eurocurrency Reserve Requirements shall become effective on the
opening of business on the day in which such change became effective.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 12,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the
excess, if any, of (a) the sum, without duplication, of (i) Consolidated
EBITDA for such fiscal year, (ii) decreases in Consolidated Working
Capital for such fiscal year, (iii) the amount of any refund received by
the Borrower and its Subsidiaries during such fiscal year on taxes paid
by the Borrower and its Subsidiaries, (iv) cash dividends, cash interest
and other similar cash payments received by the Borrower during such
fiscal year in respect of investments to the extent not included in
Consolidated Net Income to determine Consolidated EBITDA for such fiscal
year, and (v) extraordinary cash gains to the extent subtracted or
otherwise not included in Consolidated Net Income to determine
Consolidated EBITDA for such fiscal year over (b) the sum, without
duplication, of (i) the aggregate amount actually paid by the Borrower
and its Subsidiaries in cash during such fiscal year on account of
Capital Expenditures (excluding (x) the principal amount of Indebtedness
incurred in connection with such expenditures and (y) any such
expenditures made pursuant to subsection 11.9(b) except, in the case of
this clause (y), to the extent that the amounts used to make such
expenditures were included in determining Consolidated EBITDA for such
fiscal year), (ii) the aggregate amount of all prepayments of Revolving
Credit Loans and Swing Line Loans during such fiscal year to the extent
accompanying permanent optional reductions of the Revolving Credit
Commitments and all optional prepayments of the Term Loans during such
fiscal year, (iii) the aggregate amount of all regularly scheduled
principal payments of long-term Indebtedness (including, without
limitation, the Term Loans) of the Borrower and its Subsidiaries made
during such fiscal year (other than in respect of any revolving credit
facility to the extent there is not an equivalent permanent reduction in
commitments thereunder), (iv) increases in Consolidated Working Capital
for such fiscal year, (v) cash interest expense of the Borrower and its
<PAGE> 16
11
Subsidiaries for such fiscal year, (vi) cash taxes actually paid in such
fiscal year or to be paid in the subsequent fiscal year on account of
such fiscal year to the extent added to Consolidated Net Income to
determine Consolidated EBITDA for such fiscal year, (vii) the amount of
all loans and advances made in such fiscal year pursuant to subsection
11.10(c) (net of any repayments of such loans and advances made during
such fiscal year), (viii) the amount of all investments made in such
fiscal year pursuant to subsection 11.10(k) or (l) (to the extent such
investment is not in cash or Cash Equivalents), (ix) the amount of all
deposits required to be made by the Borrower or any of its Subsidiaries
during such fiscal year in connection with investments made pursuant to
subsection 11.10(i) (net of any amounts returned in respect of such
deposits during such fiscal year), (x) dividends paid by the Borrower
during such fiscal year in accordance with subsection 11.8 to the extent
not subtracted in the determination of Consolidated Net Income of the
Borrower for such fiscal year, (xi) previously expensed royalty payments
made during such fiscal year to the extent not subtracted in the
determination of Consolidated Net Income of the Borrower for such fiscal
year, and (xii) extraordinary cash losses to the extent added to
Consolidated Net Income to determine Consolidated EBITDA for such fiscal
year; provided that there shall be excluded from the calculation of
Excess Cash Flow the income or (loss) of any Person earned or accrued, as
the case may be, prior to the date it becomes a Subsidiary of the
Borrower or is merged into or consolidated with the Borrower and its
Subsidiaries.
"Exchange Act": the Securities Exchange Act of 1934, as amended.
"Existing Credit Agreement": the Credit Agreement, dated as of
October 27, 1995, among Hedstrom Holdings, Inc., Hedstrom Corporation,
the banks and other financial institutions parties thereto and Bankers
Trust Company, as agent, as the same may be amended, supplemented or
otherwise modified from time to time.
"Farm Products": as defined in the Master Guarantee and Collateral
Agreement.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Foreign Pledge Agreement": each pledge agreement (or analogous
document), which pledge agreement (or analogous document) shall be in
form and substance reasonably satisfactory to the Administrative Agent,
pursuant to which the Borrower or any of its Domestic Subsidiaries
purports to grant a Lien on 65% of the Capital Stock of any Foreign
Subsidiary, as the same may be amended, supplemented or otherwise
modified from time to time.
"Foreign Subsidiary": any Subsidiary organized under the laws of
any jurisdiction outside the United States.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board and the rules
and regulations of the SEC (or any agency with similar functions), or in
such other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are applicable
to the circumstances of Borrower as of the date of determination except
that for
<PAGE> 17
12
purposes of subsection 11.1, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those
used in the preparation of the financial statements referred to in
subsections 8.1(a) and (b), as the case may be. In the event that any
"Accounting Change" (as defined below) shall occur and such change
results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the
Administrative Agent agree to enter into negotiations in order to amend
such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for
evaluating Borrower's financial condition shall be the same after such
Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and
delivered by the Borrower, the Administrative Agent and the Required
Lenders, all financial covenants, standards and terms in this Agreement
shall continue to be calculated or construed as if such Accounting
Changes had not occurred. "Accounting Changes" means: changes in
accounting principles required by the promulgation of any rule,
regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants
or, if applicable, the SEC (or any agency with similar functions).
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in either
case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other
third Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (A) for the purchase
or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to
assure or hold harmless the owner of any such primary obligation against
loss in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be deemed to be the
lower of (a) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is made
and (b) the maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for
which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation shall
be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Guarantor": any Person (other than the Borrower) executing the
Master Guarantee and Collateral Agreement.
<PAGE> 18
13
"HMTFI": as defined in the definition of "Change of Control".
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices and accrued expenses incurred in the ordinary course of
business), (b) any other indebtedness of such Person which is evidenced
by a note, bond, debenture or similar instrument, (c) all obligations of
such Person under Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person
and (e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof; provided, however, that the amount of such
Indebtedness of any Person described in this clause (e) shall, for
purposes of this Agreement, be deemed to be equal to the lesser of (i)
the aggregate unpaid amount of such Indebtedness and (ii) the fair market
value of the property or asset encumbered, as determined by such Person
in good faith. Whenever the term Indebtedness is used with respect to
any Person and its Subsidiaries, it shall mean without duplication.
"Initial Public Offering": an underwritten public offering of
common stock of the Borrower or any Affiliate thereof which has as its
sole material asset its equity interest in the Borrower pursuant to a
registration statement which is filed with the SEC in accordance with the
Securities Act of 1933 (as amended); provided, however, that the net
proceeds of such underwritten public offering are (to the extent not
directly paid to the Borrower) contributed to the Borrower.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Instrument": as defined in the Master Guarantee and Collateral
Agreement.
"Intellectual Property": as defined in the Master Guarantee and
Collateral Agreement.
"Interest Payment Date": (a) as to any ABR Loan, the last Business
Day of each March, June, September and December, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day of
such Interest Period and (c) as to any Eurodollar Loan having an Interest
Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period (or,
if such day is not a Business Day, the next succeeding Business Day) and
the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing
or conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six months or, to the
extent available to all Lenders, nine or twelve months thereafter,
as selected by the Borrower in its Notice of Borrowing given with
respect thereto; and
<PAGE> 19
14
(b) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six months or, to the
extent available to all Lenders, nine or twelve months thereafter,
as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the
last day of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month
in which event such Interest Period shall end on the immediately
preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date or beyond the date final payment is due on the
relevant Tranche A Loan or Tranche B Loan (as the case may be) shall
end on the Termination Date or such date of final payment, as the
case may be;
(3) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(4) no Interest Period with respect to any tranche or class of
the Term Loans shall extend beyond any date upon which repayment of
principal thereof is required to be made if, after giving effect to
the selection of such Interest Period, the aggregate principal
amount of such tranche or class of Term Loans with Interest Periods
ending after such date would exceed the aggregate principal amount
of such tranche or class of Term Loans permitted to be outstanding
after such scheduled repayment;
"Interest Rate Agreement" any interest rate swap, option, cap,
collar or insurance agreement, any commodity or currency future or any
other interest rate, commodity or currency hedge agreement or arrangement
which is designed to provide protection against fluctuations in interest
rates, commodity prices or currency exchange rates, and any renewals
thereof or substitutions therefor.
"Inventory": as defined in the Master Guarantee and Collateral
Agreement.
"Investment": as defined in subsection 11.10.
"Issuing Lender": with respect to any Letter of Credit, Credit
Suisse First Boston or any other Lender appointed by Borrower and
approved by the Administrative Agent (such approval not to be
unreasonably withheld) (provided that such other Lender agrees to serve
in the capacity of Issuing Lender), in its capacity as issuer thereof.
"L/C Commitment": $10,000,000.
<PAGE> 20
15
"L/C Fee Payment Date": the last Business Day of each March, June,
September, and December.
"L/C Obligations": at any time, an amount equal to the sum of (a)
the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to subsection 5.5.
"L/C Participants": with respect to any Letter of Credit, the
collective reference to all the Revolving Credit Lenders other than the
Issuing Lender with respect to such Letter of Credit.
"Lenders": the collective reference to the Tranche A Lenders, the
Tranche B Lenders, the Revolving Credit Lenders and the Swing Line
Lender.
"Letters of Credit": as defined in subsection 5.1(a).
"Leverage Ratio": at any date of determination, the ratio of the
Consolidated Total Indebtedness of the Borrower and its Subsidiaries on
such date to Consolidated EBITDA for the period of four fiscal quarters
of the Borrower ending most recently prior to or on such date.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any Financing Lease having substantially the same economic
effect as any of the foregoing).
"Loan": any Tranche A Loan, Tranche B Loan or Revolving Credit Loan
(including, without limitation, any Swing Line Loan), as the context
shall require.
"Master Guarantee and Collateral Agreement": the Master Guarantee
and Collateral Agreement, to be executed by Parent, Borrower and their
Subsidiaries substantially in the form of Exhibit E, as amended,
supplemented or otherwise modified from time to time.
"Material Adverse Effect": a material adverse effect on (a) the
Transactions, (b) the business, assets, property, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries (after
giving effect to the Acquisition) taken as a whole or (c) the validity or
enforceability of this Agreement or any of the other Credit Documents or
the rights or remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or
regulated as such in or under any Environmental Law, including, without
limitation, friable asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Merger": as defined in the recitals hereto.
<PAGE> 21
16
"Merger Agreement": as defined in the recitals hereto.
"Mortgage": each Mortgage to be executed and delivered by a Credit
Party and covering Mortgaged Property, substantially in the form of
Exhibit F, as the same may be amended, supplemented or otherwise modified
from time to time.
"Mortgaged Properties": the real properties listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the Lenders
shall be granted a Lien pursuant to the Mortgages.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds": with respect to any Net Proceeds Event, (a) the
gross cash consideration, and all cash proceeds (as and when received) of
non-cash consideration (including, without limitation, any such cash
proceeds in the nature of principal and interest payments on account of
promissory notes or similar obligations), received by the Borrower and
its Subsidiaries in connection with such Net Proceeds Event, minus (b)
the sum, without duplication, of (i) any taxes which are paid or actually
payable to any federal, state, local or foreign taxing authority by the
Borrower and its Subsidiaries and are directly attributable to the
receipt of such Net Proceeds, (ii) the amount of fees and commissions
(including reasonable investment banking fees payable to Persons other
than Affiliates of the Borrower), legal, notarial, accounting,
consulting, survey, title and recording tax expenses, underwriting
discounts and commissions and other costs and expenses directly incident
to such Net Proceeds Event which are paid or payable by the Borrower and
its Subsidiaries, (iii) the amount of such net cash proceeds which are
attributable to (and payable to) minority interests, (iv) the amount of
any reserve reasonably maintained by the Borrower and its Subsidiaries
with respect to indemnification obligations owing pursuant to the
definitive documentation pursuant to which the Net Proceeds Event is
consummated (with any unused portion of such reserve to constitute Net
Proceeds on the date upon which the indemnification obligations
terminate) and (v) the amount of Indebtedness (other than intercompany
Indebtedness), if any, which is required to be repaid at the time of or
as a result of such Net Proceeds Event out of the proceeds thereof.
"Net Proceeds Event": (a) the incurrence by the Borrower or any of
its Subsidiaries of any Indebtedness (other than Indebtedness permitted
pursuant to subsection 11.2);
(b) the issuance or sale of any equity securities by the Borrower
or any of its Subsidiaries to any Person, other than Permitted Issuances
or pursuant to Contributed Equity;
(c) the sale, transfer or other disposition by the Borrower or any
of its Subsidiaries of any real or personal, tangible or intangible,
property (including, without limitation, any Capital Stock) of the
Borrower or such Subsidiary to any Person (other than to the Borrower or
any of its Subsidiaries) other than as permitted by subsection 11.6
(other than clause (k) thereof); and
(d) the recovery by the Borrower of amounts in respect of a
property condemnation or owing to it under property insurance policies,
in each case, in excess of $1,000,000.
"Nonconsenting Lender": as defined in subsection 7.18.
<PAGE> 22
17
"Non-Excluded Taxes": as defined in subsection 7.14(a).
"Non-Funding Lender": as defined in subsection 7.11(b).
"Note": a Tranche A Note, a Tranche B Note, a Revolving Credit Note
or a Swing Line Note, as the context shall require.
"Notice of Borrowing": (i) with respect to (a) any borrowing of
Loans, a Notice of Borrowing (Drawings), substantially in the form of
Exhibit I-1, (b) any conversion of Loans, a Notice of Borrowing
(Conversions), substantially in the form of Exhibit I-2 and (c) any
continuation of Eurodollar Loans, a Notice of Borrowing (Continuations),
substantially in the form of Exhibit I-3 or (ii) telephonic notice of any
such borrowing, conversion or continuation promptly confirmed in writing
(in a form reasonably acceptable to the Administrative Agent).
"Obligations": as defined in the Master Guarantee and Collateral
Agreement.
"Offer to Purchase": the Offer to Purchase, dated as of April 13,
1997, of AcquisitionCo relating to the Tender Offer, as amended,
supplemented or modified to the date hereof and as the same may be
further amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof;
"Parent": as defined in the preamble hereto.
"Participant": as defined in subsection 14.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": the acquisition by a Subsidiary of Parent
of a business related to Parent's and its Subsidiaries' business as
approved by the board of directors of Parent.
"Permitted Issuance": (a) the issuance by Parent of shares of
Capital Stock as dividends on issued and outstanding Capital Stock of the
same class of Parent or pursuant to any dividend reinvestment plan, (b)
the issuance by Parent of options or other equity securities of Parent to
outside directors, members of management or employees of Parent or any
Subsidiary of Parent, (c) the issuance of securities as interest or
dividends on pay-in-kind debt or preferred equity securities permitted
hereunder and under the other Credit Documents, (d) the issuance to
Parent or any Subsidiary (or any director, with respect to directors'
qualifying shares) by any of its Subsidiaries of any of their respective
Capital Stock, in each case with respect to this clause (d) to the extent
such Capital Stock is pledged to the Administrative Agent pursuant to the
applicable Security Document (provided that (i) only 65% of the voting
Capital Stock of any direct Foreign Subsidiary of the Borrower is
required to be so pledged and (ii) no voting Capital Stock of any
indirect Foreign Subsidiary of the Borrower is required to be so pledged
unless such Foreign Subsidiary is also a Subsidiary of a Domestic
Subsidiary of Borrower, in which case subsection 10.10 shall be complied
with), (e) cash payments made in lieu of issuing fractional shares of
Parent's Capital Stock in an aggregate amount not to exceed $250,000, (f)
the issuance of Capital Stock the proceeds of which are used to make
payments on or redemptions of the Seller Subordinated Notes, (g) the
<PAGE> 23
18
issuance by the Parent of shares of its common stock in connection with a
Permitted Acquisition and (h) Contributed Equity.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pro Forma Balance Sheet": as defined in subsection 8.1(e).
"Properties": as defined in subsection 8.16(a).
"Receivable": as defined in the Master Guarantee and Collateral
Agreement.
"Reference Banks": Credit Suisse First Boston, Societe Generale and
Union Bank of Switzerland, New York Branch. If any Reference Bank shall
for any reason no longer have a Commitment or any Loans, such Reference
Bank shall thereupon cease to be a Reference Bank and the Administrative
Agent (after consultation with the Borrower) shall, by notice to the
Borrower and the Lenders, designate another Lender as a Reference Bank.
Each Reference Bank shall use its best efforts to furnish quotations of
rates to the Administrative Agent as contemplated hereby.
"Refunded Swing Line Loans": as defined in subsection 6.3(a).
"Register": as defined in subsection 14.6(d).
"Regulation G": Regulation G of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to subsection 5.5 for amounts drawn
under Letters of Credit issued by it.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c)
of ERISA, if applicable, other than those events as to which the thirty
day notice period is waived under subsections .21, .22, .23, .27, .29,
.31 or .32 of PBGC Reg. Section 4063.
"Required Lenders": at any time, Lenders having Commitment
Percentages which aggregate more than 50% of the sum of the Aggregate
Tranche A Commitment, the Aggregate Tranche B Commitment and the
Aggregate Revolving Credit Commitment then in effect.
<PAGE> 24
19
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": as to any Person, the chief executive
officer, the president, the chief financial officer, any vice president,
the secretary, any assistant secretary, the treasurer or any assistant
treasurer of such Person, in each case, to the extent such officer is
duly authorized to take the action in respect of which such defined term
is used.
"Restricted Payments": as defined in subsection 11.8.
"Revolving Credit Commitment": as to any Revolving Credit Lender,
its obligation to make Revolving Credit Loans to and/or issue or
participate in Swing Line Loans and/or Letters of Credit issued on behalf
of the Borrower hereunder in an aggregate principal and/or face amount at
any one time outstanding not to exceed the amount set forth opposite such
Revolving Credit Lender's name on Schedule I under the heading "Revolving
Credit Commitment".
"Revolving Credit Commitment Percentage": as to any Revolving
Credit Lender at any time, the percentage which such Revolving Credit
Lender's Revolving Credit Commitment then constitutes of the Aggregate
Revolving Credit Commitment (or, at any time after the Aggregate
Revolving Credit Commitment shall have expired or terminated, the
percentage which the aggregate principal amount of such Revolving Credit
Lender's Revolving Credit Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Credit Loans then
outstanding).
"Revolving Credit Lenders": each bank or other financial
institution holding a Revolving Credit Commitment hereunder (or, after
the last day of the Commitment Period and subject to the provisions of
subsection 14.6(d), holding any Revolving Credit Loans or participating
interests in Letters of Credit or Swing Line Loans hereunder).
"Revolving Credit Loans": as defined in subsection 4.1(a).
"Revolving Credit Note": as defined in subsection 7.1(e).
"SEC": the Securities and Exchange Commission and any successor or
analogous Governmental Authority.
"Security Documents": the collective reference to the Master
Guarantee and Collateral Agreement, each Mortgage, the Foreign Pledge
Agreements and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any asset or assets of any Person
to secure the obligations and liabilities of the Borrower hereunder and
under any of the other Credit Documents or to secure any guarantee of any
such obligations and liabilities.
"Seller Subordinated Notes": means the Subordinated Note dated as of
October 27, 1995 issued by Parent to sellers party to the Stock Purchase
Agreement dated as of October 27, 1995 among Parent, Arnold E. Ditri,
Alastair H. McKelvie, John H. Hurshman, The
<PAGE> 25
20
Fidelity Investment Charitable Gift Trust and Hicks, Muse, Tate & Furst
Equity Fund III, L.P. in an original principal amount of $2,500,000.
"Senior Discount Notes": the 12% Senior Discount Notes Due 2009
issued and sold by the Parent pursuant to the Indenture, dated as of June
12, 1997, with United States Trust Company of New York, as trustee, as
the same may be amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"Senior Subordinated Notes": the 10% Senior Subordinated Notes Due
2007 issued and sold by the Borrower pursuant to the Indenture, dated as
of June 12, 1997, with IBJ Schroder Bank and Trust Company, as trustee,
as the same may be amended, supplemented or otherwise modified from time
to time in accordance with the terms of this Agreement.
"Shares": as defined in the recitals hereto.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Specified Loans": as defined in subsection 4.3.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Parent.
"Swing Line Commitment": at any date, the obligation of the Swing
Line Lender to make Swing Line Loans pursuant to subsection 6.1 in the
amount referred to therein.
"Swing Line Lender": Credit Suisse First Boston.
"Swing Line Loans": as defined in subsection 6.1(a).
"Swing Line Note": as defined in subsection 7.1(e).
"Syndication Agent": as defined in the preamble hereto.
"Tender Offer": as defined in the recitals hereto.
"Tender Offer Documents" shall be the collective reference to (a)
the tender offer statement on Schedule 14D-1, dated April 17, 1997, filed
by AcquisitionCo with the SEC pursuant to Section 14(d)(1) of the
Exchange Act, together with all exhibits thereto, including the Offer to
Purchase, the solicitation/recommendation statement on Schedule 14D-9,
dated April 17, 1997, filed by ERO pursuant to Section 14(d)(4) of the
Exchange Act, in each case, as amended, supplemented or otherwise
modified from time to time, and (b) the Offer to Purchase.
<PAGE> 26
21
"Tendered Shares": as defined in the recitals hereto.
"Termination Date": June 30, 2003.
"Term Loans": collectively, the Tranche A Loans and the Tranche B
Loans.
"Title Insurance Company": as defined in subsection 9.1(l).
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day); Tranches may be identified as
"Eurodollar Tranches".
"Tranche A Commitment": as to any Tranche A Lender, its obligation
to make its Tranche A Loan to the Borrower hereunder in an aggregate
principal not to exceed the amount set forth opposite such Lender's name
on Schedule 1.1A under the heading "Tranche A Commitment".
"Tranche A Commitment Percentage": as to any Tranche A Lender at
any time, the percentage which such Tranche A Lender's Tranche A
Commitment then constitutes of the Aggregate Tranche A Commitment (or, at
any time after the Closing Date, the percentage which the aggregate
principal amount of such Tranche A Lender's Tranche A Loans then
outstanding constitutes of the aggregate principal amount of the Tranche
A Loans then outstanding).
"Tranche A Lender": each bank or other financial institution
holding a Tranche A Commitment hereunder (or, after the Closing Date and
subject to the provisions of subsection 14.6(c), holding any Tranche A
Loans hereunder).
"Tranche A Loan": as defined in subsection 2.1.
"Tranche A Note": as defined in subsection 7.1(e).
"Tranche B Commitment": as to any Tranche B Lender, its obligation
to make its Tranche B Loan to the Borrower hereunder in an aggregate
principal not to exceed the amount set forth opposite such Lender's name
on Schedule 1.1A under the heading "Tranche B Commitment".
"Tranche B Commitment Percentage": as to any Tranche B Lender at
any time, the percentage which such Tranche B Lender's Tranche B
Commitment then constitutes of the Aggregate Tranche B Commitment (or, at
any time after the Closing Date, the percentage which the aggregate
principal amount of such Tranche B Lender's Tranche B Loans then
outstanding constitutes of the aggregate principal amount of the Tranche
B Loans then outstanding).
"Tranche B Lenders": each bank or other financial institution
holding a Tranche B Commitment hereunder (or, after the Closing Date and
subject to the provisions of subsection 14.6(c), holding any Tranche B
Loans hereunder).
"Tranche B Loan": as defined in subsection 3.1.
<PAGE> 27
22
"Tranche B Note": as defined in subsection 7.1(e).
"Transactions": collectively, the Acquisition and the issuance of
the Senior Discount Notes and the Senior Subordinated Notes.
"Transferee": as defined in subsection 14.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be amended from time to time.
"United States": the United States of America.
"U.S. Tax Compliance Certificate": as defined in subsection
7.14(b)(ii).
1.2. Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP and any reference to fiscal
quarters shall mean to the fiscal quarters of the Borrower determined in a
consistent manner during the duration of this Agreement and shall mean the
fiscal quarter on or nearest to any date set forth herein for such fiscal
quarter end.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION II. AMOUNT AND TERMS OF TRANCHE A LOAN COMMITMENTS
2.1. Tranche A Term Loans. Subject to the terms and conditions
hereof, each Tranche A Lender severally agrees to make a term loan (a "Tranche
A Loan") to the Borrower on the Closing Date in an amount not to exceed the
amount of the Tranche A Commitment of such Tranche A Lender then in effect.
The Tranche A Loans may from time to time be (a) Eurodollar Loans, (b) ABR
Loans or (c) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with subsections 2.2 and 7.6;
provided that the Tranche A Loans to be made on the Closing Date initially
shall be made as ABR Loans.
2.2. Procedure for Tranche A Loan Borrowing. The Borrower shall
give the Administrative Agent an irrevocable Notice of Borrowing (which notice
must be received by the
<PAGE> 28
23
Administrative Agent prior to 11:00 A.M., New York City time, one Business Day
prior to the Closing Date) requesting that the Tranche A Lenders make the
Tranche A Loans on the Closing Date and specifying the amount to be borrowed.
Upon receipt of such Notice of Borrowing, the Administrative Agent shall
promptly notify each Tranche A Lender thereof. Each Tranche A Lender will make
the amount of its pro rata share of the Tranche A Loans available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 14.2 prior to 11:00 A.M., New York
City time, on the Closing Date in funds immediately available to the
Administrative Agent. Such Tranche A Loans will then be made available to the
Borrower by the Administrative Agent transferring to the account directed by
the Borrower (which account need not be maintained by the Administrative Agent)
with the aggregate of the amounts made available to the Administrative Agent by
the Tranche A Lenders and in like funds as received by the Administrative
Agent.
2.3. Amortization of Tranche A Loans. (a) The Borrower shall
repay the Tranche A Loans on each date set forth below by the amount set forth
below opposite such date:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
December 31, 1997 $1,000,000
March 31, 1998 3,000,000
June 30, 1998 750,000
September 30, 1998 3,000,000
December 31, 1998 750,000
March 31, 1999 4,000,000
June 30, 1999 1,000,000
September 30, 1999 4,000,000
December 31, 1999 1,000,000
March 31, 2000 5,000,000
June 30, 2000 1,250,000
September 30, 2000 5,000,000
December 31, 2000 1,250,000
March 31, 2001 6,000,000
June 30, 2001 1,500,000
September 30, 2001 6,000,000
December 31, 2001 1,500,000
March 31, 2002 8,000,000
June 30, 2002 2,000,000
September 30, 2002 8,000,000
December 31, 2002 2,000,000
March 31, 2003 7,200,000
June 30, 2003 1,800,000
</TABLE>
(b) The Borrower shall repay any then outstanding Tranche A Loans
on the Termination Date.
2.4. Use of Proceeds of Tranche A Loans. The proceeds of the
Tranche A Loans shall be utilized by the Borrower only (a) to finance the
purchase by AcquisitionCo of the Tendered Shares, (b) to finance the Merger,
(c) to refinance outstanding Indebtedness of the Borrower and its Subsidiaries
(including, without limitation, ERO) and (d) to pay any fees and expenses
relating thereto.
<PAGE> 29
24
SECTION III. AMOUNT AND TERMS OF TRANCHE B LOAN COMMITMENTS
3.1. Tranche B Term Loans. Subject to the terms and conditions
hereof, each Tranche B Lender severally agrees to make a term loan (a "Tranche
B Loan") to the Borrower on the Closing Date in an amount not to exceed the
amount of the Tranche B Commitment of such Tranche B Lender then in effect.
The Tranche B Loans may from time to time be (a) Eurodollar Loans, (b) ABR
Loans or (c) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with subsections 3.2 and 7.6;
provided that the Tranche B Loans to be made on the Closing Date initially
shall be made as ABR Loans.
3.2. Procedure for Tranche B Loan Borrowing. The Borrower shall
give the Administrative Agent its irrevocable Notice of Borrowing (which notice
must be received by the Administrative Agent prior to 11:00 A.M., New York City
time, one Business Day prior to the Closing Date) requesting that the Tranche B
Lenders make the Tranche B Loans on the requested Borrowing Date and specifying
the amount to be borrowed. Upon receipt of such Notice of Borrowing, the
Administrative Agent shall promptly notify each Tranche B Lender thereof. Each
Tranche B Lender will make the amount of its pro rata share of the Tranche B
Loans available to the Administrative Agent for the account of the Borrower at
the office of the Administrative Agent specified in subsection 14.2 prior to
11:00 A.M., New York City time, on the Closing Date in funds immediately
available to the Administrative Agent. Such Tranche B Loans will then be made
available to the Borrower by the Administrative Agent transferring to the
account directed by the Borrower (which account need not be maintained by the
Administrative Agent) with the aggregate of the amounts made available to the
Administrative Agent by the Tranche B Lenders and in like funds as received by
the Administrative Agent.
3.3. Amortization of Tranche B Loans. (a) The Borrower shall
repay the Tranche B Loans on each date set forth below by the amount set forth
below opposite such date:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
December 31, 1997 $125,000
March 31, 1998 125,000
June 30, 1998 125,000
September 30, 1998 125,000
December 31, 1998 125,000
March 31, 1999 125,000
June 30, 1999 125,000
September 30, 1999 125,000
December 31, 1999 125,000
March 31, 2000 125,000
June 30, 2000 125,000
September 30, 2000 125,000
December 31, 2000 125,000
March 31, 2001 125,000
June 30, 2001 125,000
September 30, 2001 125,000
December 31, 2001 125,000
March 31, 2002 125,000
June 30, 2002 125,000
September 30, 2002 125,000
December 31, 2002 125,000
</TABLE>
<PAGE> 30
25
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
March 31, 2003 5,000,000
June 30, 2003 1,250,000
September 30, 2003 5,000,000
December 31, 2003 1,250,000
March 31, 2004 5,400,000
June 30, 2004 1,350,000
September 30, 2004 5,400,000
December 31, 2004 1,350,000
March 31, 2005 5,100,000
June 30, 2005 1,275,000
</TABLE>
(b) The Borrower shall repay any then outstanding Tranche B Loans
on June 30, 2005.
3.4. Use of Proceeds of Tranche B Loans. The proceeds of the
Tranche B Loans shall be utilized by the Borrower only (a) to finance the
purchase by AcquisitionCo of the Tendered Shares, (b) to finance the Merger,
(c) to refinance outstanding Indebtedness of the Borrower and its Subsidiaries
(including, without limitation, ERO) and (d) to pay any fees and expenses
relating thereto.
SECTION IV. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
4.1. Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Commitment Period in an aggregate principal amount at any one
time outstanding which when added to such Revolving Credit Lender's Revolving
Credit Commitment Percentage of the then outstanding L/C Obligations and Swing
Line Loans does not exceed the amount of such Revolving Credit Lender's
Revolving Credit Commitment; provided that, after giving effect to the making
of such Revolving Credit Loan, (i) the Aggregate Outstanding Extensions of
Credit of all Revolving Credit Lenders shall not exceed the lesser of (x) the
Aggregate Revolving Credit Commitment then in effect and (y) the Borrowing Base
then in effect and (ii) the sum of (A) the Aggregate Outstanding Extensions of
Credit of all the Revolving Credit Lenders and (B) the Canadian Subsidiary
Equivalent Outstandings shall not exceed the Aggregate Revolving Credit
Commitment. During the Commitment Period the Borrower may use the Aggregate
Revolving Credit Commitment by borrowing, prepaying the Revolving Credit Loans
in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Administrative Agent in accordance with
subsections 4.2 and 7.6, provided that (x) no Revolving Credit Loan shall have
an Interest Period which ends after the Termination Date and (y) any Revolving
Credit Loans to be made on the Closing Date initially shall be made as ABR
Loans.
4.2. Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Aggregate Revolving Credit Commitment during the Commitment
Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable Notice of Borrowing (which notice must be
received by the Administrative Agent prior to 11:00 A.M., New York City time,
(a) three Business Days prior to the requested Borrowing Date, if all or any
part of the
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requested Revolving Credit Loans are to be initially Eurodollar Loans or (b) on
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the amount of such
Type of Loan and the length of the initial Interest Period therefor. Each
borrowing under the Aggregate Revolving Credit Commitment (other than any
borrowing of Swing Line Loans or of Revolving Credit Loans the proceeds of
which are used to refund Swing Line Loans) shall be in an amount equal to (x)
in the case of ABR Loans, $1,000,000 or a whole multiple of $100,000 in excess
thereof (or, if the then Available Revolving Credit Commitments are less than
$1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$2,000,000 or a whole multiple of $250,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Administrative Agent shall promptly
notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 14.2 prior to 11:00 A.M., New York
City time, in the case of Eurodollar Loans and 2:00 P.M., New York City time,
in the case of ABR Loans, on the Borrowing Date requested by the Borrower in
funds immediately available to the Administrative Agent. Such borrowing will
then be made available to the Borrower by the Administrative Agent crediting
the account of the Borrower on the books of such office with the aggregate of
the amounts made available to the Administrative Agent by the Revolving Credit
Lenders and in like funds as received by the Administrative Agent.
4.3. Use of Proceeds of Revolving Credit Loans. The proceeds of
the Revolving Credit Loans shall be utilized by the Borrower only for working
capital and general corporate purposes, including, without limitation, to
finance the purchase price for the Acquisition and the fees and expenses
relating thereto; provided that upon the acquisition by AcquisitionCo of at
least 75% of the issued and outstanding Capital Stock of ERO, the Borrower may
make loans (to the extent such loans are funded with Loans under this
Agreement, the "Specified Loans") to ERO for the purpose of financing the
working capital needs of ERO pending the consummation of the Merger.
SECTION V. AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY
5.1. L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other
Revolving Credit Lenders set forth in subsection 5.4(a), agrees to issue
letters of credit ("Letters of Credit") for the account of the Borrower and its
Subsidiaries on any Business Day during the Commitment Period in such form as
may be approved from time to time by the Issuing Lender; provided that the
Issuing Lender shall have no obligation to issue any Letter of Credit if, after
giving effect to such issuance, (i) the L/C Obligations would exceed the L/C
Commitment, (ii) the Available Revolving Credit Commitment of any Revolving
Credit Lender would be less than zero, (iii) the Aggregate Outstanding
Extensions of Credit of all Revolving Credit Lenders would exceed the lesser of
(A) the Aggregate Revolving Credit Commitment then in effect and (B) the
Borrowing Base then in effect or (iv) the sum of (A) the Aggregate Outstanding
Extensions of Credit of all the Revolving Credit Lenders and (B) the Canadian
Subsidiary Equivalent Outstandings would exceed the Aggregate Revolving Credit
Commitment.
(b) Each Letter of Credit shall (i) be denominated in Dollars, (ii)
be (x) a standby letter of credit issued to support obligations of the Borrower
or any of its Subsidiaries, contingent or otherwise, or to finance the working
capital and business needs of the Borrower or any of its Subsidiaries in the
ordinary course of business or (y) a commercial letter of credit issued in
respect of the purchase of goods or services by the Borrower or any of its
Subsidiaries in the ordinary course of
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business and (iii) expire no later than the earlier of (x) the date that is 12
months after the date of its issuance and (y) five Business Days prior to the
Termination Date; provided that any Letter of Credit with an expiration date
occurring up to twelve months after such Letter of Credit's date of issuance
may be automatically renewable for subsequent 12-month periods (but in no event
to a date which is later than five Business Days prior to the Termination
Date).
(c) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(d) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
5.2. Procedure for Issuance, Amendments and Terminations of Letters
of Credit. The Borrower may request that the Issuing Lender issue a Letter of
Credit at any time during the Commitment Period by delivering to the Issuing
Lender (with a copy to the Administrative Agent) at its address for notices
specified in subsection 14.2 an Application therefor, completed to the
satisfaction of the Issuing Lender, and such other certificates, documents and
other papers and information as the Issuing Lender may reasonably request.
Upon receipt of any Application, the Issuing Lender will process such
Application and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures and shall promptly issue the Letter of Credit requested thereby (but
in no event shall the Issuing Lender be required to issue any Letter of Credit
earlier than three Business Days after its receipt of the Application therefor
and all such other certificates, documents and other papers and information
relating thereto) by issuing the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the
Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to
the Borrower and the Administrative Agent promptly following the issuance
thereof. The Issuing Lender shall also furnish to the Administrative Agent a
copy of any amendment or extension of any Letter of Credit promptly after such
amendment or extension. The letters of credit identified on Schedule 5.2 shall
at all times on and after the Closing Date be deemed to be a "Letter of Credit"
or "Letters of Credit' for all purposes of this Agreement and the other Credit
Documents, and, in each case, The First National Bank of Chicago shall be the
"Issuing Lender" in respect thereof.
5.3. Fees, Commissions and Other Charges. (a) The Borrower shall
pay to the Administrative Agent, for the account of the Issuing Lender and the
L/C Participants, a letter of credit fee with respect to each Letter of Credit,
computed for the period from and including the date of issuance of such Letter
of Credit to the expiration date of such Letter of Credit, at a rate per annum
equal to the Applicable Margin then in effect for Revolving Credit Loans which
are Eurodollar Loans (calculated on the basis of the actual number of days
elapsed over a 360-day year) of the aggregate face amount of Letters of Credit
outstanding (of which 1/4 of 1% of such aggregate face amount shall be for the
account of the Issuing Lender and the remainder of such amount shall be for the
ratable account of the Issuing Lender and the L/C Participations). Such fee
shall be payable to the Administrative Agent, for the ratable account of the
Revolving Credit Lenders, in arrears on each L/C Fee Payment Date and on the
Termination Date.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by such Issuing Lender in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit issued by it.
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(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the relevant Issuing Lender and the L/C Participants all
fees and commissions received by the Administrative Agent for their respective
accounts pursuant to this subsection.
5.4. L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such
L/C Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Commitment Percentage from time to time in
effect in the Issuing Lender's obligations and rights under each Letter of
Credit issued hereunder and the amount of each draft paid by the Issuing Lender
thereunder. Each L/C Participant unconditionally and irrevocably agrees with
the Issuing Lender that, if a draft is paid under any Letter of Credit for
which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Administrative Agent for the account of the Issuing Lender upon demand at
the Administrative Agent's address for notices specified in subsection 14.2 an
amount equal to such L/C Participant's then Revolving Credit Commitment
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed; provided that, if such demand is made prior to 12:00 Noon, New York
City time, on a Business Day, such L/C Participant shall make such payment to
the Administrative Agent for the account of the Issuing Lender prior to the end
of such Business Day and otherwise such L/C Participant shall make such payment
on the next succeeding Business Day.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to subsection 5.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
by the Administrative Agent (upon the request of the Issuing Lender) an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate, as quoted by the Administrative Agent, during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Lender, times (iii) a fraction
the numerator of which is the number of days that elapse during such period and
the denominator of which is 360. If any such amount required to be paid by any
L/C Participant pursuant to paragraph 5.4(a) is not in fact made available to
the Issuing Lender by such L/C Participant within three Business Days after the
date such payment is due, the Issuing Lender shall be entitled to recover from
such L/C Participant, on demand by the Administrative Agent (upon the request
of the Issuing Lender), such amount with interest thereon calculated from such
due date to the date on which payment is immediately available to the Issuing
Lender at the rate per annum applicable to ABR Loans hereunder. A certificate
of the Issuing Lender submitted to any L/C Participant by the Administrative
Agent with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit issued by it and has received from any L/C
Participant its pro rata share of such payment in accordance with subsection
5.4(a), the Issuing Lender receives any payment related to such Letter of
Credit (whether directly from the Borrower or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest
on account thereof, the Issuing Lender will promptly pay to the Administrative
Agent for distribution to such L/C Participant its pro rata share thereof;
provided that in the event that any such payment received by the Issuing Lender
and distributed to the L/C Participants shall be required to be returned by the
Issuing Lender,
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each such L/C Participant shall pay to the Administrative Agent for
distribution to the Issuing Lender the portion thereof previously distributed
by the Administrative Agent to it.
5.5. Reimbursement Obligation of the Borrower. (a) The Borrower
agrees to reimburse the Issuing Lender by 2:00 P.M., New York City time, on the
same Business Day on which a draft is presented under any Letter of Credit
issued by such Issuing Lender and paid by such Issuing Lender, provided that
such Issuing Lender provides notice to the Borrower (with a copy to the
Administrative Agent) prior to 10:30 A.M., New York City time, on such Business
Day and otherwise the Borrower will reimburse the Issuing Lender on the next
succeeding Business Day (with one day's interest at the rate provided for in
subsection 5.5(c)); provided, further, that the failure to provide such notice
shall not affect the Borrower's absolute and unconditional obligation to
reimburse the Issuing Lender for any draft paid under any Letter of Credit
issued by it. The Issuing Lender shall provide notice to the Borrower on such
Business Day as a draft is presented and paid by the Issuing Lender indicating
the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Issuing Lender in connection with such
payment. Each such payment shall be made to the Issuing Lender at its address
for notices specified in subsection 14.2 in lawful money of the United States
and in immediately available funds.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this subsection from the date such amounts become
payable until payment in full at the rate which would be payable on any
outstanding Revolving Credit Loans that are ABR Loans.
(c) Each drawing under any Letter of Credit shall constitute a
request by the Borrower to the Administrative Agent for a borrowing pursuant to
subsection 4.2 of ABR Loans in the amount of such drawing. The Borrowing Date
with respect to such borrowing shall be the date of such drawing.
5.6. Obligations Absolute. (a) The Borrower's obligations under
subsection 5.5(a) shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Lender, any
L/C Participant or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Lender that the
Issuing Lender shall not be responsible for, and the Borrower's Reimbursement
Obligations under subsection 5.5(a) shall not be affected by, among other
things, (i) the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or (ii) any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or (iii) any claims whatsoever of the Borrower
against any beneficiary of such Letter of Credit or any such transferee except
to the extent resulting from the gross negligence or willful misconduct of the
Issuing Lender.
(c) Neither the Issuing Lender with respect to any Letter of Credit
nor any L/C Participant with respect thereto shall be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with such Letter of
Credit, except for errors or omissions caused by such Issuing Lender's gross
negligence or willful misconduct.
(d) The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit issued by it or
the related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of
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care specified in the Uniform Commercial Code of the State of New York, shall
be binding on the Borrower and shall not result in any liability of such
Issuing Lender or any L/C Participant to the Borrower.
5.7. Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the responsibility of the Issuing
Lender thereof to the Borrower in connection with such draft shall, in addition
to any payment obligation expressly provided for in such Letter of Credit, be
limited to determining that the documents (including each draft) delivered
under such Letter of Credit in connection with such presentment are in
conformity with such Letter of Credit.
5.8. Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 5, the provisions of this Section 5 shall apply.
SECTION VI. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY
6.1. Swing Line Commitments. (a) Subject to the terms and
conditions hereof, the Swing Line Lender agrees to make swing line loans (the
"Swing Line Loans") to the Borrower on any Business Day from time to time
during the Commitment Period in an aggregate principal amount not to exceed
$10,000,000 at any one time outstanding; provided that, after giving effect to
the making of such Swing Line Loan, (i) the Aggregate Outstanding Extensions of
Credit of all Revolving Credit Lenders shall not exceed the lesser of (x) the
Aggregate Revolving Credit Commitment then in effect and (y) the Borrowing Base
then in effect and (ii) the sum of (A) the Aggregate Outstanding Extensions of
Credit of all the Revolving Credit Lenders and (B) the Canadian Subsidiary
Equivalent Outstandings shall not exceed the Aggregate Revolving Credit
Commitment. Amounts borrowed under this subsection 6.1 may be repaid and, to
but excluding the Termination Date, reborrowed.
(b) All Swing Line Loans shall be made and maintained as ABR Loans
and, notwithstanding the provisions of subsection 7.6, shall not be entitled to
be converted into Eurodollar Loans; provided that nothing contained in this
subsection 6.1 shall prohibit the conversion into Eurodollar Loans of any
Revolving Credit Loans the proceeds of which are utilized to refund Swing Line
Loans.
6.2. Procedure for Swing Line Loan Borrowing. The Borrower may
borrow under the Swing Line Commitment during the Commitment Period on any
Business Day; provided that the Borrower shall give the Administrative Agent
irrevocable Notice of Borrowing (which notice must be received by the
Administrative Agent prior to 12:30 P.M., New York City time), on the requested
borrowing date (which shall be a Business Day) specifying the amount of each
requested Swing Line Loan, which shall be in a minimum amount of $250,000 or a
multiple of $100,000 in excess thereof. Upon receipt of any such notice from
the Borrower, the Administrative Agent shall promptly notify the Swing Line
Lender thereof. The Swing Line Lender will make the amount of its Swing Line
Loan available to the Administrative Agent for the account of the Borrower at
the office of the Administrative Agent in such manner as may be agreed upon by
the Swing Line Lender and the Borrower prior to 3:30 P.M., New York City time,
on the Borrowing Date requested by the Borrower.
6.3. Refunding of Swing Line Loans. (a) The Administrative Agent,
at any time in its sole and absolute discretion, may (or, upon the request of
the Swing Line Lender, shall) on behalf of the Borrower (which hereby
irrevocably directs the Administrative Agent to act on its behalf)
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request that each Revolving Credit Lender make a Revolving Credit Loan in an
amount equal to such Revolving Credit Lender's Commitment Percentage of the
then outstanding principal amount of Swing Line Loans (the "Refunded Swing Line
Loans") on the date such notice is given (regardless of whether the Refunded
Swing Line Loans comply with the minimum borrowing provisions of subsection
4.2). In the event that the Swing Line Lender makes its request for refunding
of the Swing Line Loans, each Revolving Credit Lender shall make the proceeds
of its Revolving Credit Loan available in immediately available funds to the
Administrative Agent, for the benefit of the Swing Line Lender, at the office
of the Administrative Agent specified in subsection 14.2 prior to 11:00 A.M.,
New York City time, on the first Business Day following such request (or, if
such request is made prior to 10:00 A.M., New York City time, on any date, then
the proceeds of such Revolving Credit Loans shall instead be so made available
to the Administrative Agent prior to 2:00 P.M., New York City time, on the date
of such request); provided that in the event that any of the events described
in Section 12(f)(i) or (ii) shall have occurred and be continuing, the
Revolving Credit Lenders shall not make such Revolving Credit Loans and the
provisions of subsection 6.3(b) shall apply.
(b) If, prior to the making of a Revolving Credit Loan pursuant to
subsection 6.3(a), one of the events described in Section 12(f)(i) or (ii)
shall have occurred and be continuing, each Revolving Credit Lender will, on
the date such Revolving Credit Loan was to have been made, purchase from the
Swing Line Lender an undivided participating interest in the Swing Line Loan to
be refunded in an amount equal to its Commitment Percentage of such Swing Line
Loan to be refunded. Each Revolving Credit Lender will immediately transfer to
the Administrative Agent, in immediately available funds, the amount of its
participation.
(c) Whenever, at any time after the Swing Line Lender has received
from any Revolving Credit Lender such Lender's participating interest in a
Swing Line Loan to be refunded pursuant to subsection 6.3(b), the Swing Line
Lender receives any payment on account thereof, the Swing Line Lender will pay
to the Administrative Agent for distribution to such Revolving Credit Lender
its participating interest in such amount (appropriately adjusted, in the case
of interest payments, to reflect the period of time during which such Lender's
participating interest was outstanding and funded) in like funds as received;
provided that in the event that such payment received by the Swing Line Lender
is required to be returned, such Revolving Credit Lender will return to the
Swing Line Lender any portion thereof previously distributed by the Swing Line
Lender through the Administrative Agent to it in like funds as such payment is
required to be returned by the Swing Line Lender.
6.4. Unconditional Obligation to Refund Swing Line Loans. (a) Each
Revolving Lender's obligation to make Revolving Credit Loans and to purchase
participating interests in accordance with subsections 6.3(a) and (b) above
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Credit Lender may have
against the Swing Line Lender, the Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of any Default or Event of
Default; (iii) any adverse change in the condition (financial or otherwise) of
the Borrower or any other Person; (iv) any breach of this Agreement by the
Borrower or any other Person; (v) any inability of the Borrower to satisfy the
conditions precedent to borrowing set forth in this Agreement on the date upon
which such Revolving Credit Loan is to be made or participating interest is to
be purchased or (vi) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing. If any Revolving Credit Lender
does not make available to the Administrative Agent the amount required
pursuant to subsections 6.3(a) and (b) above, as the case may be, the
Administrative Agent shall be entitled to recover such amount on demand from
such
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Revolving Credit Lender, together with interest thereon for each day from the
date of non-payment until such amount is paid in full at the Federal Funds
Effective Rate for the first two Business Days and at the rate applicable to
ABR Loans thereafter.
6.5. Use of Proceeds of Swing Line Loans. The proceeds of Swing
Line Loans hereunder shall be used by the Borrower for any purpose for which
the proceeds of Revolving Credit Loans may be used.
SECTION VII. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES
AND PAYMENTS
7.1. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each applicable Lender (i) the then unpaid principal amount of each
Revolving Credit Loan and the then unpaid principal amount of each Swing Line
Loan on the Termination Date (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Section 12), (ii) the principal
amount of the Tranche A Loans on the dates and in the amounts set forth in
subsection 2.3 (or the then unpaid principal amount of such Tranche A Loan, on
the date that the Tranche A Loans become due and payable pursuant to Section
12) and (iii) the principal amount of the Tranche B Loan on the dates and in
the amounts set forth in subsection 3.3 (or the then unpaid principal amount of
such Tranche B Loan, on the date that the Tranche B Loans become due and
payable pursuant to Section 12). The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 7.8.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant
to subsection 14.6(d), and a subaccount therein for each Lender, in which shall
be recorded (i) the amount of each Loan made hereunder and any Note evidencing
such Loan, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the Borrower and
each applicable Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 7.1(b) shall, in the absence of
manifest error and to the extent permitted by applicable law, be prima facie
evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain the Register or any such account, or any error
therein, shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Loans made to the Borrower by such Lender in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon request of any Lender through
the Administrative Agent, the Borrower will execute and deliver to such Lender
(i) in the case of a Tranche A Lender, a promissory note of the Borrower
evidencing the Tranche A Loan of such Tranche A Lender,
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substantially in the form of Exhibit A with appropriate insertions as to date
and principal amount (a "Tranche A Note"), (ii) in the case of a Tranche B
Lender, a promissory note of the Borrower evidencing the Tranche B Loan of such
Tranche B Lender, substantially in the form of Exhibit B with appropriate
insertions as to date and principal amount (a "Tranche B Note"), (iii) in the
case of a Revolving Credit Lender, a promissory note of the Borrower evidencing
the Revolving Credit Loans of such Revolving Credit Lender, substantially in
the form of Exhibit C with appropriate insertions as to date and principal
amount (a "Revolving Credit Note") and (iv) in the case of the Swing Line
Lender, a promissory note of the Borrower evidencing the Swing Line Loans,
substantially in the form of Exhibit D with appropriate insertions as to date
and principal amount (a "Swing Line Note"). A Note and the Loan evidenced
thereby may be assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer of such Note and the Loan evidenced
thereby in the Register (and each Note shall expressly so provide). Any
assignment or transfer of all or part of a Loan evidenced by a Note shall be
registered in the Register only upon surrender for registration of assignment
or transfer of the Note evidencing such Loan, accompanied by an Assignment and
Acceptance substantially in the form of Exhibit H, duly executed by the
Assignor thereof, and thereupon one or more new Notes shall be issued to the
designated Assignee and the old Note shall be returned by the Administrative
Agent to the Borrower marked "cancelled." No assignment of a Note and the Note
evidenced thereby shall be effective unless it shall have been recorded in the
Register by the Administrative Agent as provided in this subsection 7.1(e).
7.2. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the first day of the
Commitment Period to but excluding the Termination Date, computed at the rate
equal to 1/2 of 1% per annum (or, in the event that the Applicable Margin
applicable to Revolving Credit Loans is, in the case of Eurodollar Loans, equal
to or less than 1.75% and, in the case of ABR Loans, equal to or less than
0.75%, 3/8 of 1% per annum) on the average daily amount of the Available
Revolving Credit Commitment of such Revolving Credit Lender during the period
for which payment is made, payable quarterly in arrears on the last Business
Day of each March, June, September and December and on the Termination Date or
such earlier date as the Aggregate Revolving Credit Commitment shall terminate
as provided herein, commencing on the first of such dates to occur after the
date hereof.
7.3. Optional Prepayments. (a) The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' (or, in the case of prepayments of
ABR Loans, on at least the same Business Day) irrevocable notice to the
Administrative Agent (which notice must be received by the Administrative Agent
prior to 10:00 A.M., New York City time, on the date upon which such notice is
due), specifying whether such prepayment is to be applied to the Revolving
Credit Loans or the other Loans hereunder and, in any event, the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, if of a combination thereof, the amount
allocable to each. Upon receipt of any such notice the Administrative Agent
shall promptly notify each affected Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
specified therein, together with any amounts payable pursuant to subsection
7.15 and, except in the case of prepayments of Revolving Credit Loans
(including Swing Line Loans) which are ABR Loans, accrued interest to such date
on the amount prepaid. Partial prepayments of the Tranche A Loans and the
Tranche B Loans may be applied, in the discretion of the Borrower, to the
immediately succeeding originally scheduled installments of the Tranche A Loans
and Tranche B Loans (if not previously prepaid), or, otherwise, such
prepayments shall be applied ratably to the remaining installments of principal
thereof (based upon the number of installments remaining), such that the amount
to be applied to each such remaining installment shall be the amount equal to
the aggregate
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amount to be applied to repay the Tranche A Loans or the Tranche B Loans (as
the case may be) divided by the number of scheduled installments of such Loans
which remain outstanding; provided that, in the event that the amount to be so
applied to any remaining installment exceeds the amount of such installment,
such excess amount shall be applied to the remaining installments of such Loans
ratably (based upon the number of installments thereof which remain). Amounts
prepaid on account of the Tranche A Loans and the Tranche B Loans may not be
reborrowed. Partial prepayments shall be in an aggregate principal amount of
$500,000 (or $2,000,000 in the case of Eurodollar Loans) or a whole multiple of
$100,000 (or $250,000 in the case of Eurodollar Loans) in excess thereof;
provided that partial prepayments of Swing Line Loans shall be in an aggregate
principal amount of $100,000 or a whole multiple in excess thereof.
Notwithstanding anything to the contrary contained herein, any optional
prepayment of the Tranche A Loans or the Tranche B Loans shall be accompanied
by a prepayment of the other in the amount necessary to cause the Tranche A
Loans and the Tranche B Loans to be ratably prepaid.
(b) The Borrower may at any time and from time to time prepay, in
whole or in part and without premium or penalty, any Swing Line Loans then
owing by it on any Business Day; provided that such Borrower has given
irrevocable notice to the Administrative Agent not later than 1:00 P.M., New
York City time, on the date of such prepayment.
7.4. Optional Termination or Reduction of Aggregate Revolving
Credit Commitment. The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to terminate the Aggregate
Revolving Credit Commitment or, from time to time, to reduce the amount
thereof; provided that no such termination or reduction shall be permitted if,
after giving effect thereto and to any prepayments of the Revolving Credit
Loans and Swing Line Loans made on the effective date thereof, the aggregate
principal amount of the Revolving Credit Loans and Swing Line Loans then
outstanding, when added to the then outstanding L/C Obligations, would exceed
the Aggregate Revolving Credit Commitment then in effect. Any such reduction
shall be in an amount equal to $1,000,000 or a whole multiple of $250,000 in
excess thereof and shall reduce permanently the Aggregate Revolving Credit
Commitment then in effect. Upon termination of the Aggregate Revolving Credit
Commitment, L/C Obligations then outstanding which have been fully cash
collateralized (or supported by a letter of credit from an issuer reasonably
satisfactory to the Administrative Agent) shall no longer be considered an L/C
Obligation for purposes of this Agreement and any participating interest
heretofore granted by the Issuing Lender to the Revolving Credit Lenders shall
be deemed terminated, but the fees payable under subsection 5.3 shall continue
to accrue to the Issuing Lender with respect to the Letters of Credit until the
expiry or termination thereof.
7.5. Mandatory Reduction of Commitments and Prepayments. (a) The
Aggregate Revolving Credit Commitment shall terminate on the Termination Date.
(b) In the event that the Aggregate Outstanding Extensions of
Credit of all Lenders at any date exceed the Borrowing Base then in effect, the
Borrower shall immediately repay the Aggregate Outstanding Extensions of Credit
by the amount of such excess, with such prepayment being applied, first, to the
then outstanding Swing Line Loans, second, to the then outstanding Revolving
Credit Loans and, third, to cash collateralize the then outstanding L/C
Obligations.
(c) If the Aggregate Outstanding Extensions of Credit of all
Lenders shall at any time exceed the Aggregate Revolving Credit Commitment then
in effect (including, without limitation, as a result of any reduction or
termination of the Aggregate Revolving Credit Commitment pursuant to subsection
7.4 or this subsection 7.5), the Borrower shall immediately repay the Aggregate
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35
Outstanding Extensions of Credit by the amount of such excess, with such
prepayment being applied, first, to the then outstanding Swing Line Loans,
second, to the then outstanding Revolving Credit Loans and, third, to cash
collateralize the then outstanding L/C Obligations.
(d) The Borrower shall, as promptly as is practicable (and, in any
event, within five Business Days following the receipt thereof), repay the
Loans and reduce the Commitments by the amount equal to the aggregate amount of
Net Proceeds received from any Net Proceeds Event; provided that no such
repayment and reduction shall be due pursuant to this subsection 7.5(d) with
respect to any Net Proceeds Event on account of the recovery by the Borrower of
amounts owing to it under property insurance policies or received as a
condemnation award to the extent provided for in subsection 7.5(i). Any
repayment of Loans and reduction of Commitments required by this subsection
7.5(d) shall be made in accordance with the provisions of subsection 7.5(g).
(e) The Borrower shall repay the Loans and reduce the Commitments
within one Business Day following delivery of the certificate referenced in
subsection 10.2(b) (commencing with the certificate covering the fiscal year
ending on December 31, 1998) by the amount equal to 75% (or 50% if the Leverage
Ratio as of the last day of such fiscal year is less than 4.0 to 1.0) of Excess
Cash Flow for the fiscal year covered by such certificate, with any such
repayment of Loans and reduction of Commitments being made in accordance with
the provisions of subsection 7.5(g).
(f) The Borrower shall repay the Swing Line Loans and (to the
extent necessary) the Revolving Credit Loans to cause the aggregate outstanding
principal amount of such Loans (less the amount of cash and Cash Equivalents on
each day during the Clean-Down Period (as defined below) in an amount not to
exceed $750,000 on any day as certified by the Borrower to the Administrative
Agent) to be not more than the Clean-Down Amount for a period of 30 days during
a 35-day period (the "Clean-Down Period") in each fiscal year (provided that
the first day of a Clean-Down Period in any fiscal year shall not fall within
60 days of the last day of the Clean-Down Period for the preceding fiscal
year).
(g) Any payments of the Loans and reductions of the Commitments
made pursuant to subsection 7.5(d) or (e) shall be applied, first, to the
prepayment of the Tranche A Loans and the Tranche B Loans (with such prepayment
being applied (x) ratably between the Tranche A Loans and the Tranche B Loans
and (y) among the then outstanding installments of each in the order described
with respect to voluntary prepayments pursuant to subsection 7.3(a)) and,
second, to reduce the Aggregate Revolving Credit Commitment then in effect.
Unless the Borrower otherwise elects, the application of prepayments made
pursuant to this subsection 7.5 shall be made, first, to ABR Loans and, second,
to Eurodollar Loans.
(h) Notwithstanding anything to the contrary contained herein, in
the event that the Borrower would incur costs pursuant to subsection 7.15 as a
result of any payment due as a result of any prepayment to be made pursuant to
this subsection 7.5, the Borrower, at its option, may deposit the amount of
such payment with the Administrative Agent, for the benefit of the Lenders who
would have received such payment, in a cash collateral account, until the end
of the applicable Interest Period at which time such payment shall be made.
The Borrower hereby grants to the Administrative Agent, for the benefit of such
Lenders, a security interest in all amounts in which the Borrower has any
right, title or interest which are from time to time on deposit in such cash
collateral account and expressly waives all rights (which rights the Borrower
hereby acknowledges and agrees are vested exclusively in the Administrative
Agent) to exercise dominion or control over any such amounts.
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36
(i) If at any time the Borrower or any Subsidiary shall receive any
cash proceeds of any casualty or condemnation in excess of $1,000,000 pursuant
to subsection 11.6(j), such proceeds shall be deposited with the Administrative
Agent who shall hold such proceeds in a cash collateral account satisfactory to
it. From time to time upon request, the Administrative Agent will release such
proceeds to the Borrower or such Subsidiary, as necessary, to pay for
replacement or rebuilding of the assets lost or condemned. If such assets are
not replaced or rebuilt within one (1) year (subject to reasonable extension
for force majeure or weather delays) following the condemnation or casualty or
if the Borrower fails to notify the Administrative Agent in writing on or
before 180 days after such casualty or condemnation that the Borrower shall
commence the replacement or rebuilding of such asset, then, in either case, the
Administrative Agent may apply any amounts in the cash collateral account to
the ratable repayment of the Loans and reduction of Commitments as Net Cash
Proceeds in accordance with subsection 7.5(g).
7.6. Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by delivering
to the Administrative Agent an irrevocable Notice of Borrowing by 11:00 A.M.,
New York City time, at least one Business Day prior to the requested date of
conversion; provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by
delivering to the Administrative Agent an irrevocable Notice of Borrowing by
11:00 A.M., New York City time, at least three Business Days' prior to the
requested conversion date. Any such Notice of Borrowing with respect to a
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such Notice of
Borrowing, the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and ABR Loans may be converted
as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Required Lenders have determined that such
a conversion is not appropriate, (ii) no Revolving Credit Loan may be converted
into a Eurodollar Loan after the date that is one month prior to the
Termination Date and (iii) no Tranche A Loan or Tranche B Loan (as the case may
be) may be converted into a Eurodollar Loan after the date that is one month
prior to the date of the final installment of principal thereof.
Notwithstanding anything to the contrary contained herein, Swing Line Loans
shall at all times be maintained as ABR Loans and shall not be converted to
Eurodollar Loans hereunder.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower delivering to the Administrative Agent an irrevocable Notice of
Borrowing, in accordance with the applicable provisions of the term "Interest
Period" set forth in subsection 1.1, setting forth (among other things) the
length of the next Interest Period to be applicable to such Loans, provided
that (i) no Loan may be continued as a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Administrative Agent has or the
Required Lenders have determined that such a continuation is not appropriate,
(ii) no Revolving Credit Loan may be continued as a Eurodollar Loan after the
date that is one month prior to the Termination Date and (iii) no Tranche A
Loan or Tranche B Loan (as the case may be) may be continued as a Eurodollar
Loan after the date that is one month prior to the date of the final
installment of principal thereof and provided, further, that if the Borrower
shall fail to give such notice or if such continuation is not permitted such
Loans shall be automatically converted to ABR Loans on the last day of such
then expiring Interest Period. Upon receipt of any such Notice of Borrowing,
the Administrative Agent shall promptly notify each Lender thereof.
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37
7.7. Minimum Amounts and Maximum Number of Tranches. All
borrowings, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising each Eurodollar Tranche shall be equal to
$2,000,000 or a whole multiple of $250,000 in excess thereof. In no event
shall there be more than 10 Eurodollar Tranches outstanding at any time.
7.8. Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus the Applicable Margin with respect thereto.
(b) Each ABR Loan (including, without limitation, each Swing Line
Loan) shall bear interest at a rate per annum equal to the ABR plus the
Applicable Margin with respect thereto.
(c) Upon the occurrence and during the continuance of any Event of
Default specified in Section 12(a), the principal of the Loans and any overdue
interest, commitment fee or other amount shall bear interest at a rate per
annum which is (x) in the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of any such overdue interest, commitment fee or other
amount, the rate described in paragraph (b) of this subsection plus 2%, in each
case from the date of such non-payment until such overdue principal, interest,
commitment fee or other amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
7.9. Computation of Interest and Fees. (a) Commitment fees and,
whenever it is calculated on the basis of the Prime Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed; and, otherwise, interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Borrower and the affected Lenders of
each determination of a Eurodollar Rate. The Administrative Agent shall as
soon as practicable notify the Borrower and the affected Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to subsection 7.9(a).
7.10. Inability to Determine Interest Rate. If prior to the first
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination, absent manifest error, shall be conclusive and binding
upon the Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, or
<PAGE> 43
38
(b) the Administrative Agent shall have received notice from the
Lenders holding 66-2/3% of the Commitments to provide the Loans to which
such Interest Period is applicable that the Eurodollar Rate determined or
to be determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to
the Borrower and the affected Lenders as soon as practicable thereafter. If
such notice is given (x) any Eurodollar Loans requested to be made on the first
day of such Interest Period shall be made as ABR Loans, (y) any Loans that were
to have been converted on the first day of such Interest Period to Eurodollar
Loans shall be converted to or continued as ABR Loans and (z) any outstanding
Eurodollar Loans shall be converted on the last day of the Interest Period
applicable thereto to ABR Loans. Until such notice has been withdrawn by the
Administrative Agent (which the Administrative Agent agrees to do when the
circumstances that prompted the delivery of such notice no longer exist), no
further Eurodollar Loans under such Commitments shall be made or continued as
such nor shall the Borrower have the right to convert ABR Loans to Eurodollar
Loans.
7.11. Pro Rata Treatment and Payments. (a) Each borrowing (other
than a borrowing of Swing Line Loans) by the Borrower from the Lenders
hereunder, each payment by the Borrower on account of any commitment fee
hereunder and any reduction of the Commitments of the Lenders shall be made pro
rata according to the respective relevant Commitment Percentages of the
Lenders. Each payment (including each prepayment) by the Borrower on account
of principal of and (subject to the provisions of subsection 7.12) interest on
the Loans (other than the Swing Line Loans) shall be made pro rata according to
the respective outstanding principal amounts of such Loans then held by the
Lenders. Except as otherwise set forth herein, all payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Administrative Agent, for the account of the applicable
Lenders, at the Administrative Agent's office specified in subsection 14.2, in
Dollars and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders holding obligations on account of which
such amounts were paid promptly upon receipt in like funds as received. 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 (except, in
the case of Eurodollar Loans, as otherwise provided in the definition of
Interest Period), and, with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.
(b) If any Revolving Credit Lender (a "Non-Funding Lender") has (x)
failed to make a Revolving Credit Loan required to be made by it hereunder, and
the Administrative Agent has determined that such Revolving Credit Lender is
not likely to make such Revolving Credit Loan or (y) given notice to the
Borrower or the Administrative Agent that it will not make, or that it has
disaffirmed or repudiated any obligation to make, any Revolving Credit Loans,
in each case, by reason of the provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 or otherwise, any payment made on account
of the principal of the Revolving Credit Loans outstanding shall be made as
follows:
(i) in the case of any such payment made on any date when
and to the extent that, in the determination of the Administrative Agent,
the Borrower would be able, under the terms and conditions hereof, to
reborrow the amount of such payment under the Revolving Credit
Commitments and to satisfy any applicable conditions precedent set forth
in subsection
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39
9.2 to such reborrowing, such payment shall be made on account of the
outstanding Revolving Credit Loan held by the Revolving Credit Lenders
other than the Non-Funding Lender pro rata according to the respective
outstanding principal amounts of the Revolving Credit Loan of such
Revolving Credit Lenders;
(ii) otherwise, such payment shall be made on account of
the outstanding Revolving Credit Loans held by the Revolving Credit
Lenders pro rata according to the respective outstanding principal
amounts of such Loans; and
(iii) any payment made on account of interest on the
Revolving Credit Loans shall be made pro rata according to the respective
amounts of accrued and unpaid interest due and payable on such Loans with
respect to which such payment is being made.
The Borrower agrees to give the Administrative Agent such assistance in making
any determination pursuant to this paragraph as the Administrative Agent may
reasonably request. Any such determination by the Administrative Agent shall
be conclusive and binding on the Lenders.
(c) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its relevant Commitment Percentage of such
borrowing available to the Administrative Agent, the Administrative Agent may
assume that such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the Administrative Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Administrative Agent, on demand,
such amount with interest thereon at a rate equal to the daily average Federal
Funds Effective Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this subsection 7.11 shall be conclusive in the absence of manifest
error. If such Lender's relevant Commitment Percentage of such borrowing is
not made available to the Administrative Agent by such Lender within three
Business Days of such Borrowing Date, the Administrative Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to ABR Loans hereunder, on demand, from the Borrower. The failure
of any Lender to make any Loan to be made by it shall not relieve any other
Lender of its obligation to make its Loan on such Borrowing Date, but no Lender
shall be responsible for the failure of any other Lender to make the Loan to be
made by such other Lender on such Borrowing Date.
(d) Notwithstanding anything to the contrary contained herein, in
the event that the Administrative Agent shall make any payment to a Lender on
account of amounts owing to such Lender by the Borrower hereunder and the
Administrative Agent either (i) shall not receive the corresponding amount from
the Borrower or (ii) shall be required to be return such amount to the
Borrower, such Lender shall (upon the request of the Administrative Agent)
promptly return to the Administrative Agent the amount of such payment.
7.12. Illegality. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to
<PAGE> 45
40
ABR Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any
such conversion of a Eurodollar Loan occurs on a day which is not the last day
of the then current Interest Period with respect thereto, the Borrower shall
pay to such Lender such amounts, if any, as may be required pursuant to
subsection 7.15. If circumstances subsequently change so that any affected
Lender shall determine that it is no longer so affected, such Lender will
promptly notify the Borrower and the Administrative Agent, and upon receipt of
such notice, the obligations of such Lender to make or continue Eurodollar
Loans or to convert ABR Loans into Eurodollar Loans shall be reinstated.
7.13. Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change the
basis of taxation of payments to such Lender in respect thereof (except
for Non- Excluded Taxes covered by subsection 7.14 and the establishment
of a tax based on the net income of such Lender or changes in the rate of
tax on the net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not otherwise
included in the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, the
Borrower shall promptly pay to such Lender such additional amount or amounts as
will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify (in any event no later
than ninety (90) days after such Lender
<PAGE> 46
41
becomes entitled to make such claim) the Borrower (through the Administrative
Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower (through the Administrative Agent)
shall be conclusive in the absence of manifest error. If the Borrower notifies
the Administrative Agent within five Business Days after any Lender notifies
the Borrower of any increased cost pursuant to the foregoing provisions of this
subsection 7.13, the Borrower may convert all Eurodollar Loans of such Lender
then outstanding into ABR Loans if an ABR option is available in accordance
with subsection 7.6 and, additionally reimburse such Lender for any cost in
accordance with subsection 7.15. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder for a period of nine (9) months following such
termination and repayment.
7.14. Taxes. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes and franchise taxes
imposed in lieu of net income taxes. If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the
Administrative Agent or any Lender hereunder or under any Note, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided
that the Borrower shall not be required to increase any such amounts payable to
any Lender that is not organized under the laws of the United States or a state
thereof ("Non-U.S. Lender") with respect to any Non-Excluded Taxes (i) that are
attributable to such Non-U.S. Lender's failure to comply with the requirements
of paragraphs (b) or (c) of this subsection or (ii) that are United States
withholding taxes imposed on amounts payable to such Lender at the time the
Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to section 2.17(a). Whenever any Non-Excluded Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit
to the Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder for a
period of nine (9) months thereafter.
(b) Each Non-U.S. Lender shall:
(i) (x) deliver to the Borrower and the Administrative
Agent (A) two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as the case may
be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be;
(y) deliver to the Borrower and the Administrative Agent
two further copies of any such form or certification on or before the
date that any such form or certification expires
<PAGE> 47
42
or becomes obsolete and after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the
Borrower; and
(z) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the
Borrower or the Administrative Agent;
(ii) in the case of any such Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does not
comply with subparagraph (i) of this subsection 7.14(b), (x) represent to
the Borrower (for the benefit of the Borrower and the Administrative
Agent) that it is not a bank within the meaning of Section 881(c)(3)(A)
of the Code, (y) deliver to the Borrower on or before the date of any
payment by the Borrower, with a copy to the Administrative Agent, (A) a
certificate stating that such Lender (1) is not a "bank" under Section
881(c)(3)(A) of the Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or
submissions made to any Governmental Authority, any application made to a
rating agency or qualification for any exemption from tax, securities law
or other legal requirements, (2) is not a 10 percent shareholder within
the meaning of Section 881(c)(3)(B) of the Code and (3) is not a
controlled foreign corporation receiving interest from a related person
within the meaning of Section 881(c)(3)(C) of the Code (any such
certificate a "U.S. Tax Compliance Certificate") and (B) two duly
completed copies of Internal Revenue Service Form W-8, or successor
applicable form, certifying to exemption from U.S. withholding tax under
the provisions of Section 881(c) of the Code with respect to payments to
be made under this Agreement and any Notes (and to deliver to the
Borrower and the Administrative Agent two further copies of Form W-8 on
or before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently provided
form and, if necessary, obtain any extension of time reasonably requested
by the Borrower or the Administrative Agent for filing and completing
such forms), and (z) agree, to the extent legally entitled to do so, upon
reasonable request by the Borrower, to provide to the Borrower (for the
benefit of the Borrower and the Administrative Agent) such other forms as
may be reasonably required in order to establish the legal entitlement of
such Lender to an exemption from withholding with respect to payments
under this Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
prior to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form with respect to it and such Lender
so advises the Borrower and the Administrative Agent. Such Lender shall
certify in the case of a Form W-8 or W-9, that it is entitled to an exemption
from United States backup withholding tax. Each Person that shall become a
Lender or a Participant pursuant to subsection 14.6 shall, upon the
effectiveness of the related transfer, be required to provide all of the forms
and statements required pursuant to this subsection, provided that in the case
of a Participant such Participant shall furnish all such required forms and
statements to the Lender from which the related participation shall have been
purchased.
(c) Each Lender shall, upon request by the Borrower, deliver to
the Borrower or the applicable Governmental Authority, as the case may be, any
form or certificate required in order that any payment by the Borrower under
this Agreement or any Notes may be made free and clear of, and without
deduction or withholding for or on account of any Non-Excluded Taxes (or to
allow any such deduction or withholding at a reduced rate) imposed on such
payment under the laws of any jurisdiction, provided that such Lender is
legally entitled to complete, execute and deliver such form
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or certificate and such completion, execution or submission would not
materially prejudice the legal position of such Lender.
7.15. Indemnity. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to
the last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such Loans
provided for herein (excluding, however, the Applicable Margin included
therein, if any) over (ii) the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder for a period of nine (9) months thereafter.
7.16. Certain Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, a non-refundable administrative
agent's fee in an amount previously agreed to with the Administrative Agent,
payable in the manner and on the dates so previously agreed.
7.17. Change of Lending Office. Each Lender agrees that if it
makes any demand for payment under subsection 7.12 or 7.14(a), or if any
adoption or change of the type described in subsection 7.13 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to
designate a different lending office if the making of such a designation would
reduce or obviate the need for the Borrower to make payments under subsection
7.12 or 7.14(a), or would eliminate or reduce the effect of any adoption or
change described in subsection 7.13.
7.18. Replacement of Lenders. If, at any time (a) the Borrower
becomes obligated to pay additional amounts described in subsections 7.12, 7.13
or 7.14 as a result of any conditions described in such subsections or any
Lender ceases to make Eurodollar Loans pursuant to Section 7.12, (b) any Lender
becomes insolvent and its assets become subject to a receiver, liquidator,
trustee, custodian or other Person having similar powers, (c) any Lender
becomes a "Nonconsenting Lender" (as defined below in this subsection 7.18) or
(d) any Lender becomes a Non-Funding Lender, then the Borrower may, on ten
Business Days prior written notice to the Administrative Agent and such Lender,
replace such Lender by causing such Lender to (and such Lender shall) assign
pursuant to subsection 14.6(c) all of its rights and obligations under this
Agreement to a Lender or other entity selected by the Borrower and reasonably
acceptable to the Administrative Agent for a purchase price equal to the
outstanding principal amount of such Lenders Loans and all accrued interest and
fees and other amount payable hereunder; provided that (i) the Borrower shall
have no right to replace the Administrative Agent, (ii) neither the
Administrative Agent nor any Lender shall have any obligation to the Borrower
to find a replacement Lender or other such entity, (iii) in the event of
replacement of a Nonconsenting Lender or a Lender to which the Borrower
<PAGE> 49
44
becomes obligated to pay additional amounts pursuant to clause (a) of this
subsection, in order for the Borrower to be entitled to replace such a Lender,
such replacement must take place no later than 180 days after (A) the date the
Nonconsenting Lender shall have notified the Borrower and the Administrative
Agent of its failure to agree to any requested consent, waiver or amendment or
(B) the Lender shall have demanded payment of additional amounts under one of
the subsections described in clause (a) of this subsection, as the case may be
and (iv) in no event shall the Lender hereby replaced be required to pay or
surrender to such replacement Lender or other entity any of the fees received
by such Lender hereby replaced pursuant to this Agreement. In the case of a
replacement of a Lender to which the Borrower becomes obligated to pay
additional amounts pursuant to clause (a) of this subsection, the Borrower
shall pay such additional amounts to such Lender prior to such Lender being
replaced and the payment of such additional amounts shall be a condition to the
replacement of such Lender. In the event that (x) the Borrower or the
Administrative Agent has requested the Lenders to consent to a departure or
waiver of any provisions of the Credit Documents or to agree to any amendment
thereto, (y) the consent, waiver or amendment in question requires the consent
of all Lenders and (z) the Required Lenders have agreed to such consent, waiver
or amendment, then any such Lender who does not agree to such consent, waiver
or amendment shall be deemed a "Nonconsenting Lender". The Borrower's right to
replace a Non-Funding Lender pursuant to this subsection 7.18 is in addition
to, and not in lieu of, all other rights and remedies available to the Borrower
against such Non-Funding Lender under this Agreement, at law, in equity or by
statute.
SECTION VIII. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent, each Issuing Lender and the
Lenders to enter into this Agreement and to make the Loans and issue or
participate in the Letters of Credit, the Borrower hereby represents and
warrants to the Administrative Agent, each Issuing Lender and each Lender that:
8.1. Financial Condition. (a) The consolidated balance sheet of
the Parent and its consolidated Subsidiary as at July 31, 1996 and the related
consolidated statements of income and of cash flows for the fiscal year ended
on such date, reported on by Arthur Andersen LLP, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in all material respects the consolidated financial condition of the
Borrower and its consolidated Subsidiary as at such date, and the consolidated
results of their operations and their consolidated cash flows for the fiscal
year then ended. The unaudited consolidated balance sheet of the Borrower and
its consolidated Subsidiary as at March 31, 1997 and the related unaudited
consolidated statements of income and of cash flows for the three-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in all material respects the consolidated financial condition of the
Borrower and its consolidated Subsidiary as at such date, and the consolidated
results of their operations and their consolidated cash flows for the three-
month period then ended (subject to normal year-end audit adjustments and the
absence of footnotes). All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein).
(b) To the knowledge of the Borrower, the consolidated balance
sheet of ERO and its consolidated Subsidiaries as at December 31, 1996 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by Price Waterhouse LLP, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in all material respects the consolidated financial condition of ERO and
its consolidated
<PAGE> 50
45
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. To the
knowledge of the Borrower, the unaudited consolidated balance sheet of ERO and
its consolidated Subsidiaries as at March 31, 1997 and the related unaudited
consolidated statements of income and of cash flows for the three-month period
ended on such date, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly in all material respects
the consolidated financial condition of ERO and its consolidated Subsidiaries
as at such date, and the consolidated results of their operations and their
consolidated cash flows for the three-month period then ended (subject to
normal year-end audit adjustments and the absence of footnotes). All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants and as disclosed
therein).
(c) None of the Borrower, ERO or any of their respective
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign
currency swap or exchange transaction, which is not reflected in the foregoing
statements or in the notes thereto and which, to the knowledge of Borrower, has
any reasonable likelihood of resulting in a material loss or cost.
(d) During the period from December 31, 1996 to and including the
date hereof, there has been no sale, transfer or other disposition by the
Borrower, ERO or any of their respective consolidated Subsidiaries of any
material part of its business or property and no purchase or other acquisition
of any business or property (including any capital stock of any other Person)
material in relation to the consolidated financial condition of the Borrower
and its consolidated Subsidiaries at December 31, 1996, other than (in each
such case) the Acquisition.
(e) The unaudited consolidated pro forma balance sheet of the
Borrower and its consolidated Subsidiaries as of December 31, 1996, certified
by a Responsible Officer of the Borrower (the "Pro Forma Balance Sheet"),
copies of which have been furnished to each Lender, is the unaudited balance
sheet of the Borrower and its consolidated Subsidiaries, adjusted to give
effect (as if such events had occurred on such date) to the Acquisition and the
other transactions contemplated hereby to occur on or prior to the Closing
Date. The Pro Forma Balance Sheet, together with the notes thereto, were
prepared based on good faith assumptions in accordance with GAAP and are based
on the best information available to the Borrower as of the date of delivery
thereof.
8.2. No Change. Since December 31, 1996, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
8.3. Corporate Existence; Compliance with Law. Each Credit Party
(a) is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (b) has the corporate power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification and (d) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
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46
8.4. Corporate Power; Authorization; Enforceable Obligations. Each
Credit Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Credit Documents to which it is a party and, in
the case of the Borrower, to borrow hereunder and has taken all necessary
corporate action to authorize the borrowings on the terms and conditions of
this Agreement and any Notes or Applications and to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Acquisition or the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of the Credit
Documents to which the Borrower and each other Credit Party is a party, except
for: (i) those set forth on Schedule 8.4, each of which have been or will be
made or taken and are or will be in full force and effect, (ii) consents under
immaterial Contractual Obligations or (iii) those referred to in subsection
8.16. This Agreement has been, and each other Credit Document to which it is a
party will be, duly executed and delivered on behalf of the Borrower and each
other Credit Party. This Agreement constitutes, and each other Credit Document
to which it is a party when executed and delivered will constitute, a legal,
valid and binding obligation of the Borrower and each other Credit Party
enforceable against the Borrower and each other Credit Party, as the case may
be, in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
8.5. No Legal Bar. The execution, delivery and performance of each
Credit Document, the incurrence or issuance of and use of the proceeds of the
Loans and of drawings under the Letters of Credit and the transactions
contemplated by the Credit Documents (a) will not violate any Requirement of
Law or any material Contractual Obligation applicable to or binding upon any
Credit Party or any of their Subsidiaries and (b) will not result in the
creation or imposition of any Lien on any of its properties or assets pursuant
to any Requirement of Law applicable to it, as the case may be, or any of its
material Contractual Obligations, except for the Liens arising under the
Security Documents and Liens permitted under subsection 11.3.
8.6. No Material Litigation. No litigation by, investigation by,
or proceeding of or before any arbitrator or any Governmental Authority is
pending or, to the knowledge of the Borrower, threatened by or against any
Credit Party or any of their respective Subsidiaries or against any of its or
their respective properties or revenues with respect to (a) any Credit Document
or any of the transactions contemplated hereby or thereby, (b) with respect to
any Acquisition Document or any transactions contemplated thereby which affect
any material provisions or any material transaction contemplated thereby, or
(c) which could reasonably be expected to have a Material Adverse Effect. All
applicable waiting periods have expired without any action being taken or
threatened by any Governmental Authority which would restrain, prevent or
otherwise impose material adverse conditions on the transactions contemplated
hereby or thereby or which would be reasonably likely to have a Material
Adverse Effect.
8.7. No Default. None of the Credit Parties or any of their
respective Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which could reasonably be expected to
have a Material Adverse Effect. No Default or Event of Default has occurred
and is continuing.
8.8. Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has good record and indefeasible title in fee simple to, or a
valid leasehold interest in, all its material real
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47
property, and good title to, or a valid leasehold interest in, all its other
material property, and none of such property is subject to any Lien except as
permitted by subsection 11.3.
8.9. Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted except for those the
failure to own or license which could not reasonably be expected to have a
Material Adverse Effect. To Borrower's knowledge, no claim has been asserted
and is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does the Borrower know of any valid basis for any such claim
which could reasonably be expected to have a Material Adverse Effect. The use
of such Intellectual Property by the Borrower and its Subsidiaries does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
8.10. Taxes. Each of the Borrower and its Subsidiaries has filed
or caused to be filed all material tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other material taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than (1) any such
taxes, assessments, fees or other charges the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be), and (ii) taxes,
assessments, fees or other charges imposed by any Governmental Authority, with
respect to which the failure to make payments could not, by reason of the
amount thereof or of remedies available to such Governmental Authorities,
reasonably be expected to have a Material Adverse Effect); no tax Lien has been
filed, and, to the knowledge of the Borrower, no claim is being asserted, with
respect to any such material tax, fee or other charge, other than those being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been prepared on the books of the Credit
Parties or their Subsidiaries, as the case may be.
8.11. Federal Regulations. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
8.12. ERISA. Except where the liability, individually or in the
aggregate, which could reasonably be expected to result has not had, or could
not reasonably be expected to have, a Material Adverse Effect: (i) neither a
Reportable Event nor an "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Single Employer Plan, (ii) each Plan has
complied with the applicable provisions of ERISA and the Code (except that with
respect to any Multiemployer Plan, this representation is only made to the
knowledge of the Borrower), (iii) no termination of a Single Employer Plan has
occurred, and no Lien in favor of the PBGC or a Single Employer Plan has
arisen, during such five-year period, (iv) the present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the
date on which this representation is made or deemed made, exceed the value of
the assets of such Plan
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48
allocable to such accrued benefits by any material amount, (v) neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan which has resulted in material
liability, and, to the knowledge of the Borrower, neither the Borrower nor any
Commonly Controlled Entity would become subject to any liability under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding
the date on which this representation is made or deemed made in the amount
which could be reasonably expected to have a Material Adverse Effect, and (vi)
no such Multiemployer Plan is in Reorganization or Insolvent.
8.13. Investment Company Act; Other Regulations. The Borrower is
not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
The Borrower is not subject to regulation under any Requirement of Law (other
than Regulation X of the Board of Governors of the Federal Reserve System)
which limits its ability to incur Indebtedness.
8.14. Subsidiaries. On the Closing Date, the Subsidiaries of the
Borrower and their jurisdiction of incorporation are as set forth on Schedule
8.15. The Parent owns not less than 100% of the issued and outstanding Capital
Stock of the Borrower and has no other Subsidiaries.
8.15. Environmental Matters. Except to the extent that the facts
and circumstances giving rise to all such failures to be so true and correct
are not, in the aggregate, reasonably likely to result in a Material Adverse
Effect:
(a) The facilities and properties currently or formerly owned,
leased or operated by the Borrower or any of its Subsidiaries (the
"Properties") do not contain, and have not previously contained, any
Materials of Environmental Concern in amounts or concentrations which (i)
constitute or constituted a violation of, (ii) could reasonably be
expected to give rise to liability under, any Environmental Law, (iii)
which could materially interfere with the continued operation of the
Properties or (iv) materially impair the fair saleable value thereof.
(b) The Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, in all
material respects with all applicable Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the business,
nor does the Borrower have knowledge or reason to believe that any such
notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location which could reasonably be expected to give rise to liability
under, any Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on or under
any of the Properties in violation of, or in a manner that could
reasonably be expected to give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or
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49
the Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with
respect to the Properties or the business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in connection
with the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could reasonably give rise
to liability under Environmental Laws.
8.16. Security Documents. (a) The Master Guarantee and Collateral
Agreement is effective to create in favor of the Administrative Agent, for the
benefit of the Lenders, a legal, valid and enforceable security interest in the
Collateral described therein and proceeds thereof. In the case of the Pledged
Stock described therein, when stock certificates representing such Pledged
Stock are delivered to the Administrative Agent, and in the case of the other
Collateral described therein, when financing statements in appropriate form are
filed in the offices specified on Schedule 8.16(a) thereto, the Master
Guarantee and Collateral Agreement shall constitute a fully perfected Lien on,
and security interest in, all right, title and interest of the Credit Parties
in such Collateral and the proceeds thereof, as security for the Obligations
(as defined in the Master Guarantee and Collateral Agreement), in each case
prior and superior in right to any other Person subject, except in the case of
such Pledged Stock, to Liens permitted by subsection 11.3.
(b) Upon execution and delivery thereof by the parties thereto,
each Foreign Pledge Agreement will be effective to create in favor of the
Administrative Agent, for the ratable benefit of the Lenders, a legal, valid
and enforceable security interest in not less than 65% of the Capital Stock of
each Foreign Subsidiary which is directly owned by a Domestic Subsidiary and,
when the actions (if any) specified in the legal opinion delivered in
connection with such Foreign Pledge Agreement have been duly taken, the
security interests granted pursuant thereto shall constitute a perfected first
lien on, and security interest in, all right, title and interest of the pledgor
party thereto in such Capital Stock.
(c) Each of the Mortgages, when executed and delivered by the
relevant Credit Party, shall be effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
8.16(c), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Credit Parties in
the Mortgaged Properties and the proceeds thereof, as security for the
Obligations (as defined in the relevant Mortgage), in each case prior and
superior in right to any other Person, other than with respect to Liens
permitted by subsection 11.3.
8.17. Accuracy and Completeness of Information. No information,
financial statement, report, certificate or other document prepared or
furnished by or on behalf of any Credit Party to the Administrative Agent or
any Lender in connection with this Agreement, any other Credit Document, or any
of the Acquisition Documents (but excluding all projections and pro forma
financial statements which shall have been prepared in good faith and based
upon reasonable assumptions) contains any untrue statement of a material fact
or omits to state any material fact necessary to make the statements herein or
therein not misleading. As of the Closing Date, there is no fact known to the
Borrower (other than general economic conditions, which conditions are commonly
known and affect businesses generally) which has, or which could reasonably be
expected to have, in the reasonable judgment of the Borrower, a Material
Adverse Effect.
<PAGE> 55
50
8.18. Acquisition Documents. The Administrative Agent and each
Lender has received complete and correct copies of each of the Acquisition
Documents (including, without limitation, all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto) and all
amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of the Acquisition Documents will
have been amended, supplemented or otherwise modified (including waivers) since
the date hereof, except (a) amendments, supplements and other modifications
(including waivers) to the Acquisition Documents which (i) do not increase the
price paid for the Shares, (ii) do not affect the material conditions to
AcquisitionCo's obligation to purchase the Shares or (iii) would not adversely
affect the Lenders or (b) as approved by the Administrative Agent. Each
Acquisition Document to which the Borrower or any of its Subsidiaries is a
party has been duly executed and delivered by the Borrower or such Subsidiary,
as the case may be, and to the best knowledge of the Borrower and each of its
Subsidiaries, each Acquisition Document has been duly executed and delivered by
the parties thereto other than the Borrower and its Subsidiaries, is in full
force and effect and is enforceable against the parties thereto. The
representations and warranties of the Borrower and each of its Subsidiaries
contained in each Acquisition Document to which the Borrower or such
Subsidiary, as the case may be, is a party is true and correct in all material
respects. To the knowledge of the Borrower and each of its Subsidiaries, the
representations and warranties of each other party to each Acquisition Document
contained therein is correct in all material respects.
8.19. Representations and Warranties in respect of the Collateral.
(a) Except for the security interest granted to the Administrative Agent for
the ratable benefit of the Lenders pursuant to the Master Guarantee and
Collateral Agreement and the other Liens permitted to exist on the Collateral
by subsection 11.3, each Credit Party owns each item of the Collateral free and
clear of any and all Liens or claims of others. No financing statement or
other public notice with respect to all or any part of the Collateral is on
file or of record in any public office, except such as have been filed in favor
of the Administrative Agent, for the ratable benefit of the Lenders, pursuant
to the Master Guarantee and Collateral Agreement or as are permitted by
subsection 11.3.
(b) On the date hereof, each Credit Party's jurisdiction of
organization and the location of its chief executive office or sole place of
business are specified on Schedule 8.19(b).
(c) On the date hereof, the Inventory and the Equipment (other than
mobile goods) are kept at the locations listed on Schedule 8.19(c).
(d) None of the Collateral constitutes, or is the Proceeds of, Farm
Products.
(e) No amount payable to a Credit Party under or in connection with
any Receivable is evidenced by any Instrument or Chattel Paper in excess of
$1,000,000 which has not been delivered to the Administrative Agent.
(f) (i) Schedule 8.19(f) lists all Intellectual Property owned by
a Credit Party in its own name on the date hereof.
(ii) To the best of a Credit Party's knowledge, all material
Intellectual Property is on the date hereof valid, subsisting, unexpired
and enforceable and has not been abandoned.
(iii) Except as set forth in Schedule 8.19(f), none of the
Intellectual Property is on the date hereof the subject of any licensing
or franchise agreement on the date hereof.
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(iv) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity
of, or such Credit Party's rights in, any Intellectual Property in any
respect that could reasonably be expected to have a Material Adverse
Effect.
(v) No action or proceeding is pending on the date hereof (i)
seeking to limit, cancel or question the validity of any material
Intellectual Property, or (ii) which, if adversely determined, would have
a material adverse effect on the value of any Intellectual Property.
SECTION IX. CONDITIONS PRECEDENT
9.1. Conditions to Initial Loans. The agreement of each Lender to
make the initial Loans and other extensions of credit requested to be made by
it is subject to the satisfaction, immediately prior to or concurrently with
the making of such Loan or other extension of credit (and, in any event, on or
prior to June 30, 1997), of the following conditions precedent:
(a) Credit Documents. The Administrative Agent shall have received
(i) this Agreement, (ii) the Master Guarantee and Collateral Agreement,
(iii) each of the Foreign Pledge Agreements, and (iv) each Mortgage, in
each case executed and delivered by a Responsible Officer of the parties
thereto.
(b) Related Agreements. The Administrative Agent shall have
received, with a copy for each Lender, true and correct copies, certified
as to authenticity by the Borrower, of each of (i) the Acquisition
Documents and (ii) such other documents or instruments as may be
reasonably requested by the Administrative Agent.
(c) Corporate Proceedings of the Credit Parties. The
Administrative Agent shall have received, with a copy for each Lender, a
copy of the resolutions, in form and substance reasonably satisfactory to
the Administrative Agent, of the Board of Directors of each of the Credit
Parties authorizing (i) the execution, delivery and performance of this
Agreement and the other Credit Documents to which it is a party, (ii) the
borrowings contemplated hereunder (in the case of the Borrower) and (iii)
the granting by it of the Liens created pursuant to the Security
Documents, certified by the Secretary or an Assistant Secretary of such
Person as of the Closing Date, which certificate shall be in form and
substance reasonably satisfactory to the Administrative Agent and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(d) Incumbency Certificates. The Administrative Agent shall have
received, with copy for each Lender, a certificate of each of the Credit
Parties, dated the Closing Date, as to the incumbency and signature of
the officers of such Person executing any Credit Document reasonably
satisfactory in form and substance to the Administrative Agent.
(e) Corporate Documents. The Administrative Agent shall have
received, with a copy for each Lender, true and complete copies of the
certificate of incorporation and by-laws of each Credit Party, certified
as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of the Borrower.
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(f) Corporate Structure. The Administrative Agent and the Lenders
shall be reasonably satisfied with the corporate, capital and legal
structure of the Borrower and its Subsidiaries described therein.
(g) Fees. The Administrative Agent shall have received all fees
and other amounts due and payable on or prior to the Closing Date,
including, (i) to the extent invoiced a reasonable time prior to the
Closing Date, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower and its Subsidiaries
hereunder or under any other Loan Document and (ii) referred to in the
Fee Letter dated April 10, 1997.
(h) Legal Opinions. The Administrative Agent shall have received,
with a copy for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Weil, Gotshal &
Manges LLP, counsel to the Borrower and the other Credit Parties,
substantially in the form of Exhibit G-1;
(ii) the executed legal opinion of Allen & Overy, U.K.
counsel to the Administrative Agent and the Lenders, substantially
in the form of Exhibit G-2;
(iii) the executed legal opinion of Stewart McKelvey
Stirling Scales, Canadian counsel to the Administrative Agent and
the Lenders, substantially in the form of Exhibit G-3; and
(iv) the executed legal opinions of counsel in respect
of the Mortgages described on Schedule 9.1(h), which opinions shall
be in form and substance reasonably acceptable to the Administrative
Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(i) Pledged Stock; Stock Powers; Pledged Notes. The Administrative
Agent shall have received the certificates representing the shares
pledged pursuant to each of the Collateral Agreements, together with an
undated stock power for each such certificate executed in blank by a
Responsible Officer of the pledgor thereof. The Administrative Agent
shall have received a shareholder resolution reasonably satisfactory to
it in respect of the pledged Capital Stock of Subsidiaries of the
Borrower organized in the U.K.
(j) Actions to Perfect Liens. The Administrative Agent shall have
received evidence in form and substance reasonably satisfactory to it
that all filings, recordings, registrations and other actions, including,
without limitation, the filing of duly executed financing statements on
form UCC-1, necessary or, in the opinion of the Administrative Agent,
desirable to perfect the Liens created by the Security Documents shall
have been completed or arrangements reasonably satisfactory to
Administrative Agent have been made therefor.
(k) Surveys. The Administrative Agent shall have received, and the
title insurance company issuing the policy referred to in subsection
9.1(l) (the "Title Insurance Company") shall have received, maps or plats
of an as-built survey of the sites of the property covered by each
Mortgage certified to the Administrative Agent and the Title Insurance
Company in a manner reasonably satisfactory to them, dated a date
reasonably satisfactory to the Administrative Agent and the Title
Insurance Company by an independent professional
<PAGE> 58
53
licensed land surveyor reasonably satisfactory to the Administrative
Agent and the Title Insurance Company, which maps or plats and the
surveys on which they are based shall be made in accordance with the
Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and, without limiting
the generality of the foregoing, there shall be surveyed and shown on
such maps, plats or surveys the following: (i) the locations on such
sites of all the buildings, structures and other improvements and the
established building setback lines; (ii) the lines of streets abutting
the sites thereof; (iii) all visible and/or recorded access and other
visible and/or recorded easements appurtenant to the sites; (iv) all
roadways, paths, driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site, whether
recorded, apparent from a physical inspection of the sites or otherwise
known to the surveyor; (v) any encroachments on any adjoining property by
the building structures and improvements on the sites; and (vi) if the
site is described as being on a filed map, a legend relating the survey
to said map.
(l) Title Insurance Policy. The Administrative Agent shall have
received in respect of each parcel covered by each Mortgage a mortgagee's
title policy (or policies) or marked up unconditional binder for such
insurance dated the Closing Date. Each such policy shall (i) be in an
amount reasonably satisfactory to the Administrative Agent (not to exceed
the value thereof); (ii) insure that each Mortgage creates a valid first
Lien on such parcel free and clear of all defects and encumbrances,
except such as permitted hereby and as may be disclosed therein; (iii)
name the Administrative Agent for the benefit of the Lenders as the
insured thereunder; (iv) be in the form of ALTA Loan Policy - 1970
(Amended 10/17/70) or in an equivalent form available in the state where
such parcel is located; (v) contain such endorsements and affirmative
coverage as the Administrative Agent may reasonably request and (vi) be
issued by Commonwealth Land Title Company or other title companies
reasonably satisfactory to the Administrative Agent (including any such
title companies acting as co-insurers or reinsurers, at the option of the
Administrative Agent) (each, a "Title Insurance Company"). The
Administrative Agent shall have received evidence satisfactory to it that
all premiums in respect of each such policy, and all charges for mortgage
recording tax, if any, have been paid.
(m) Flood Insurance. If requested by the Administrative Agent, the
Administrative Agent shall have received (i) a policy of flood insurance
which (A) covers any parcel of improved real property which is encumbered
by a Mortgage located in an area that has been identified by the
Secretary of Housing and Urban Development as an area having special
flood hazards, (B) is written in an amount not less than the outstanding
principal amount of the indebtedness secured by a Mortgage which is
reasonably allocable to such real property or the maximum limit of
coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and
(C) has a term ending not earlier than the maturity of the indebtedness
secured by such Mortgage and (ii) confirmation that the Borrower has
received the notice required pursuant to Section 208(e)(3) of Regulation
H of the Board of Governors of the Federal Reserve System.
(n) Copies of Documents. The Administrative Agent shall have
received a copy of all recorded documents listed as exceptions to title
in, the title policy or policies referred to in subsection 9.1(l) and a
copy of all other documents affecting the property covered by a Mortgage.
<PAGE> 59
54
(o) Lien Searches. The Administrative Agent shall have received
the results of a recent search by a Person reasonably satisfactory to the
Administrative Agent, of the Uniform Commercial Code, judgement and tax
lien filings which may have been filed with respect to personal property
of the Borrower and its Domestic Subsidiaries, and the results of such
search shall be reasonably satisfactory to the Administrative Agent.
(p) Receipt of Capital. The Administrative Agent shall have
received a certificate of a Responsible Officer, dated the Closing Date,
stating that (i) the Parent has issued and sold at least $25,000,000 in
gross proceeds from the Senior Discount Notes (which Senior Discount
Notes shall be in form and substance reasonably satisfactory to the
Lenders) and the gross proceeds thereof have been contributed to the
Borrower, (ii) the Borrower has issued and sold at least $110,000,000 of
Senior Subordinated Notes (which Senior Subordinated Notes shall be in
form and substance reasonably satisfactory to the Lenders), (iii) the
Borrower has received cash capital contributions from the Parent in an
amount which is not less than $40,000,000, and (iv) the fees and expenses
incurred in connection with the Acquisition will not exceed $21,000,000
in the aggregate.
(q) Consents, Licenses and Approvals. The Borrower and its
Subsidiaries shall have obtained all consents and approvals of
Governmental Authorities and third parties necessary or reasonably
advisable in connection with the Acquisition, the Loans and other
extensions of credit hereunder and the continuing operations of the
Borrower and its Subsidiaries (after giving effect to the Acquisition),
including, without limitation, in respect of the Seller Subordinated
Notes; all such consents and approvals shall be in full force and effect
and all applicable appeal and waiting periods shall have expired without
any governmental or judicial action being taken or threatened that has
had or would be reasonably likely to have a Material Adverse Effect.
(r) The Acquisition. The Administrative Agent and the Lenders
shall be satisfied that (i) the Merger Agreement and all related
documentation shall have been duly executed and delivered by the parties
thereto in form and substance reasonably satisfactory to the
Administrative Agent and the Lenders, (ii) the Acquisition Documents
shall not have been amended, supplemented, waived or otherwise modified
in any material respect, except as contemplated by subsection 8.18, (iii)
the obligations of the parties thereto to be performed at or prior to the
purchase of the Tendered Shares (other than the payment of the purchase
price for the Tendered Shares) shall have been performed or complied with
by the Borrower, AcquisitionCo and ERO, except where the failure so to
comply or perform could not reasonably be expected to have a Material
Adverse Effect, (iv) the Board of Directors of ERO shall have approved
and/or recommended the Acquisition to the shareholders of ERO and (v) the
Tender Offer shall have been, or substantially simultaneously with the
funding hereof, shall be, consummated.
(s) Tender Offer. The material conditions to the Tender Offer
specified in the Offer to Purchase (as in effect on the date hereof)
shall have been and shall continue to be satisfied in all material
respects without amendment, supplement or waiver thereof, except as
contemplated by subsection 8.18;
(t) Tender of Minimum Shares. The Administrative Agent shall have
received evidence reasonably satisfactory to it that the portion of the
Shares beneficially owned by AcquisitionCo, together with the portion of
the Shares accepted for payment pursuant to the Tender Offer, is not less
than the amount necessary to permit the Merger to be consummated
<PAGE> 60
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without the affirmative vote of any shareholders other than the Borrower
and its Subsidiaries and there shall not have been a material change in
the number of Shares since the date of the Merger Agreement;
(u) Maximum Purchase Price. The Administrative agent shall have
received evidence reasonably satisfactory to it that the price per Share
paid by AcquisitionCo for the Tendered Shares is not in excess of $11.25;
and
(v) Borrowing Base Certificate. The Administrative Agent shall
have received a Borrowing Base Certificate, as of May 31, 1997, dated the
Closing Date and certified by a Responsible Officer of the Borrower.
(w) Existing Credit Agreement. All commitments to provide
extensions of credit under the Existing Credit Agreement shall have been
terminated, all amounts due and payable thereunder shall have been paid
in full, all Liens on assets of the Parent and its Subsidiaries securing
the Existing Credit Agreement shall have been released and all guarantees
of the Existing Credit Agreement provided by the Parent and its
Subsidiaries shall have been terminated, in each case, pursuant to
documentation satisfactory to the Administrative Agent.
(x) Solvency Opinion. The Administrative Agent shall have received
an opinion from Corporate Valuation Advisors with respect to the solvency
of the Borrower and its Subsidiaries (after giving effect to the
consummation of the Acquisition and the financings and other transactions
contemplated hereby) and a related on-going concern valuation, which
opinion and valuation shall be reasonably satisfactory in form and
substance to the Lenders.
9.2. Conditions to Each Loan. The agreement of each Lender to make
any Loan or other extension of credit requested to be made by it on any date
(including, without limitation, any Loan or other extension of credit to be
made on the Closing Date) is subject to the satisfaction of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations
and warranties made by the Borrower and the other Credit Parties in or
pursuant to the Credit Documents shall be true and correct in all
material respects on and as of such date as if made on and as of such
date, except for any representation and warranty which is expressly made
as of an earlier date, which representation and warranty shall have been
true and correct in all material respects as of such earlier date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans and
other extensions of credit requested to be made on such date.
(c) Borrowing Base. After giving effect to the extension of credit
requested to be made on such date, the Aggregate Outstanding Extensions
of Credit owing to all Lenders will not exceed the Borrowing Base then in
effect.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained
in this subsection have been satisfied.
<PAGE> 61
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SECTION X. AFFIRMATIVE COVENANTS
The Parent and the Borrower hereby agree that, so long as any
Commitments remain in effect or any amount is owing to any Lender or the
Administrative Agent hereunder or under any other Credit Document, the Parent
shall and (except in the case of delivery of financial information, reports and
notices) shall cause each of its Subsidiaries to:
10.1. Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 105 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related consolidated statements of income and
retained earnings and of cash flows for such year, setting forth in each
case in comparative form the figures for the previous year except in the
case of the financial statements for the fiscal years ending December 31,
1997 and December 31, 1998, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative form
the figures for the previous year commencing with the fiscal quarter
ended September 30, 1998, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
10.2. Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 10.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default relating to the covenants
contained in subsection 11.1, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 10.1(a) and (b), a certificate of a
Responsible Officer stating that, to the best of such Officer's
knowledge, during such period (i) no Subsidiary has been formed or
acquired (or, if any such Subsidiary has been formed or acquired, the
Borrower has complied with the requirements of subsection 10.10 with
respect thereto), (ii) neither the Borrower nor any of its Subsidiaries
has changed its name, its principal place of business, its chief
executive office or the location of any material item of tangible
Collateral without complying with the requirements of this Agreement and
(iii) each of the Borrower and its Subsidiaries has
<PAGE> 62
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observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement and the other
Credit Documents to be observed, performed or satisfied by it (and
including therein a reasonably detailed calculation of the Leverage Ratio
as of the last day of such period), in all material respects and that
such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate; in the case of
any such certificate delivered with respect to the financial statements
referred to in subsection 10.1(a), such certificate also shall contained
a reasonably detailed calculation of the amount of Excess Cash Flow for
the relevant fiscal year;
(c) not later than 30 days (or 45 days in respect of the months of
June, July and August of 1997) after the end of each fiscal month of the
Borrower (other than the third, sixth, ninth and twelfth such months), a
copy of the unaudited, internal, consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such month
and the related unaudited, internal, consolidated statements of income
and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such month, certified by a Responsible
Officer as being fairly stated in all material respects (subject to
normal year-end audit adjustments);
(d) not later than forty-five days after the commencement of each
fiscal year of the Borrower, a copy of the projections by the Borrower of
the operating budget and cash flow budget of the Borrower and its
Subsidiaries for such fiscal year, such projections to be accompanied by
a certificate of a Responsible Officer to the effect that such
projections have been prepared in good faith based on reasonable
assumptions and that such Responsible Officer has no reason to believe
they are incorrect or misleading in any material respect, it being
recognized by the Lenders that such financial information as it relates
to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may
differ from the projected results set forth therein by a material amount;
(e) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders, and within five days after the same are filed, copies of
all financial statements and reports which the Borrower may make to, or
file with, the SEC or any successor or analogous Governmental Authority;
(f) within 15 days after the end of each calendar month, a
Borrowing Base Certificate, certified by a Responsible Officer of the
Borrower as being true and accurate in all material respects as of such
end of such prior calendar month; and
(g) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
10.3. Payment of Obligations. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or its Subsidiaries, as the case may be;
provided that notwithstanding the foregoing, Parent and each of its
Subsidiaries shall have the right to pay any such obligation and in good faith
contest, by proper legal actions or proceedings, the validity or amount of such
claims.
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10.4. Conduct of Business and Maintenance of Existence. Except as
provided in subsection 11.5, continue to engage in business of the same general
type as now conducted by it and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business except if (i) in the reasonable business judgment of Parent or
such Subsidiary, as the case may be, it is in its best economic interest not to
preserve and maintain such rights or franchises, or (ii) such failure to
preserve and maintain such privileges, rights or franchises would not material
adversely affect the rights of the Lenders under the Credit Documents or the
value of the Collateral, as otherwise permitted pursuant to subsection 11.5;
comply with all Contractual Obligations and Requirements of Law except to the
extent that failure to comply therewith could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect.
10.5. Maintenance of Property; Insurance. (a) Keep all property
useful and necessary in its business in good working order and condition;
maintain with financially sound and reputable insurance companies insurance
(including, without limitation, for any of the Mortgaged Properties located in
an area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, insurance that is written in an
amount not less than the outstanding principal amount of the indebtedness
secured by a Mortgage which is reasonably allocable to such real property or
the maximum limit of coverage made available with respect to the particular
type of property under the National Flood Insurance Act of 1968, whichever is
less) on all its property in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies
engaged in the same or a similar business or otherwise reasonably requested by
the Administrative Agent; and furnish to each Lender, upon written request,
full information as to the insurance carried except to the extent that the
failure to do any of the foregoing with respect to any such property could not
reasonably be expected to materially adversely affect the value or usefulness
of such property.
(b) With respect to Inventory and Equipment (i) maintain, with
financially sound and reputable companies, insurance policies insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Administrative Agent and
(ii) insuring the Borrower, its Domestic Subsidiaries or Parent, as the case
may be, the Administrative Agent and the Lenders, against liability for
personal injury and property damage relating to such Inventory and Equipment,
such policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Administrative Agent and the Lenders.
(c) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least thirty (30) days after receipt by the Administrative
Agent of written notice thereof and (ii) if reasonably requested by the
Administrative Agent, include a breach of warranty clause. All such (i)
property insurance shall be payable to the Administrative Agent as loss payee
under a "standard" or "New York" loss payee clause for the benefit of the
Administrative Agent and the Lenders and (ii) liability insurance shall name
the Administrative Agent as an additional insured for the benefit of the
Administrative Agent and the Lenders.
10.6. Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records upon reasonable
advance notice and at any reasonable time on any Business Day and as often as
may reasonably be desired and to discuss
<PAGE> 64
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the business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants;
provided that the Administrative Agent or such Lender shall notify the Borrower
prior to any contact with such accountants and give Borrower the opportunity to
participate in such discussions.
10.7. Notices. Promptly give notice to the Administrative Agent
and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Single Employer Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC or
a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC, the Borrower
or any Commonly Controlled Entity, or any Multiemployer Plan, with
respect to the withdrawal from, or the terminating, Reorganization or
Insolvency of, any Single Employer Plan or Multiemployer Plan;
(d) Such Credit Party will advise the Administrative Agent and the
Lenders promptly, in reasonable detail, of:
(i) any Lien (other than Liens permitted by subsection 11.3)
on any of the Collateral which would adversely affect the ability of the
Administrative Agent to exercise any of its remedies pursuant to the
Master Guarantee and Collateral Agreement; or
(ii) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the security interests created pursuant to
the Master Guarantee and Collateral Agreement;
(e) Such Credit Party will notify the Administrative Agent and the
Lenders immediately if it knows, or has reason to know, that any
application or registration relating to any material Intellectual
Property may become forfeited, abandoned or dedicated to the public, or
of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark Office, the
United States Copyright Office or any court or tribunal in any country)
regarding such Credit Party's ownership of, or the validity of, any
material Intellectual Property or such Credit Party's right to register
the same or to own and maintain the same;
(f) Whenever such Credit Party, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of any Intellectual Property with the United States Patent
and Trademark Office, the United States Copyright Office or
<PAGE> 65
60
any similar office or agency in any other country or any political
subdivision thereof, such Credit Party shall report such filing to the
Administrative Agent within five Business Days after the last day of the
fiscal quarter in which such filing occurs and such Credit Party shall
execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as are necessary or as the
Administrative Agent may reasonably request to evidence the
Administrative Agent's and the Lenders' security interest in any
Copyright, Patent or Trademark and the goodwill and general intangibles
of such Credit Party relating thereto or represented thereby;
(g) reasonably promptly upon obtaining knowledge of the institution
of any proceedings for the condemnation of any of the Mortgaged
Properties or any portion thereof (the value of which exceeds
$1,000,000), the Borrower will notify the Administrative Agent of the
pendency of such proceedings;and
(h) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
10.8. Environmental Laws. Except to the extent the failure to do
so could not reasonably be expected to have a Material Adverse Effect: (a)
comply in all material respects with, and will use its reasonable efforts to
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws; and
(b) conduct and complete (or cause to be conducted and completed)
all investigations, studies, sampling and testing, and all remedial, removal
and other actions required under Environmental Laws and in a timely fashion
comply in all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws, except to the extent
that the same are being contested in good faith by appropriate proceedings and
the pendency of such proceedings could not be reasonably expected to have a
Material Adverse Effect.
10.9. Further Assurances. Upon the reasonable request of the
Administrative Agent, promptly perform or cause to be performed any and all
acts and execute or cause to be executed any and all documents (including,
without limitation, financing statements and continuation statements) for
filing under the provisions of the Uniform Commercial Code or any other
Requirement of Law which are necessary or advisable to maintain in favor of the
Administrative Agent, for the benefit of the Lenders, Liens on the Collateral
that are duly perfected in accordance with all applicable Requirements of Law.
10.10. Additional Collateral. (a) With respect to any assets
(with a fair market value in excess of $1,000,000, provided that the Lenders
may at any time request that the Borrower comply with the requirements of this
subsection 10.10 (a) with respect to any assets (other than real property with
a fair market value less than $1,000,000) having a lesser fair market value)
acquired or created after the Closing Date by the Borrower or any of its
Domestic Subsidiaries that are intended to be subject to the Lien created by
any of the Security Documents but which are not so subject (other than (x) any
assets described in paragraph (b) or (c) of this subsection, (y) property
subject to a lien permitted by subsections 11.3(g) and (h) or 11.14(b) and (z)
immaterial assets a Lien on which cannot be perfected by filing UCC-1 financing
statements or by filings in the United States Patent and
<PAGE> 66
61
Trademark Office), promptly (and in any event within 30 days after the creation
or acquisition thereof): (i) execute and deliver to the Administrative Agent
such amendments to the relevant Security Documents or such other documents as
the Administrative Agent shall deem necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a Lien on such assets,
(ii) take all actions necessary or advisable to cause such Lien to be duly
perfected in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as
may be reasonably requested by the Administrative Agent, and (iii) if requested
by the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) and (ii) immediately
preceding, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent; provided, however, that,
with respect to any Intellectual Property (each such term, as defined in the
Master Guarantee and Collateral Agreement) acquired or created by the Borrower
or any of its Domestic Subsidiaries after the Closing Date, the foregoing
documentation need only be provided within 10 Business Days following the last
day of the fiscal quarter of the Borrower in which such Intellectual Property
was so acquired or created.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Domestic Subsidiary, promptly upon the request of the
Administrative Agent: (i) execute and deliver to the Administrative Agent, for
the benefit of the Lenders, a new pledge agreement or such amendments to the
Master Guarantee and Collateral Agreement as the Administrative Agent shall
deem necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is
owned by the Borrower or any of its Domestic Subsidiaries, (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers executed and delivered in blank by a Responsible
Officer of the Borrower or such Domestic Subsidiary, as the case may be, (iii)
cause such new Subsidiary (A) to become a party to the Master Guarantee and
Collateral Agreement, pursuant to documentation which is in form and substance
reasonably satisfactory to the Administrative Agent, and (B) to take all
actions necessary or advisable to cause the Lien created by the Master
Guarantee and Collateral Agreement to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing of
financing statements in such jurisdictions as may be reasonably requested by
the Administrative Agent and (iv) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters
described in clauses (i), (ii) and (iii) immediately preceding, which opinions
shall be in form and substance, and from counsel, reasonably satisfactory to
the Administrative Agent.
(c) With respect to any Person that, subsequent to the Closing
Date, becomes a Foreign Subsidiary and which has Capital Stock which is owned
directly by the Borrower or a Domestic Subsidiary, promptly upon the request of
the Administrative Agent: (i) execute and deliver to the Administrative Agent
a new Foreign Pledge Agreement or such amendments to the relevant Foreign
Pledge Agreement as the Administrative Agent shall deem necessary or advisable
to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on
the Capital Stock of such Subsidiary which is owned by the Borrower or any of
its Subsidiaries (provided that in no event shall more than 65% of the Capital
Stock of any such Subsidiary be required to be so pledged), (ii) to the extent
reasonably deemed advisable by the Administrative Agent, deliver to the
Administrative Agent any certificates representing such Capital Stock, together
with undated stock powers executed and delivered in blank by a Responsible
Officer of the Borrower or such Subsidiary, as the case may be, (iii) take or
cause to be taken all such other actions under the law of the jurisdiction of
organization of such Foreign Subsidiary as may be necessary or advisable to
perfect such Lien on such Capital Stock and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) through (iii) immediately
preceding, which
<PAGE> 67
62
opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
10.11. Consummation of Merger. The Borrower shall cause the Merger
to be consummated in accordance with the terms of the Acquisition Documents and
applicable Requirements of Law as soon as is practicable following the
consummation of the Tender Offer, and to comply in all material respects with
the obligations of the Borrower and AcquisitionCo under the Acquisition
Documents.
10.12. Covenants in respect of the Collateral. (a) If any amount
in excess of $1,000,000 payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper,
such Instrument or Chattel Paper shall be immediately delivered to the
Administrative Agent, duly indorsed in a manner satisfactory to the
Administrative Agent, to be held as Collateral pursuant to the Master Guarantee
and Collateral Agreement.
(b) Such Credit Party will not:
(i) permit any of the Inventory or Equipment to be kept at a
location other than as listed on Schedule 8.19(c) (other than temporary
relocations of Equipment in connection with repairs thereto);
(ii) change the location of its chief executive office or
sole place of business from that referred to on Schedule 8.19(b); or
(iii) change its name, identity or corporate structure to
such an extent that any financing statement filed by the Administrative
Agent in connection with the Master Guarantee and Collateral Agreement
would become misleading;
except to the extent that such Credit Party shall have given to the
Administrative Agent 15 days' prior written notice thereof and taken such
action as is necessary or as the Administrative Agent reasonably shall have
requested to maintain the perfection and the priority of the Liens and security
interests granted pursuant to the Master Guarantee and Collateral Agreement.
SECTION XI. NEGATIVE COVENANTS
The Parent and the Borrower hereby agree that, so long as any
Commitments remain in effect or any amount is owing to any Lender or the
Administrative Agent hereunder or under any other Credit Document, the Parent
shall not, and (except with respect to subsection 11.1) shall not permit any of
its Subsidiaries to, directly or indirectly:
11.1. Financial Condition Covenants.
(a) Minimum Interest Coverage Ratio. Permit the ratio (the
"Consolidated Interest Coverage Ratio") of (i) Borrower's Consolidated
EBITDA for any period (commencing with respect to the fiscal quarter
ended on or about September 30, 1997) of four consecutive fiscal quarters
ending as of the end of any of the fiscal periods set forth below to (ii)
Borrower's Consolidated Interest Expense for such period, to be less than
the ratio set forth opposite such period below:
<PAGE> 68
63
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Third Fiscal Quarter 1997 1.7 to 1.00
Fourth Fiscal Quarter 1997 1.8 to 1.00
First Fiscal Quarter 1998 1.8 to 1.00
Second Fiscal Quarter 1998 1.9 to 1.00
Third Fiscal Quarter 1998 2.0 to 1.00
Fourth Fiscal Quarter 1998 2.15 to 1.00
First Fiscal Quarter 1999 2.25 to 1.00
Second Fiscal Quarter 1999 2.30 to 1.00
Third Fiscal Quarter 1999 2.35 to 1.00
Fourth Fiscal Quarter 1999 2.45 to 1.00
First Fiscal Quarter 2000 2.55 to 1.00
Second Fiscal Quarter 2000 2.65 to 1.00
Third Fiscal Quarter 2000 2.75 to 1.00
Fourth Fiscal Quarter 2000 2.85 to 1.00
First Fiscal Quarter 2001 2.95 to 1.00
Second Fiscal Quarter 2001 3.05 to 1.00
Third Fiscal Quarter 2001 3.15 to 1.00
Fourth Fiscal Quarter 2001 3.30 to 1.00
First Fiscal Quarter 2002 3.40 to 1.00
Second Fiscal Quarter 2002 - thereafter 3.50 to 1.00
</TABLE>
<PAGE> 69
64
(b) Maximum Leverage Ratio. Permit the Leverage Ratio as of the
end of any of the fiscal periods set forth below to be more than the
ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Third Fiscal Quarter 1997 5.85 to 1.00
Fourth Fiscal Quarter 1997 5.50 to 1.00
First Fiscal Quarter 1998 5.50 to 1.00
Second Fiscal Quarter 1998 5.20 to 1.00
Third Fiscal Quarter 1998 5.00 to 1.00
Fourth Fiscal Quarter 1998 4.65 to 1.00
First Fiscal Quarter 1999 4.40 to 1.00
Second Fiscal Quarter 1999 4.30 to 1.00
Third Fiscal Quarter 1999 4.20 to 1.00
Fourth Fiscal Quarter 1999 4.00 to 1.00
First Fiscal Quarter 2000 3.80 to 1.00
Second Fiscal Quarter 2000 3.70 to 1.00
Third Fiscal Quarter 2000 3.60 to 1.00
Fourth Fiscal Quarter 2000 3.40 to 1.00
First Fiscal Quarter 2001 3.30 to 1.00
Second Fiscal Quarter 2001 3.20 to 1.00
Third Fiscal Quarter 2001 3.10 to 1.00
Fourth Fiscal Quarter 2001 2.90 to 1.00
First Fiscal Quarter 2002 2.80 to 1.00
Second Fiscal Quarter 2002 2.70 to 1.00
Third Fiscal Quarter 2002 2.60 to 1.00
Fourth Fiscal Quarter 2002 - thereafter 2.40 to 1.00
</TABLE>
Notwithstanding anything to the contrary herein, for the purposes of
determining the Leverage Ratio and the Consolidated Interest Coverage Ratio for
the periods ending on or about September 30, 1997 and December 31, 1997, (i)
Consolidated EBITDA for the relevant period shall be deemed to equal actual
Consolidated EBITDA for such period (commencing with the period ended on or
about June 30, 1997) plus $20,000,000 and $7,500,000, respectively; and (ii)
Consolidated Interest Expense for the relevant period shall be deemed to equal
actual Consolidated Interest Expense for such period (since on or about July 1,
1997) multiplied by 4, 2 and 4/3, respectively.
11.2. Limitation on Indebtedness. Create, incur, assume or suffer
to exist any Indebtedness, except:
(a) Indebtedness of the Credit Parties under the Credit Documents;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary in respect of
intercompany loans and transfers of goods;
(c) Indebtedness of the Borrower or any of its Subsidiaries (i) in
respect of obligations under Financing Leases as permitted by subsection
11.9 and (ii) in respect of purchase money obligations in an amount not
to exceed $5,000,000;
<PAGE> 70
65
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 11.2(d) and any refinancings, refundings, renewals or extensions
thereof which do not materially increase the aggregate principal amount
thereof or interest due thereon ;
(e) Indebtedness of a corporation which becomes a Subsidiary after
the date hereof, provided that (i) such indebtedness existed at the time
such corporation became a Subsidiary and was not created in anticipation
thereof and (ii) immediately after giving effect to the acquisition of
such corporation by the Borrower no Default or Event of Default shall
have occurred and be continuing;
(f) Indebtedness of the Borrower or its Subsidiaries on account of
industrial revenue bonds in an aggregate principal amount not to exceed
$3,500,000 at any one time outstanding; provided that neither the Parent
nor any Subsidiary thereof shall, directly or indirectly, guarantee such
Indebtedness;
(g) Indebtedness of the Borrower and its Subsidiaries under
Interest Rate Agreements entered into in the ordinary course of business
for nonspeculative purposes;
(h) Indebtedness of the Borrower on account of the Senior
Subordinated Notes;
(i) additional Indebtedness of the Borrower and its Subsidiaries
not exceeding $5,000,000 in aggregate principal amount at any one time
outstanding;
(j) Indebtedness resulting from the endorsement of negotiable
instruments in the ordinary course of business;
(k) Indebtedness of the Credit Parties subject to Liens permitted
under subsection 11.3(a), (b), (c) and (d);
(l) Indebtedness incurred in connection with the sale of the
accounts receivable of Parent and its Subsidiaries in connection with the
trade receivables financing transaction otherwise permitted under
subsection 11.6(k);
(m) unsecured Indebtedness of the Subsidiaries of Parent to the
seller in any Permitted Acquisition in an aggregate principal amount
outstanding at any time not to exceed $5,000,000;
(n) Indebtedness of Parent pursuant to (i) the Seller Subordinated
Note in an original principal amount of $2,500,000 (it being understood
and agreed that neither Parent nor any Subsidiary of Parent shall be
permitted to directly or indirectly guarantee the Seller Subordinated
Note) or (ii) the Senior Discount Notes;
(o) upon the earlier to occur of (i) the Termination Date and (ii)
or the date on which the Aggregate Revolving Credit Commitments are
terminated pursuant to subsection 7.5, Indebtedness of the Borrower and
its Subsidiaries in respect of an unsecured revolving credit facility in
an aggregate principal amount not to exceed $70,000,000, provided that
the Borrower shall have repaid all Revolving Credit Loans and L/C
Obligations in accordance with the terms of this Agreement and that there
are no Letters of Credit outstanding at such time;
<PAGE> 71
66
(p) Indebtedness in respect of a revolving credit facility for the
purpose of funding the working capital needs in the ordinary course of
business of any Subsidiaries of the Borrower organized in Canada in
Canadian dollars; provided that (i) the U.S.$ equivalent (determined in
good faith by the Borrower) of the aggregate outstanding principal amount
thereof (the "Canadian Subsidiary Equivalent Outstandings") shall not
exceed $20,000,000 at any one time and (ii) on the date of any incurrence
thereof, after giving effect thereto, the sum of the Canadian Subsidiary
Equivalent Outstandings and the Aggregate Outstanding Extensions of
Credit of all Revolving Credit Lenders shall not exceed the Aggregate
Revolving Credit Commitment; and
(q) Indebtedness incurred by Parent and/or the Borrower on terms
and conditions reasonably satisfactory to the Required Lenders so long as
the proceeds thereof are simultaneously used to make payments on the
Seller Subordinated Notes.
11.3. Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves
with respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP (or, in the
case of Foreign Subsidiaries, generally accepted accounting principles in
effect from time to time in their respective jurisdictions of
incorporation);
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's or other like Liens arising in the ordinary
course of business which are not overdue for a period of more than 60
days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances (i) incurred in the ordinary course of business of the
Borrower or its Subsidiaries which, in the aggregate, are not substantial
in amount and which do not in any case materially detract from the value
of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or such Subsidiary and (ii) which
are set forth in the marked up commitments for title insurance or title
policies delivered to the Administrative Agent on the Closing Date or
thereafter;
(f) Liens in existence on the date hereof listed on Schedule
11.3(f) securing Indebtedness permitted by subsection 11.2(d), provided
that no such Lien is spread to cover any additional property (other than
after acquired title in or on such property and proceeds of the existing
collateral in accordance with the instrument creating such Lien) after
the Closing Date and that the amount of Indebtedness secured thereby is
not increased, except pursuant to the instrument creating such Lien
(without any modification thereof) except as set forth in subsection
11.2(d);
<PAGE> 72
67
(g) Liens securing Indebtedness of the Borrower and its
Subsidiaries permitted by subsection 11.2(c) in respect of Financing
Leases and purchase money Liens incurred solely for the purpose of
financing the acquisition of such property, and Liens existing on such
property at the time of its acquisition;
(h) Liens on property at the time of its acquisition or existing on
property or assets of a Person which becomes a Subsidiary after the date
hereof securing Indebtedness permitted by subsection 11.2(e), provided
that (i) such Liens existed at the time of such acquisition or at the
time such Person became a Subsidiary and were not created in anticipation
thereof, (ii) any such Lien is not spread to cover any additional
property or assets, including property or assets of such corporation
after the time such corporation becomes a Subsidiary, and (iii) the
amount of Indebtedness secured thereby is not increased except as
permitted by this Agreement;
(i) Liens created pursuant to the Security Documents;
(j) Liens arising from precautionary UCC financing statement
filings regarding operating leases or consignment arrangements entered
into by the Borrower and its Subsidiaries in the ordinary course of
business;
(k) Liens in favor of banking institutions arising as a matter of
law and encumbering the deposits (including the right of setoff) held by
such banking institutions in the ordinary course of business and which
are within the general parameters customary in the banking industry;
(l) Liens in favor of customs and revenue authorities arising as a
matter of law to secure the payment of customs duties in connection with
the importation of goods by the Borrower or its Subsidiaries;
(m) Liens (not otherwise permitted hereunder) which secure
obligations not exceeding (as to the Borrower and all Subsidiaries)
$1,000,000 in aggregate amount at any time outstanding;
(n) Liens on property of Parent or any of its Subsidiaries in favor
of landlords securing licenses, subleases or leases permitted hereunder;
(o) licenses, leases and subleases permitted hereunder granted to
others not interfering in any material respect in the business of Parent
or any of its Subsidiaries;
(p) attachment or judgment Liens (other than judgment Liens paid or
fully covered by insurance) which are not outstanding for more than sixty
(60) days in an aggregate amount outstanding at any one time not in
excess of $5,000,000;
(q) Liens arising from the sale of accounts receivable of
Subsidiaries of Parent in connection with a trade receivables financing
transaction otherwise permitted under subsection 11.6(k);
(r) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Borrower or any of its Subsidiaries in
<PAGE> 73
68
the ordinary course of business in accordance with the past practices of
the Borrower and its Subsidiaries;
(s) deposits to secure statutory obligations in the form of excise
taxes;
(t) Liens arising out of barter transactions or arrangements for
the sale or purchase of goods or services entered into by the Borrower or
any of its Subsidiaries in the ordinary course of business in accordance
with the past practices of the Borrower and its Subsidiaries; and
(u) Liens securing Indebtedness permitted by subsection 11.2(p) on
the assets of the debtor in respect thereof.
11.4. Limitation on Guarantee Obligations. Create, incur, assume
or suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and
listed on Schedule 11.4(a) and extensions, renewals and replacements
thereof, provided that no such extension, renewal or replacement shall
materially (i) increase the principal amount of such Indebtedness
guaranteed by such Person or (ii) amend or modify the subordination
provisions, if any, contained in such guarantee in a manner adverse to
the Lenders.
(b) Guarantee Obligations incurred after the date hereof in an
aggregate amount not to exceed $1,000,000 at any one time outstanding;
(c) indemnities and guarantees (other than guarantees of
Indebtedness (other than Indebtedness of Subsidiaries of the Parent
permitted hereunder)) made in the ordinary course of business of the
Parent and its Subsidiaries, provided such indemnities or guarantees
could not individually or in the aggregate have a Material Adverse
Effect;
(d) the Master Guarantee and Collateral Agreement;
(e) indemnities of the Parent and its Subsidiaries in favor of the
companies issuing title insurance policies insuring the title to any
property to induce such issuance;
(f) surety bonds issued in respect of the type of obligations
described in subsection 11.3(d);
(g) indemnities made in the Credit Documents, the Acquisition
Documents and in the monitoring and oversight agreement and the financial
advisory agreement described in subsection 11.8(a)(iv) and in the
corporate charter and/or bylaws of Parent or any of its Subsidiaries; and
(h) unsecured senior guarantee of Parent and the unsecured senior
subordinated guarantee of the Subsidiaries of Borrower, in each case,
under the Senior Subordinated Notes.
11.5. Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method of
conducting business, except:
<PAGE> 74
69
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the
continuing or surviving corporation) or with or into any one or more
wholly owned Subsidiaries of the Borrower (provided that the wholly owned
Subsidiary or Subsidiaries shall be the continuing or surviving
corporation); and
(b) any Subsidiary of the Borrower may sell, lease, transfer or
otherwise dispose of all or substantially all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or any wholly owned
Subsidiary of the Borrower or liquidate or dissolve if, in connection
therewith, all of its assets are transferred to a Credit Party (other
than the Parent).
11.6. Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out property
in the ordinary course of business or property that is no longer useful
in the conduct of the business of the Borrower and its Subsidiaries;
(b) the sale, transfer or exchange of inventory in the ordinary
course of business of the Borrower or its Subsidiaries;
(c) the sale or other disposition of any property (other than
assets described in clauses (a) and (b) above) in the ordinary course of
business of the Borrower or its Subsidiaries, provided that the aggregate
book value of all assets so sold or disposed of shall not exceed
$4,000,000 in any fiscal year and $12,000,000 in the aggregate for the
duration of this Agreement;
(d) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business of the Borrower or its
Subsidiaries in connection with the compromise or collection thereof;
(e) licenses or sublicenses by Parent and its Subsidiaries of
software, trademarks and other intellectual property and general
intangibles and leases, licenses or subleases of other property in the
ordinary course of business and which do not materially interfere with
the business of Parent or any Subsidiary.
(f) Hedstrom (U.K.) Limited, an English corporation with
Registration Number 2721630, may sell accounts receivable pursuant to
that certain Factoring Deed, dated March 9, 1993, among Hedstrom (U.K.)
Limited, Hedstrom Corporation and Barclays Commercial Services Limited
(and any replacement facility at a similar amount and on substantially
similar terms);
(g) as permitted by subsection 11.5(b);
(h) intercompany sales or transfers of assets to the Borrower and
its Subsidiaries made in the ordinary course of business of the Borrower
or its Subsidiaries;
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(i) any consignment arrangements or similar arrangements for the
sale of assets in the ordinary course of business of the Borrower or its
Subsidiaries;
(j) transfers resulting from any casualty or condemnation of
property or assets;
(k) the sale of the accounts receivable of Subsidiaries of Parent
in connection with the trade receivable financing transaction reasonably
acceptable to the Administrative Agent; provided that all of the Net
Proceeds of each such sale are applied to the mandatory prepayment of the
Tranche A Loans and the Tranche B Loans as required by subsection 7.5(g);
and
(l) Asset Swaps by the Borrower or its Subsidiaries with respect to
assets with an aggregate fair market value not to exceed $1,000,000 per
fiscal year.
Any Collateral which is sold, transferred or otherwise conveyed pursuant to
this subsection 11.6 to a Person other than the Parent and its Subsidiaries
shall, upon the consummation of such sale in accordance with the terms of this
Agreement and the other Credit Documents, be released from the Liens granted
pursuant to the Security Documents and each Lender hereby authorizes and
instructs the Administrative Agent to take such action as the Borrower
reasonably may request to evidence such release.
11.7. Intentionally Deleted.
11.8. Limitation on Dividends. Declare or pay any dividend (other
than dividends payable solely in common stock of Parent or the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of Parent or the
Borrower or any warrants or options to purchase any such Capital Stock, whether
now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Borrower or any Subsidiary (such declarations, payments,
setting apart, purchases, redemptions, defeasances, retirements, acquisitions
and distributions being herein called "Restricted Payments"), except that:
(a) the Borrower may make Restricted Payments to Parent, so long as
(except with respect to clause (iii) below or with respect to clause (iv)
below such a Restricted Payment may be made except when an Event of
Default which relates to a payment default pursuant to Section 12(a) has
occurred and is continuing) no Event of Default has occurred or is
continuing after giving effect to such Restricted Payment:
(i) the proceeds of which shall be used to pay the
reasonable overhead of Parent (including out of pocket expenses for
administrative, legal and accounting services or to pay franchise
fees or similar costs) in an amount not to exceed $1,000,000 per
year;
(ii) payments, the proceeds of which will be used to
repurchase the Capital Stock or other securities of Parent from
outside directors, employees or members of management of Parent or
any Subsidiary, at a price not in excess of fair market value, in an
aggregate amount not in excess of $2,500,000 in any fiscal year of
the Borrower and $5,000,000 in the aggregate for the duration of
this Agreement,
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net of the proceeds received by the Borrower as a result of any
resales of any such Capital Stock or other securities;
(iii) payments, the proceeds of which will be used to pay
taxes of Parent as part of a consolidated group;
(iv) payments, the proceeds of which will be used to pay
management fees to Hicks Muse & Co. Partners, L.P. in accordance
with the terms of its monitoring and oversight agreement and the
financial advisory agreement;
(v) if such Restricted Payment is a purchase of Capital
Stock or a distribution to Parent to permit Parent to purchase its
Capital Stock, in either case, made in order to fulfil the
obligations of Parent, the Borrower or any Subsidiary under an
employee stock purchase plan or similar plan covering employees of
Parent or any Subsidiary as from time to time in effect in an
aggregate net amount not to exceed $1,000,000; and
(vi) payments, the proceeds of which will be used to
make payments on the Senior Discount Notes or Seller Subordinated
Notes if permitted hereunder, including, but not limited to,
prepayments or repurchases of the Seller Subordinated Notes or the
Senior Discount Notes permitted by subsection 11.16(b).
(b) any Subsidiary of the Borrower may make Restricted Payments to
the Borrower or to its Subsidiaries;
(c) Permitted Issuances may be made.
11.9. Limitation on Capital Expenditures. Make or commit to make
(by way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure except for:
(a) expenditures in the ordinary course of business of the Borrower
or its Subsidiaries not exceeding, in the aggregate for the Borrower and
its Subsidiaries, $10,000,000 during any fiscal year of the Borrower;
provided that up to $4,000,000 of such amount which is not so expended in
the fiscal year for which it is permitted above may be carried-over to
increase the amount permitted for the next fiscal year of the Borrower;
and
(b) in addition to the Capital Expenditures permitted pursuant to
paragraph (a) of this subsection, to the extent such proceeds are not
otherwise utilized pursuant to subsection 11.10(k) or (m) or 11.16(b),
the Borrower and its Subsidiaries may make additional Capital
Expenditures (which shall not be counted in the limitations set forth in
paragraph (a) of this subsection 11.9) consisting of the investment of
(i) Excess Cash Flow generated during the prior fiscal years of this
Agreement and not required to be applied pursuant to subsection 7.5(e)
and (ii) the proceeds of Contributed Equity.
11.10. Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment (collectively, an
"Investment") in, any Person, except :
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(a) extensions of trade credit by the Borrower or its Subsidiaries
in the ordinary course of business;
(b) the Acquisition;
(c) loans and advances to directors, officers and employees of the
Parent or its Subsidiaries in an aggregate amount for the Borrower and
its Subsidiaries not to exceed $1,000,000 at any one time outstanding;
and
(d) Investments by Parent and its Subsidiaries in, and loans,
advances and capital contributions by Parent to, its Subsidiaries
(including any reasonable investment or capital contribution in
connection with the formation of such Subsidiary) and investments by such
Subsidiaries in, and loans, advances and capital contributions by
Subsidiaries to, the Borrower and other Subsidiaries; provided that (i)
the Borrower and its Subsidiaries (other than Subsidiaries of ERO) shall
not be permitted to make any investments in, or loans, advances or
capital contributions to, ERO and its Subsidiaries until such time as the
Borrower has purchased not more than 75% of the issued and outstanding
Capital Stock of ERO pursuant to the Tender Offer and (ii) to the extent
the Subsidiary into which any such an investment is made is not a Credit
Party, such investment shall be limited to the reasonable capitalization
of a Subsidiary organized in connection with a trade receivable financing
transaction permitted by subsection 11.6(k);
(e) Investments by the Credit Parties in cash or Cash Equivalents;
(f) Investments in existence on the date hereof and listed on
Schedule 11.10(f) and any extensions, renewals, modifications or
restatements or replacements thereof provided that no such extensions,
renewal, modification, restatement or replacement shall increase the
amount of the original loan, advance or investment;
(g) promissory notes and other noncash consideration received by
the Borrower and its Subsidiaries in connection with asset sales
permitted by subsection 11.6;
(h) Investments permitted by subsections 11.4, 11.8 and 11.9;
(i) Investments by the Borrower and its Subsidiaries in Interest
Rate Agreements entered into in the ordinary course of business for
nonspeculative purposes;
(j) Investments (including debt obligations and Capital Stock) by
Parent and its Subsidiaries received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising
in the ordinary course of business;
(k) so long as after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, Investments after the
Closing Date by Subsidiaries of Parent resulting from Permitted
Acquisitions in an aggregate amount (which may include Indebtedness
permitted by subsection 11.2(m)) not to exceed the sum of (A) $5,000,000,
(B) the amount of common stock of Parent issued subsequent to the
Effective Date in connection with Permitted Acquisitions, (C) the portion
of Excess Cash Flow for all prior fiscal years ended during the term of
this Agreement not required to be prepaid pursuant to subsection 7.5(e)
and (D) the proceeds of Contributed Equity, in the case of clauses (C)
and (D), to the
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extent said amounts have not been utilized for other purposes permitted
by subsection 11.9(b), 11.10(m) or 11.16(b), provided, that (i) such
actions as may be required or reasonably requested to ensure that the
Administrative Agent, for the ratable benefit of the Lenders, has a
perfected first priority security interest in any assets acquired,
subject to Liens permitted by subsection 11.3, shall have been taken and
(ii) (I) on a pro forma basis for the period of four consecutive fiscal
quarters most recently ended (assuming the consummation of such Permitted
Acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period of four
consecutive fiscal quarters), the Borrower shall be in compliance with
the covenants contained in subsection 11.1 and (II) the Administrative
Agent shall have received calculations in reasonable detail reasonably
satisfactory to it showing compliance with the requirements of this
clause (ii) certified by a Responsible Officer of the Borrower;
(l) in addition to the foregoing, Investments by Subsidiaries of
Parent in an aggregate amount not to exceed $3,000,000 (at cost, without
regard to any write up or write down thereof) at any one time
outstanding; and
(m) in addition to the Investments permitted pursuant to this
subsection 11.10, to the extent such proceeds are not otherwise utilized
pursuant to subsection 11.9(b) or 11.10(k), the Subsidiaries of Parent
may make additional Investments (which shall not be counted in the
limitations set forth above) as follows: (i) Investments consisting of
the investment of Net Proceeds not required to be applied to prepay the
Tranche A Loans or Tranche B Loans pursuant to subsection 7.5, including
(x) with respect to the investment of proceeds of the insurance and
condemnation proceeds not required to prepay the Tranche A Loans or
Tranche B Loans pursuant to subsection 7.5 and (y) with respect to the
investment of proceeds of the sale of assets which are permitted pursuant
to subsection 11.6; (ii) to the extent said proceeds are not otherwise
utilized pursuant to subsection 11.9(b), 11.10(k) or 11.16(b),
Investments consisting of the investment of Excess Cash Flow for all
prior fiscal years ended during the term of this Agreement and not
required to be applied pursuant to subsection 7.5(e) and (iii)
Investments of the proceeds of Contributed Equity.
11.11. Limitation on Transactions with Affiliates. (a) Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (i) otherwise permitted under this Agreement, (ii) (x) in
the ordinary course of the Parent or any Subsidiary's business and (y) upon
fair and reasonable terms no less favorable to the Parent or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
(b) In addition, notwithstanding the foregoing, Parent and its
Subsidiaries shall be entitled to make the following payments and/or to enter
into the following transactions:
(i) the payment of reasonable and customary fees and
reimbursement of expenses payable to directors of Parent;
(ii) the payment to Hicks Muse & Co. Partners, L.P. of fees
and expenses pursuant to a monitoring and oversight agreement and a
financial advisory agreement approved by the board of directors of
Parent; and
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(iii) the employment arrangements with respect to the
procurement of services of directors, officers and employees in the
ordinary course of business and the payment of reasonable fees in
connection therewith.
11.12. Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by Parent or any of its
Subsidiaries of real or personal property which has been or is to be sold or
transferred by Parent or such Subsidiary to such Person or to any other Person
to whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of the Borrower or such Subsidiary;
provided that this subsection 11.12 shall not prohibit any sale and leaseback
resulting from the incurrence of any lease in respect of any capital asset
entered into within 120 days of the acquisition of such capital asset for the
purpose of providing permanent financing of such capital asset.
11.13. Limitation on Changes in Fiscal Year and Reporting Policy.
(i) Permit the fiscal year of the Borrower to end on a day other than December
31 or (ii) change its reporting policy for determining the duration and end
date for its fiscal quarters; provided Parent may change such fiscal year or
reporting policy upon the approval of the Administrative Agent.
11.14. Limitation on Negative Pledge Clauses. Enter into with any
Person any agreement, other than (a) this Agreement and the other Credit
Documents and (b) any industrial revenue bonds, purchase money mortgages or
Financing Leases permitted by this Agreement (in which cases, any prohibition
or limitation shall only be effective against the assets financed thereby)
which prohibits or limits the ability of the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
11.15. Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
11.16. Limitation on Modification of Agreements and Payments on
Account of Debt. (a) Amend, waive, supplement or otherwise modify in any
material respect any agreement governing the Senior Discount Notes, the Senior
Subordinated Notes or the Seller Subordinated Notes:
(i) which amends or modifies the subordination provisions
contained therein;
(ii) which shortens the fixed maturity, or increases the rate
or shortens the time of payment of interest on, or increases the amount
or shortens the time of payment of any principal or premium payable
whether at maturity, at a date fixed for prepayment or by acceleration or
otherwise of such Indebtedness, or increases the amount of, or
accelerates the time of payment of, any fees payable in connection
therewith;
(iii) which relates to the affirmative or negative
covenants, events of default or remedies under the documents or
instruments evidencing such Indebtedness and the effect of which is to
subject the Borrower or any of its Subsidiaries, to any more onerous or
more restrictive provisions; or
(iv) which otherwise adversely affects the interests of the
Lenders as senior creditors or the interests of the Lenders under this
Agreement or any other Credit Document in any respect.
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(b) Make any optional prepayment of, or otherwise repurchase, any
of the Senior Discount Notes, the Senior Subordinated Notes or the Seller
Subordinated Notes, except (i) mandatory payments of interest, fees and
expenses required by the terms of the Senior Discount Notes, (ii) so long as no
Default or Event of Default shall have occurred and be continuing, prepayments
or repurchases of the Seller Subordinated Notes with the proceeds of
Contributed Equity or Excess Cash Flow for all prior fiscal years ended during
the term of this Agreement (to the extent not required to be applied pursuant
to subsection 7.5(e) or utilized pursuant to subsection 11.9(b), 11.10(k) or
(m) or clause (iii) of this subsection 11.16(b)) or (iii) so long as no Default
or Event of Default shall have occurred and be continuing, prepayments or
repurchases of the Senior Discount Notes or the Senior Subordinated Notes with
the proceeds of Contributed Equity (to the extent not utilized pursuant to
subsections 11.9(b), 11.10(k) or (m) or clause (ii) of this subsection
11.16(b)), provided that after giving pro forma effect to the sale of common
stock in connection with such Contributed Equity and such prepayment or
repurchase as if such events had occurred on the last day of the most recently
ended fiscal quarter, the Leverage Ratio would have been less than or equal to
4.0 to 1.0.
11.17. Rights under Acquisition Documents. Parent will not, and
will not permit any of its Subsidiaries to, amend, supplement or otherwise
modify (including any waiver thereof) the Acquisition Documents, except (a)
amendments, supplements or other modifications to the terms and conditions of
the indemnities and licenses furnished pursuant thereto such that after giving
effect to such amendment, supplements or other modification such indemnities or
licenses shall not be materially less favorable to the interests of Parent and
its Subsidiaries and (b) otherwise, such amendments, supplements or other
modifications (including waivers) to the Acquisition Documents which could not
reasonably be expected to have a Material Adverse Effect.
11.18. Maintenance of Corporate Separateness. The Parent and the
Borrower will not, and will not permit any of their Subsidiaries to, (a) fail
to satisfy customary corporate formalities, including, without limitation, (i)
the holding of regular board of directors' and shareholders' meetings, (ii) the
maintenance of separate corporate records and (iii) the maintenance of separate
bank accounts in its own name; (b) fail to act solely in its own corporate name
and through its authorized officers and agents; (c) commingle any money or
other assets of the Borrower or any of its Subsidiaries with any money or other
assets of the Parent; or (d) take any action, or conduct its affairs in a
manner, which could reasonably be expected to result in the separate corporate
existence of each of the Parent and each of its Subsidiaries from being ignored
or the assets and liabilities of the Borrower or any of its Subsidiaries being
substantively consolidated with those of the Parent in a bankruptcy,
reorganization or other insolvency proceeding.
11.19. Limitation on Activities of the Parent. The Parent shall
not, except to the extent explicitly permitted by this Section 11: (a)
conduct, transact or otherwise engage in, or commit to conduct, transact or
otherwise engage in, any business or operations other than those incidental to
(i) its ownership of the Capital Stock of the Borrower, (ii) the issuance of
the Senior Discount Notes, the Seller Subordinated Notes or its common stock
(or warrants or options in respect thereof) pursuant to a Permitted Issuance or
(iii) its performance of the Credit Documents to which it is a party, (b)
incur, create, assume or suffer to exist any Indebtedness or other liabilities
or financial obligations, except (i) nonconsensual obligations imposed by
operation of law, (ii) pursuant to the Credit Documents to which it is a party,
(iii) obligations with respect to its Capital Stock (other than any such
obligations constituting Indebtedness), (iv) the Senior Discount Notes and (v)
the Seller Subordinated Notes, (c) own, lease, manage or otherwise operate any
properties or assets (including cash and Cash Equivalents) other than the
ownership of shares of Capital Stock of the Borrower or (d) make any Restricted
Payments.
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SECTION XII. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when
due in accordance with the terms thereof or hereof; or the Borrower shall
fail to pay any interest on any Loan, or any other amount payable
hereunder, within five days after any such interest or other amount
becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Credit Party herein or in any other Credit Document
or which is contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection with this
Agreement or any such other Credit Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) The Borrower or any other Credit Party shall default in the
observance or performance of any agreement contained in subsection
10.12(b), Section 11 or subsection 5.5(b) of the Master Guarantee and
Collateral Agreement; or
(d) The Borrower or any other Credit Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Credit Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default (to the
extent that it is susceptible to remedy) shall continue unremedied for a
period of 30 days; or
(e) The Borrower or any other Credit Party shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation (other than
guarantees pursuant to the Credit Documents), beyond the period of grace,
if any, provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created; or (ii) default in the
observance or performance of any other agreement or condition relating to
any such Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default
or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Guarantee Obligation (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; provided,
however, that no Default or Event of Default shall exist under this
paragraph unless the aggregate amount of Indebtedness and/or Guarantee
Obligations in respect of which any default or other event or condition
referred to in this paragraph shall have occurred shall be equal to at
least $5,000,000; or
(f) (i) The Borrower or any other Credit Party shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any
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substantial part of its assets, or the Borrower or any other Credit Party
shall make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against the Borrower or any other Credit Party
any case, proceeding or other action of a nature referred to in clause
(i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged
or unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any other Credit Party any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the Borrower or any
other Credit Party shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any
other Credit Party shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving
any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to
any Plan or any Lien in favor of the PBGC or a Plan shall arise on the
assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA,
(v) the Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other similar event
or condition (other than the payment of benefits in the ordinary course)
shall occur or exist with respect to a Plan; and in each case in clauses
(i) through (vi) above, such event or condition, together with all other
such events or conditions, if any, could reasonably be expected to result
in a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against any
Credit Party involving in the aggregate a liability (not paid or fully
covered by insurance) of $5,000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(i) Any of the Security Documents (or any material provisions of
any Security Document) shall cease, for any reason, to be in full force
and effect (unless released by the Administrative Agent, at the direction
of the Required Lenders or as otherwise permitted under this Agreement)
or shall be declared null and void (and, if such invalidity is such so as
to be amenable to cure without materially disadvantaging the position of
the Administrative Agent and the Lenders, the Credit Party shall have
failed to cure such invalidity within thirty (30) days after notice from
the Administrative Agent or such shorter time period as is specified by
the Administrative Agent in such notice and is reasonable in the
circumstances), or the validity or enforceability thereof shall be
contested by any Credit Party, or any of the Liens intended to be created
by the Security Documents shall cease to be or shall not be a valid and
perfected Lien having the priority contemplated thereby (and, if such
invalidity is such so as to be amenable to cure without materially
disadvantaging the position of the
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Administrative Agent and the Lenders, as secured parties thereunder, the
Credit Party shall have failed to cure such invalidity within thirty (30)
days after notice from the Administrative Agent or such shorter time
period as specified by the Administrative Agent in such notice and is
reasonable in the circumstances); or
(j) The Parent shall have any material liabilities (other than
liabilities on account of the Parent Guarantee and Collateral Agreement
and the Senior Discount Notes) or any material assets (other than its
equity interest in the Borrower);
(k) Any agreement governing the Senior Discount Notes or the Senior
Subordinated Notes shall be amended, supplemented or otherwise modified
in any respect which could have an adverse effect on the rights and
interests of the Administrative Agent or the Lenders; or
(l) Any Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section, automatically the
Commitments shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments
to be terminated forthwith, whereupon the Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under
this Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit
shall have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
As to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Lender and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Any amounts held in such cash collateral account
shall be applied by the Administrative Agent to the payment of drafts drawn
under such Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if any, shall be
applied to repay other obligations of the Borrower hereunder and under the
Notes. After all such Letters of Credit shall have expired or been fully drawn
upon, all Reimbursement Obligations shall have been satisfied and all other
obligations of the Borrower hereunder and under the Notes shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower. The Borrower shall execute and deliver to the Administrative
Agent, for the account of the Issuing Lender and the L/C Participants, such
further documents and instruments as the Administrative Agent may request to
evidence the creation and perfection of the within security interest in such
cash collateral account.
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Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION XIII. THE ADMINISTRATIVE AGENT; DOCUMENTATION AGENT AND
SYNDICATION AGENT
13.1. Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Credit Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Credit
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere
in this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Credit Document or otherwise exist against the
Administrative Agent.
13.2. Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement and the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agent or
attorneys in-fact selected by it with reasonable care.
13.3. Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Credit Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Credit Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Administrative Agent under or in connection with,
this Agreement or any other Credit Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Credit Document or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Credit Document, or to inspect the properties,
books or records of the Borrower.
13.4. Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified
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in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders (or such larger
number of Lenders as may be explicitly required hereunder), and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Loans.
13.5. Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
13.6. Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents, and to make such investigation
as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of the Borrower.
Except for notices, reports and other documents expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
13.7. Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment
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81
of the Loans) be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of, the Commitments, this
Agreement, any of the other Credit Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
Loans and all other amounts payable hereunder.
13.8. Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Credit Documents. With respect to the Loans made by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Credit Documents as any Lender and may exercise the same as
though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
13.9. Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as "Administrative Agent" under this
Agreement and the other Credit Documents, then the Required Lenders shall
appoint from among the Lenders a successor Administrative Agent for the
Lenders, which successor Administrative Agent (provided that, to the extent
that no Default or Event of Default is continuing at the time of such
appointment, such Administrative Agent shall have been approved by the
Borrower), shall succeed to the rights, powers and duties of the Administrative
Agent hereunder. Effective upon such appointment and approval, the term
"Administrative Agent" shall mean such successor Administrative Agent, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 13 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Credit Documents.
13.10. Documentation Agent and Syndicate Agent. The Documentation
Agent and the Syndication Agent shall have no duties or liabilities under the
Credit Documents in such capacities.
SECTION XIV. MISCELLANEOUS
14.1. Amendments and Waivers. Neither this Agreement nor any other
Credit Document, nor any terms hereof or thereof may be amended, supplemented
or modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Credit
Documents for the purpose of adding any provisions to this Agreement or the
other
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Credit Documents or changing in any manner the rights of the Lenders or of the
Borrower hereunder or thereunder or (b) waive, on such terms and conditions as
the Required Lenders or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Credit Documents or any Default or Event of Default and its consequences;
provided that no such waiver and no such amendment, supplement or modification
shall:
(i) without the consent of each Lender directly affected
thereby, (A) reduce the amount or extend the scheduled date of maturity
of any Loan or of any installment thereof, (B) reduce the stated rate of
any interest or fee payable hereunder or extend the scheduled date of any
payment thereof or (C) increase the amount or extend the expiration date
of any Lender's Commitments;
(ii) without the written consent of all the Lenders, (A)
amend, modify or waive any provision of this subsection, (B) reduce the
percentage specified in the definition of Required Lenders, (C) increase
the percentages set forth as the advance rates in the definition of
"Borrowing Base" contained in subsection 1.1, (D) consent to the
assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Credit Documents or (E)
release all or substantially all of the Collateral or guarantees of the
obligations of the Credit Parties pursuant to the Credit Documents;
(iii) without the prior written consent of the Issuing Lender
with respect thereto, amend, supplement or otherwise modify any
provisions of Section 3 or any other provision directly applicable to any
Letter of Credit;
(iv) amend, modify or waive any provision of Section 6 or any
other provision of this Agreement governing the rights or obligations of
the Swing Line Lender without the written consent of the Swing Line
Lender; or
(v) amend, modify or waive any provision of Section 13
without the written consent of the then Administrative Agent.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Borrower, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Borrower, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the
other Credit Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
14.2. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower, the Issuing Agent and the Administrative
Agent, and as set forth in the case of the other parties hereto, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower: Hedstrom Corporation
585 Slawin Court
Mount Prospect, Illinois 60056-2183
Attention: David F. Crowley
Phone: (847) 803-9200
Fax: (847) 803-1971
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with a copy to: Hedstrom Corporation
Box 432 Sunnyside Road
Bedford, Pennsylvania 15522
Attention: David F. Crowley
Phone: (814) 623-9041
Fax: (814) 623-2651
with a copy to: Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Phone: (214) 740-7300
Fax: (214) 740-7313
with a copy to: Hicks, Muse, Tate & Furst
Incorporated
1325 Avenue of the Americas
New York, New York 10019
Attention: Alan B. Menkes
Phone: (212) 424-4200
Fax: (212) 424-1450
The Administrative Agent Credit Suisse First Boston
and the Issuing Lender: 11 Madison Avenue
New York, New York 10010
Attention: Lisa Perrotto
Phone: (212) 325-9934
Fax: (212) 325-8304
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 3.2, 4.2, 5.2, 6.2, 7.3, 7.4, 7.6 or
7.11(b) shall not be effective until received.
14.3. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Administrative Agent or any Lender,
any right, remedy, power or privilege hereunder or under the other Credit
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power
or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
14.4. Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Credit Documents
and in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
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14.5. Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Credit Documents and any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its reasonable out
of pocket costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Credit Documents and
any such other documents, including, without limitation, the reasonable fees
and disbursements of counsel to the Administrative Agent and after the
occurrence and during the continuance of an Event of Default a single counsel
to the Lenders collectively and of additional counsel to the Administrative
Agent, (c) to pay, indemnify, and hold each Lender and the Administrative
Agent, the Documentation Agent and the Syndication Agent harmless from, any and
all recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other
Credit Documents and any such other documents and (d) to pay, indemnify, and
hold each Lender and the Administrative Agent, the Documentation Agent and the
Syndication Agent harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents, the documentation relating to the
Acquisition and the other transactions contemplated hereby, or the use of the
proceeds of the Loans and other extensions of credit hereunder and any such
other documents, including, without limitation, any of the foregoing relating
to the violation of, noncompliance with or liability under, any Environmental
Law applicable to the operations of the Borrower, any of its Subsidiaries or
any of the Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to the Administrative Agent, the Documentation Agent or the
Syndication Agent or any Lender with respect to indemnified liabilities arising
from the gross negligence or willful misconduct of any such party or, in the
case of any indemnified liabilities arising out of this Agreement or the other
Credit Documents, from the material breach of any indemnified party of this
Agreement or the other Credit Documents, as the case may be, provided, further,
that the Borrower shall have no obligation hereunder with respect to any
Materials of Environmental Concern that are first generated, used,
manufactured, emitted, treated, released or disposed of on any real property
owned, operated or leased by the Borrower or violations of Environmental Laws,
which in either case, first occurs on or with respect to such real property
after the property has been transferred to the Administrative Agent, the
Syndication Agent or any Lender that succeeds or assigns by foreclosure, sale,
deed in lieu of foreclosure or similar transfer, except to the extent actually
caused by the Borrower or its Subsidiaries or either of their agents. The
agreements in this subsection shall survive repayment of the Loans, and all
other amounts payable hereunder.
14.6. Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities
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("Participants") participating interests in any Loan owing to such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Credit Documents. In the event of any such sale by a Lender of
a participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Credit Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Credit
Documents. No Lender shall be entitled to create in favor of any Participant,
in the participation agreement pursuant to which such Participant's
participating interest shall be created or otherwise, any right to vote on,
consent to or approve any matter relating to this Agreement or any other Credit
Document except for those specified in clause (ii) (D) of the proviso to
subsection 14.1 or, to the extent that such Lender would have the right to vote
on any matter specified therein, clause (i) of such proviso. The Borrower
agrees that if amounts outstanding under this Agreement are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 14.7(a)
as fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 7.13, 7.14 and
7.15 with respect to its participation in the Commitments and the Loans
outstanding from time to time as if it was a Lender; provided that, in the case
of subsection 7.14, such Participant shall have complied with the requirements
of said subsection and provided, further, that no Participant shall be entitled
to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to (i) any Lender or any affiliate thereof or (ii) with the
consent of the Administrative Agent and the Borrower (which, in each case,
shall not be unreasonably withheld), to any additional bank or financial
institution or fund (any assignee described in clause (i) or (ii), an
"Assignee") all or any part of its rights and obligations under this Agreement
and the other Credit Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit H, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an Affiliate thereof, by the Administrative Agent and by the Borrower) and
delivered to the Administrative Agent for its acceptance and recording in the
Register, provided that, in the case of any such assignment to an additional
bank or financial institution, the sum of the aggregate principal amount of the
Loans, the aggregate amount of the L/C Obligations and the aggregate amount of
the Available Revolving Credit Commitment being assigned and, if such
assignment is of less than all of the rights and obligations of the assigning
Lender, the sum of the aggregate principal amount of the Loans, the aggregate
amount of the L/C Obligations and the aggregate amount of the Available
Revolving Credit Commitment remaining with the assigning Lender are each not
less than $5,000,000 (or such lesser amount as may be agreed to by the Borrower
and the Administrative Agent). Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and
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Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such
assigning Lender shall cease to be a party hereto).
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
14.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and the Commitments of, and principal amounts of the Loans owing to, each
Lender from time to time and the registered owners of Notes evidencing the
Loans. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Administrative Agent and the Lenders
shall treat each Person whose name is recorded in the Register as the owner of
a Loan or other obligation hereunder as the owner thereof for all purposes of
this Agreement and the other Credit Documents, notwithstanding any notice to
the contrary. No assignment or transfer of any Loan (or portion thereof) or
any Note and the obligations evidenced thereby shall be effected unless and
until it has been recorded in the Register as provided in this subsection
14.6(d). Any assignment or transfer of all or part of any such Loan and the
Note evidencing the same shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing
such Loan, accompanied by a duly executed Assignment and Acceptance, and
thereupon one or more new Notes in the same aggregate principal amount shall be
issued to the designated Assignee and the old Note shall be returned by the
Administrative Agent to the Borrower marked "cancelled". The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Borrower and the Administrative
Agent), together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning the
Borrower and its Affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior to becoming a party
to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
14.7. Adjustments; Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of any of its
Loans or Reimbursement Obligations owing to it under any Commitment, or
interest thereon, pursuant to a guarantee or otherwise, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off
or otherwise), in a greater proportion than any such payment to and collateral
received by any other Lender, if any, in respect of
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such other Lender's Loans or Reimbursement Obligations owing to it under such
Commitment or interest thereon, such benefitted Lender shall purchase for cash
from the other Lender such portion of each such other Lender's similar Loans or
Reimbursement Obligations, or shall provide such other Lender with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders which hold such
Commitment; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. Each Borrower agrees that
each Lender so purchasing a portion of another Lender's Loans or Reimbursement
Obligations may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such purchasing
Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency,
and any other credits, indebtedness or claims, in any currency, in each case
whether direct or indirect, absolute or contingent, matured or unmatured, at
any time held or owing by such Lender or any branch or agency thereof or any
bank controlling such Lender to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
14.8. Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of
the copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
14.9. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.10. Integration. This Agreement and the other Credit Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Credit Documents.
14.11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 93
88
14.12. Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 14.2 or at such other
address of which the Administrative Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
14.13. Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Credit Documents, and
the relationship between Administrative Agent and Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
14.14. WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.15. Confidentiality. Each Lender agrees to keep confidential any
information obtained by it pursuant hereto and the other Credit Documents
identified as confidential in writing at the time of delivery in accordance
with such Lender's customary practices and agrees that it will only use such
<PAGE> 94
89
information in connection with the transactions contemplated by this Agreement
and not disclose any of such information other than (a) to such Lender's
officers, directors, employees, representatives, attorneys, agents or
affiliates who are advised of the confidential nature of such information, (b)
to the extent such information presently is or hereafter becomes available to
such Lender on a non-confidential basis from any source or such information
that is in the public domain at the time of disclosure, (c) to the extent
disclosure is required by law, regulation, subpoena or judicial order or
process (provided that notice of such requirement or order shall be promptly
furnished to the Borrower unless such notice is legally prohibited) or
requested or required by bank regulators or auditors or any administrative
body, commission, or other Governmental Authority to whose jurisdiction such
Lender may be subject, (d) to assignees or participants or potential assignees
or participants or to professional advisors or direct or indirect contractual
counterparties in swap agreements provided in each case such Person agrees to
be bound by the provisions of this subsection 14.15, (e) to the extent required
in connection with any litigation between any Credit Party and any Lender with
respect to the Loans or this Agreement and the other Credit Documents, (f) to
rating agencies, their employees, representatives, attorneys, agents or
affiliates who are advised of the confidential nature of such information and
(g) with the Borrower's prior written consent.
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and Responsible Officers as of
the day and year first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ Andrew S. Rosen
------------------------------------
Title: Vice President
HEDSTROM CORPORATION
By: /s/ Andrew S. Rosen
------------------------------------
Title: Vice President
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By: /s/ Ira Lubinsky
------------------------------------
Title: Vice President
By: /s/ Edward E. Barr
------------------------------------
Title: Associate
CREDIT SUISSE FIRST BOSTON, as a Lender
By: /s/ Ira Lubinsky
------------------------------------
Title: Vice President
By: /s/ Edward E. Barr
------------------------------------
Title: Associate
SOCIETE GENERALE, as Documentation Agent
and as a Lender
By: /s/ Jack Stack
------------------------------------
Title: Vice President
<PAGE> 96
UBS SECURITIES LLC, as Syndication Agent
By: /s/ Jean Smith
-------------------------------------------
Title: Managing Director
By: /s/ Charles Santos-Buch
-------------------------------------------
Title: Managing Director
UNION BANK OF SWITZERLAND, NEW YORK BRANCH,
as a Lender
By: /s/ Renata Jacobson
-------------------------------------------
Title: Vice President
By: /s/ Ruth Webster
-------------------------------------------
Title: Vice President
BANK POLSKA KASA OPIEKI S.A. -
PEKAO S.A. GROUP
By: /s/ Harvey Winter
-------------------------------------------
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Thomas J. Scifo
-------------------------------------------
Title: Assistant Vice President
By: /s/ Anthony Heyman
-------------------------------------------
Title: Assistant Treasurer
CITICORP USA, INC.
By: /s/ Bruce Hall
-------------------------------------------
Title: Vice President
<PAGE> 97
DEEPROCK & COMPANY
By: Eaton Vance Management,
-------------------------------------------
as Investment Advisor
By: /s/ Scott Page
-------------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Kenneth Kramer
-------------------------------------------
Title: Authorized Agent
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial, Inc.,
-------------------------------------------
as Agent/Manager
By: /s/ James W. Wilson
-------------------------------------------
Title: Senior Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ Anne McCarthy
-------------------------------------------
Title: Authorized Signatory
DEBT STRATEGIES FUND, INC.
By: /s/ Anne McCarthy
-------------------------------------------
Title: Authorized Signatory
NATIONAL WESTMINSTER BANK PLC
By: /s/ Edward J. Weld
-------------------------------------------
Title: Vice President
ORIX USA CORPORATION
By: /s/ Hiroyuki Miyauchi
-------------------------------------------
Title: Executive Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/ John P. Thacker
-------------------------------------------
Title: Vice President
<PAGE> 98
EXHIBIT A TO THE
CREDIT AGREEMENT
FORM OF TRANCHE A NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$__________ New York, New York
June 12, 1997
FOR VALUE RECEIVED, the undersigned, HEDSTROM CORPORATION, a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of _____________________(the "Lender") at the office of CREDIT SUISSE
FIRST BOSTON, located at Eleven Madison Avenue, New York, New York 10010, in
lawful money of the United States and in immediately available funds, the
principal amount of _______________________ DOLLARS ($_________), or, if less,
the unpaid principal amount of the Tranche A Loan made by the Lender pursuant
to subsection 2.1 of the Credit Agreement, as hereinafter defined. The
principal amount shall be paid in the amounts and on the dates specified in
subsection 2.3. The Borrower further agrees to pay interest in like money at
such office on the unpaid principal amount hereof from time to time outstanding
at the rates and on the dates specified in subsection 7.8 of such Credit
Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche A Loan and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period with
respect thereto. Each such endorsement shall, in the absence of manifest
error, constitute prima facie evidence of the accuracy of the information
endorsed. The failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Tranche A Loan.
This Note (a) is one of the Tranche A Notes referred to in the Credit
Agreement dated as of June 12, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, the
Lender, the other banks and financial institutions from time to time parties
thereto and Credit Suisse First Boston, as administrative agent, (b) is subject
to the provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit
<PAGE> 99
2
Agreement. This Note is secured and guaranteed as provided in the Credit
Documents. Reference is hereby made to the Credit Documents for a description
of the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the
rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
HEDSTROM CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 100
Schedule A
to Tranche A Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Amount of ABR Loans
Converted to Amount of Principal of Converted to Unpaid Principal Notation Made
Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans Balance of ABR Loans By
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 101
Schedule B
to Tranche A Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Period Amount of Amount of
Amount Converted and Eurodollar Principal of Eurodollar Loans Unpaid Principal
Amount of to Eurodollar Rate with Respect Eurodollar Loans Converted to ABR Balance of Notation
Date Eurodollar Loans Loans Thereto Repaid Loans Eurodollar Loans Made By
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 102
EXHIBIT B TO THE
CREDIT AGREEMENT
FORM OF TRANCHE B NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$__________ New York, New York
June 12, 1997
FOR VALUE RECEIVED, the undersigned, HEDSTROM CORPORATION, a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of _____________________(the "Lender") at the office of Credit Suisse
First Boston, located at Eleven Madison Avenue, New York, New York 10010, in
lawful money of the United States and in immediately available funds, the
principal amount of _______________________ DOLLARS ($_________), or, if less,
the unpaid principal amount of the Tranche B Loan made by the Lender pursuant
to subsection 3.1 of the Credit Agreement, as hereinafter defined. The
principal amount shall be paid in the amounts and on the dates specified in
subsection 3.3. The Borrower further agrees to pay interest in like money at
such office on the unpaid principal amount hereof from time to time outstanding
at the rates and on the dates specified in subsection 7.8 of such Credit
Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche B Loan and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period with
respect thereto. Each such endorsement shall, in the absence of manifest
error, constitute prima facie evidence of the accuracy of the information
endorsed. The failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Tranche B Loan.
This Note (a) is one of the Tranche B Notes referred to in the Credit
Agreement dated as of June 12, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, the
Lender, the other banks and financial institutions from time to time parties
thereto and Credit Suisse First Boston, as administrative agent, (b) is subject
to the provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit
<PAGE> 103
2
Agreement. This Note is secured and guaranteed as provided in the Credit
Documents. Reference is hereby made to the Credit Documents for a description
of the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the
rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
HEDSTROM CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 104
Schedule A
to Tranche B Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Amount of ABR Loans
Converted to Amount of Principal of Converted to Unpaid Principal Notation Made
Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans Balance of ABR Loans By
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 105
Schedule B
to Tranche B Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
Interest Period Amount of Amount of
Amount Converted and Eurodollar Principal of Eurodollar Loans Unpaid Principal
Amount of to Eurodollar Rate with Respect Eurodollar Loans Converted to ABR Balance of Notation
Date Eurodollar Loans Loans Thereto Repaid Loans Eurodollar Loans Made By
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 106
EXHIBIT C TO THE
CREDIT AGREEMENT
FORM OF REVOLVING CREDIT NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
_____________ New York, New York
June 12, 1997
FOR VALUE RECEIVED, the undersigned, HEDSTROM CORPORATION, a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of CITICORP USA, INC. (the "Lender") at the office of Credit Suisse First
Boston, located at Eleven Madison Avenue, New York, New York 10010, in lawful
money of the United States and in immediately available funds, on the
Termination Date the principal amount of (a) __________________________
__________________________________________________________________________
_______________, or, if less, (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Lender to the Borrower pursuant to
subsection 4.1 of the Credit Agreement, as hereinafter defined. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in subsection 7.8 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in
the case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall, in the absence of manifest error,
constitute prima facie evidence of the accuracy of the information endorsed.
The failure to make any such endorsement shall not affect the obligations of
the Borrower in respect of such Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred to in the
Credit Agreement dated as of June 12, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrower, the Lender, the other banks and financial institutions from time to
time parties thereto and Credit Suisse First Boston, as
<PAGE> 107
2
administrative agent, (b) is subject to the provisions of the Credit Agreement
and (c) is subject to optional and mandatory prepayment in whole or in part as
provided in the Credit Agreement. This Note is secured and guaranteed as
provided in the Credit Documents. Reference is hereby made to the Credit
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions upon which the security interests and each
guarantee were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
HEDSTROM CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 108
Schedule A
to Revolving Credit Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Amount Amount of ABR Loans
Converted to Amount of Principal of Converted to Unpaid Principal Notation Made
Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans Balance of ABR Loans By
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 109
Schedule B
to Revolving Credit Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Interest Period Amount of Amount of
Amount Converted and Eurodollar Principal of Eurodollar Loans Unpaid Principal
Amount of to Eurodollar Rate with Respect Eurodollar Loans Converted to ABR Balance of Notation
Date Eurodollar Loans Loans Thereto Repaid Loans Eurodollar Loans Made By
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 110
EXHIBIT D TO THE
CREDIT AGREEMENT
FORM OF SWING LINE NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
New York, New York
$____________ June 12, 1997
FOR VALUE RECEIVED, the undersigned, HEDSTROM CORPORATION, a
Delaware corporation (the "Borrower"), hereby unconditionally promises to pay
to the order of CREDIT SUISSE FIRST BOSTON (the "Swing Line Lender") at its
office located at Eleven Madison Avenue, New York, New York 10010, in lawful
money of the United States and in immediately available funds, on the
Termination Date, as defined in the Credit Agreement referred to below, the
principal amount of (a) _______________________ DOLLARS ($____________), or if
less, (b) the aggregate unpaid principal amount of all Swing Line Loans made by
the Swing Line Lender to the Borrower pursuant to subsection 6.1 of the Credit
Agreement, as hereinafter defined. The Borrower further agrees to pay interest
in like money at such office on the unpaid principal amount hereof from time to
time outstanding at the rates and on the dates specified in subsection 7.8 of
the Credit Agreement.
The holder of this Swing Line Note is authorized to endorse on
the schedule annexed hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof the date and amount of
each Swing Line Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of the principal thereof and each
continuation thereof. Each such endorsement shall, in the absence of manifest
error, constitute prima facie evidence of the accuracy of the information
endorsed. The failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Swing Line Loan.
This Swing Line Note (a) is the Swing Line Note referred to in
the Credit Agreement, dated as of June 12, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrower, the Swing Line Lender, the other banks and financial institutions
from time to time parties thereto and Credit Suisse First Boston, as
administrative agent, (b) is subject to the provisions of the Credit Agreement
and (c) is subject to optional and mandatory prepayment in whole or in part as
provided in the Credit Agreement. This Swing Line Note is secured and
guaranteed as provided in the Credit Documents. Reference is hereby made to
the Credit Documents for a description of
<PAGE> 111
2
the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the
rights of the holder of this Swing Line Note in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Swing Line Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this
Swing Line Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all other notices of
any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
HEDSTROM CORPORATION
By:
------------------------------------
Name:
Title:
<PAGE> 112
Schedule A
to Swing Line Note
LOANS AND REPAYMENTS OF SWING LINE LOANS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Unpaid
Amount of Swing Amount of Swing Principal Balance Notation
Date Line Loans Made Line Loans Repaid of Swing Line Loans Made By
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.6
MASTER GUARANTEE AND COLLATERAL AGREEMENT
MASTER GUARANTEE AND COLLATERAL AGREEMENT, dated as of June
12, 1997, made by each of the signatories hereto (together with any other
entity that may become a party hereto as provided herein, the "Grantors"), in
favor of CREDIT SUISSE FIRST BOSTON, as Administrative Agent (in such capacity,
the "Administrative Agent") for the banks and other financial institutions or
entities (the "Lenders") from time to time parties to the Credit Agreement,
dated as of June 12, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among HEDSTROM CORPORATION (the
"Borrower"), the Lenders and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of
companies that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the
Credit Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in
related businesses, and each Grantor will derive substantial direct and
indirect benefit from the making of the extensions of credit under the Credit
Agreement; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective extensions of credit to the Borrower under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce
the Administrative Agent and the Lenders to enter into the Credit Agreement and
to induce the Lenders to make their respective extensions of credit to the
Borrower thereunder, each Grantor hereby agrees with the Administrative Agent,
for the ratable benefit of the Lenders, as follows:
<PAGE> 2
2
SECTION 1. DEFINED TERMS
1.1. Definitions. (a) Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement, and the following terms which are
defined in the Uniform Commercial Code in effect in the State of New York on
the date hereof are used herein as so defined: Accounts, Chattel Paper,
Documents, Equipment, Farm Products, Instruments and Inventory.
(b) The following terms shall have the following meanings:
"Agreement": this Master Guarantee and Collateral Agreement,
as the same may be amended, supplemented or otherwise modified from
time to time.
"Borrower Obligations": the collective reference to the
unpaid principal of and interest on the Loans and Reimbursement
Obligations and all other obligations and liabilities of the Borrower
(including, without limitation, interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of
the Loans and Reimbursement Obligations and interest accruing at the
then applicable rate provided in the Credit Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in
such proceeding) to the Administrative Agent or any Lender (or, in the
case of any Hedge Agreement referred to below, any Affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, this
Agreement, the other Credit Documents, any Letter of Credit or any
Hedge Agreement entered into by the Borrower with any Lender (or any
Affiliate of any Lender) or any other document made, delivered or
given in connection therewith, in each case whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all
reasonable fees and disbursements of counsel to the Administrative
Agent or to the Lenders that are required to be paid by the Borrower
pursuant to the terms of any of the foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by
the Administrative Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of
the United States, any other country or any political subdivision
thereof, whether registered or unregistered and whether published or
unpublished (including, without limitation, those listed in Schedule
6), all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, all
registrations, recordings and applications in the United States
Copyright Office, and (ii) the right to obtain all renewals thereof.
<PAGE> 3
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"Copyright Licenses": any written agreement naming any
Grantor as licensor or licensee (including, without limitation, those
listed in Schedule 6), granting any right under any Copyright,
including, without limitation, the grant of rights to manufacture,
distribute, exploit and sell materials derived from any Copyright.
"Foreign Issuer": any Issuer organized under the laws of any
jurisdiction outside the United States.
"General Intangibles": all "general intangibles" as such term
is defined in Section 9-106 of the Uniform Commercial Code in effect
in the State of New York on the date hereof and, in any event,
including, without limitation, with respect to any Grantor, all
contracts, agreements, instruments and indentures in any form, and
portions thereof, to which such Grantor is a party or under which such
Grantor has any right, title or interest or to which such Grantor or
any property of such Grantor is subject, as the same may from time to
time be amended, supplemented or otherwise modified, including,
without limitation, (i) all rights of such Grantor to receive moneys
due and to become due to it thereunder or in connection therewith,
(ii) all rights of such Grantor to damages arising thereunder and
(iii) all rights of such Grantor to perform and to exercise all
remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its
right, title and interest in such contract, agreement, instrument or
indenture is not prohibited by such contract, agreement, instrument or
indenture without the consent of any other party thereto, would not
give any other party to such contract, agreement, instrument or
indenture the right to terminate its obligations thereunder, or is
permitted with consent if all necessary consents to such grant of a
security interest have been obtained from the other parties thereto
(it being understood that the foregoing shall not be deemed to
obligate such Grantor to obtain such consents); provided that the
foregoing limitation shall not affect, limit, restrict or impair the
grant by such Grantor of a security interest pursuant to this
Agreement in any Receivable or any money or other amounts due or to
become due under any such contract, agreement, instrument or
indenture.
"Guarantor Obligations": with respect to any Guarantor, the
collective reference to (i) such Guarantor's guarantee of the Borrower
Obligations pursuant to Section 2 hereof and (ii) all obligations and
liabilities of such Guarantor which may arise under or in connection
with this Agreement or any other Credit Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all reasonable
fees and disbursements of counsel to the Administrative Agent or to
the Lenders that are required to be paid by such Guarantor pursuant to
the terms of this Agreement or any other Credit Document).
"Guarantors": the collective reference to each Grantor other
than the Borrower.
<PAGE> 4
4
"Hedge Agreements": as to any Person, all interest rate
swaps, caps or collar agreements or similar arrangements entered into
by such Person, providing for protection against fluctuations in
interest rates or currency exchange rates or the exchange of nominal
interest obligations, either generally or under specific
contingencies.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, the Copyrights, the
Copyright Licenses, the Patents, the Patent Licenses, the Trademarks
and the Trademark Licenses, and all rights to sue at law or in equity
for any infringement or other impairment thereof, including the right
to receive all proceeds and damages therefrom.
"Intercompany Note": any promissory note evidencing loans
made by any Grantor to the Parent or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a
Pledged Security.
"New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any
other country or any political subdivision thereof, all reissues and
extensions thereof and all goodwill associated therewith, including,
without limitation, any of the foregoing referred to in Schedule 6,
(ii) all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-
part thereof, including, without limitation, any of the foregoing
referred to in Schedule 6, and (iii) all rights to obtain any reissues
or extensions of the foregoing.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to any Grantor of any right to
manufacture, use or sell any invention covered in whole or in part by
a Patent, including, without limitation, any of the foregoing referred
to in Schedule 6.
"Pledged Notes": all promissory notes listed on Schedule 2,
all Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than
promissory notes issued in connection with extensions of trade credit
by any Grantor in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged
Notes and the Pledged Stock.
<PAGE> 5
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"Pledged Stock": the shares of Capital Stock listed on
Schedule 2, together with any other shares, stock certificates,
options or rights of any nature whatsoever in respect of the Capital
Stock of any Subsidiary that may be issued or granted to, or held by,
any Grantor while this Agreement is in effect; provided that in no
event shall any Grantor be required to pledge more than 65% of the
Capital Stock of any Foreign Issuer.
"Proceeds": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New
York on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Securities,
collections thereon or distributions or payments with respect thereto.
"Receivable": any right to payment for goods sold or leased
or for services rendered, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Subsidiary Guarantor": each of the Subsidiaries of the
Borrower which is a party to this Agreement.
"Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common-law rights related
thereto, including, without limitation, any of the foregoing referred
to in Schedule 6, and (ii) the right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing
referred to in Schedule 6.
1.2. Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section and Schedule references are
to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
<PAGE> 6
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(c) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Grantor, shall refer
to such Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1. Guarantee. (a) Each of the Guarantors hereby, jointly
and severally, unconditionally and irrevocably, guarantees to the
Administrative Agent, for the ratable benefit of the Lenders and their
respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Credit Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Credit Documents shall in no event exceed the amount which can
be guaranteed by such Guarantor under applicable federal and state laws
relating to the insolvency of debtors (after giving effect to the right of
contribution established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may
at any time and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained in this Section 2
or affecting the rights and remedies of the Administrative Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in
full force and effect until all the Borrower Obligations and the obligations of
each Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Borrower may be free from any Borrower
Obligations.
(e) No payment made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrower, any of the Guarantors,
any other guarantor or any other Person by virtue of any action or proceeding
or any set-off or appropriation or application at any time or from time to time
in reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid
in full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2. Right of Contribution. Each Subsidiary Guarantor hereby
agrees that to the extent that a Subsidiary Guarantor shall have paid more than
its proportionate share of
<PAGE> 7
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any payment made hereunder, such Subsidiary Guarantor shall be entitled to seek
and receive contribution from and against any other Subsidiary Guarantor
hereunder which has not paid its proportionate share of such payment. Each
Subsidiary Guarantor's right of contribution shall be subject to the terms and
conditions of Section 2.3. The provisions of this Section 2.2 shall in no
respect limit the obligations and liabilities of any Subsidiary Guarantor to
the Administrative Agent and the Lenders, and each Subsidiary Guarantor shall
remain liable to the Administrative Agent and the Lenders for the full amount
guaranteed by such Subsidiary Guarantor hereunder.
2.3. No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower
on account of the Borrower Obligations are paid in full, no Letter of Credit
shall be outstanding and the Commitments are terminated. If any amount shall
be paid to any Guarantor on account of such subrogation rights at any time when
all of the Borrower Obligations shall not have been paid in full, such amount
shall be held by such Guarantor in trust for the Administrative Agent and the
Lenders, segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Administrative Agent in
the exact form received by such Guarantor (duly indorsed by such Guarantor to
the Administrative Agent, if required), to be applied against the Borrower
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may, in its reasonable judgment, determine.
2.4. Amendments, etc. with respect to the Borrower
Obligations. Each Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against any Guarantor and without
notice to or further assent by any Guarantor, any demand for payment of any of
the Borrower Obligations made by the Administrative Agent or any Lender may be
rescinded by the Administrative Agent or such Lender and any of the Borrower
Obligations continued, and the Borrower Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and the Credit Agreement and the other Credit Documents
and any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Administrative Agent (or the Required Lenders or all Lenders, as the case may
be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Administrative Agent or
any Lender for the payment of the Borrower Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Administrative Agent nor any
Lender shall have any obligation to protect, secure, perfect or insure any Lien
at any
<PAGE> 8
8
time held by it as security for the Borrower Obligations or for the guarantee
contained in this Section 2 or any property subject thereto.
2.5. Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Borrower Obligations and notice of or proof of reliance by the
Administrative Agent or any Lender upon the guarantee contained in this Section
2 or acceptance of the guarantee contained in this Section 2; the Borrower
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon the guarantee contained in this Section 2; and all dealings
between the Borrower and any of the Guarantors, on the one hand, and the
Administrative Agent and the Lenders, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 2. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or any of the Guarantors with respect to the Borrower
Obligations. Each Guarantor understands and agrees that the guarantee
contained in this Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Credit Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent or any Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower or any other Person against
the Administrative Agent or any Lender, other than payment in full of the
Borrower Obligations or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or such Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Borrower for the Borrower Obligations, or of such Guarantor under the guarantee
contained in this Section 2, in bankruptcy or in any other instance. When
making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Guarantor, the Administrative Agent or any Lender may,
but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrower, any other
Guarantor or any other Person or against any collateral security or guarantee
for the Borrower Obligations or any right of offset with respect thereto, and
any failure by the Administrative Agent or any Lender to make any such demand,
to pursue such other rights or remedies or to collect any payments from the
Borrower, any other Guarantor or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or
any release of the Borrower, any other Guarantor or any other Person or any
such collateral security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any Lender against any Guarantor.
For the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
2.6. Reinstatement. The guarantee contained in this Section
2 shall continue to be effective, or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any of the Borrower Obligations is
rescinded or must otherwise be restored or
<PAGE> 9
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returned by the Administrative Agent or any Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made.
2.7. Payments. Each Guarantor hereby guarantees that
payments hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at
Eleven Madison Avenue, New York, New York 10010.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the
Administrative Agent, and hereby grants to the Administrative Agent, for the
ratable benefit of the Lenders, a security interest in, all of the following
property now owned or at any time hereafter acquired by such Grantor or in
which such Grantor now has or at any time in the future may acquire any right,
title or interest (collectively, the "Collateral"), as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of such Grantor's Obligations; provided
that prior to the consummation of the Merger, the Collateral of ERO and its
Subsidiaries (other than any Capital Stock issued by ERO, which shall be
collateral security for all of the Obligations) shall only be collateral
security for the prompt and complete payment of Specified Loans:
(a) all Accounts;
(b) all Chattel Paper;
(c) any Collateral Account;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Intellectual Property;
(i) all Inventory;
(j) all Pledged Securities;
(k) all books and records pertaining to the Collateral; and
<PAGE> 10
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(l) to the extent not otherwise included, all Proceeds,
investment securities and products of any and all of the foregoing and
all collateral security and guarantees given by any Person with
respect to any of the foregoing.
(m) Notwithstanding the foregoing, "Collateral" shall not
include, with respect to any Grantor, any General Intangible or
Intellectual Property to the extent the grant by such Grantor of a
security interest pursuant to this Agreement in its rights under such
General Intangible or Intellectual Property, as the case may be, is
prohibited by such General Intangible or Intellectual Property, as the
case may be, and the consent of applicable Persons has not been
obtained, provided that the foregoing limitation shall not affect,
limit, restrict or impair the grant by such Grantor of a security
interest pursuant to this Agreement in any Account or any money or
other amounts due or to become due under such General Intangible or
Intellectual Property, as the case may be, to the extent provided in
Section 9-318 of the New York UCC as in effect on the date hereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrower thereunder, each Grantor hereby represents
and warrants to the Administrative Agent and each Lender that:
4.1. Representations in Credit Agreement. In the case of
each Guarantor, the representations and warranties set forth in the Credit
Agreement as they relate to such Guarantor or to the Credit Documents to which
such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Administrative Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty
to the Borrower's knowledge shall, for the purposes of this Section 4.1, be
deemed to be a reference to such Guarantor's knowledge.
4.2. Pledged Securities. (a) The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares of all classes of the Capital Stock of each Issuer owned by such
Grantor, except in respect to the Capital Stock of a Foreign Issuer, in which
case, such Grantor pledges no more than 65% of the Capital Stock of such
Foreign Issuer owned by Grantor.
(b) All the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable.
(c) To the knowledge of Grantor, each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting
<PAGE> 11
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creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
(d) Such Grantor is the record and beneficial owner of, and
has good and marketable title to, the Pledged Securities pledged by it
hereunder, free of any and all Liens or options in favor of, or claims of, any
other Person, except the security interest created by this Agreement.
4.3. ERO Acquisition Corporation. ERO Acquisition
Corporation does not conduct any business and does not own any assets.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments shall have terminated:
5.1. Covenants in Credit Agreement. In the case of each
Guarantor, such Guarantor shall take, or shall refrain from taking, as the case
may be, each action that is necessary to be taken or not taken, as the case may
be, so that no Default or Event of Default is caused by the failure to take
such action or to refrain from taking such action by such Guarantor or any of
its Subsidiaries.
5.2. Maintenance of Insurance. Such Grantor will maintain
insurance policies insuring the Inventory and Equipment pursuant to and in
accordance with the Credit Agreement.
5.3. Payment of Obligations. Such Grantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if the amount or validity
thereof is currently being contested in good faith by appropriate proceedings,
reserves in conformity with GAAP with respect thereto have been provided on the
books of such Grantor and such proceedings could not reasonably be expected to
result in the sale, forfeiture or loss of any material portion of the
Collateral or any interest therein.
5.4. Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Grantor shall maintain the security interest created
by this Agreement as a perfected security interest having at least the priority
described in subsection 8.16(a) of the Credit Agreement and shall defend such
security interest against the claims and demands of all Persons whomsoever.
<PAGE> 12
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(b) Such Grantor will furnish to the Administrative Agent and
the Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in
reasonable detail.
(c) At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of such Grantor,
such Grantor will promptly and duly execute and deliver, and have recorded,
such further instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby.
5.5. Pledged Securities. (a) If such Grantor shall become
entitled to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Administrative Agent and the Lenders, hold the same in
trust for the Administrative Agent and the Lenders and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power covering such certificate duly executed in blank by such
Grantor to be held by the Administrative Agent, subject to the terms hereof, as
additional collateral security for the Obligations; provided that in no event
shall such Grantor be required to pledge more than 65% of the Capital Stock of
any Foreign Issuer. Any sums paid upon or in respect of the Pledged Securities
upon the liquidation or dissolution of any Issuer shall be paid over to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations, and in case any distribution of capital shall be
made on or in respect of the Pledged Securities or any property shall be
distributed upon or with respect to the Pledged Securities pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant
to the reorganization thereof, the property so distributed shall, unless
otherwise subject to a perfected security interest in favor of the
Administrative Agent, be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations. If any sums
of money or property so paid or distributed in respect of the Pledged
Securities shall be received by such Grantor, such Grantor shall, until such
money or property is paid or delivered to the Administrative Agent, hold such
money or property in trust for the Lenders, segregated from other funds of such
Grantor, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Administrative
Agent, such Grantor will not, except as otherwise explicitly permitted in the
Credit Agreement, (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right
<PAGE> 13
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to purchase or exchange for any stock or other equity securities of any nature
of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of,
or grant any option with respect to, the Pledged Securities or Proceeds thereof
(except pursuant to a transaction expressly permitted by the Credit Agreement),
or (iii) enter into any agreement or undertaking restricting the right or
ability of such Grantor or the Administrative Agent to sell, assign or transfer
any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such
Grantor agrees that (i) it will be bound by the terms of this Agreement
relating to the Pledged Securities issued by it and will comply with such terms
insofar as such terms are applicable to it, (ii) it will notify the
Administrative Agent promptly in writing of the occurrence of any of the events
described in Section 5.5(a) with respect to the Pledged Securities issued by it
and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatis
mutandis, with respect to all actions that may be required of it pursuant to
Section 6.3(c) or 6.7 with respect to the Pledged Securities issued by it.
5.6. Receivables. Other than in the ordinary course of
business, such Grantor will not (i) grant any extension of the time of payment
of any Receivable, (ii) compromise or settle any Receivable for less than the
full amount thereof, (iii) release, wholly or partially, any Person liable for
the payment of any Receivable, (iv) allow any credit or discount whatsoever on
any Receivable or (v) amend, supplement or modify any Receivable in any manner
that could materially adversely affect the value thereof.
5.7. Intellectual Property. (a) Such Grantor (either itself
or through licensees) will (i) continue to use each material Trademark on each
and every trademark class of goods applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Administrative Agent, for the ratable
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become materially invalidated or impaired.
(b) Such Grantor (either itself or through licensees) will
not do any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i)
will employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material portion of such Copyrights may become invalidated or
otherwise impaired. Such Grantor will not (either itself or through licensees)
do any act whereby any material portion of the Copyrights may fall into the
public domain.
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(d) Such Grantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the material Intellectual
Property, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
(e) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall take
such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property.
SECTION 6. REMEDIAL PROVISIONS
6.1. Certain Matters Relating to Receivables. (a) At any
time after the occurrence and during the continuance of an Event of Default:
(i) the Administrative Agent shall have the right to make test verifications of
the Receivables in any manner and through any medium that it reasonably
considers advisable, and each Grantor shall furnish all such assistance and
information as the Administrative Agent may require in connection with such
test verifications, and (ii) upon the Administrative Agent's reasonable request
and at the expense of the relevant Grantor, such Grantor shall cause
independent public accountants or others satisfactory to the Administrative
Agent to furnish to the Administrative Agent reports showing reconciliations,
aging and test verifications of, and trial balances for, the Receivables.
(b) The Administrative Agent hereby authorizes each Grantor
to collect such Grantor's Receivables, subject to the Administrative Agent's
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of
an Event of Default. If required by the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, any payments
of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in
any event, within two Business Days) deposited by such Grantor in the exact
form received, duly indorsed by such Grantor to the Administrative Agent if
required, in a Collateral Account maintained under the sole dominion and
control of the Administrative Agent, subject to withdrawal by the
Administrative Agent for the account of the Lenders only as provided in Section
6.5, and (ii) until so turned over, shall be held by such Grantor in trust for
the Administrative Agent and the Lenders, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by
a report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At any time after the occurrence and during the
continuance of an Event of Default: at the Administrative Agent's request, each
Grantor shall deliver to the Administrative Agent all original and other
documents evidencing, and relating to, the
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agreements and transactions which gave rise to the Receivables, including,
without limitation, all original orders, invoices and shipping receipts.
6.2. Communications with Obligors; Grantors Remain Liable.
(a) The Administrative Agent in its own name or in the name of others may at
any time after the occurrence and during the continuance of an Event of Default
communicate with obligors under the Receivables to verify with them to the
Administrative Agent's reasonable satisfaction the existence, amount and terms
of any Receivables.
(b) Upon the request of the Administrative Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Receivables that the Receivables have been
assigned to the Administrative Agent for the ratable benefit of the Lenders and
that payments in respect thereof shall be made directly to the Administrative
Agent.
(c) Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Receivables to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Administrative Agent nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Administrative Agent or any Lender of any payment relating thereto, nor shall
the Administrative Agent or any Lender be obligated in any manner to perform
any of the obligations of any Grantor under or pursuant to any Receivable (or
any agreement giving rise thereto), to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party thereunder, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
6.3. Pledged Stock. (a) Unless an Event of Default shall
have occurred and be continuing and the Administrative Agent shall have given
notice to the relevant Grantor of the Administrative Agent's intent to exercise
its corresponding rights pursuant to Section 6.3(b), each Grantor shall be
permitted to receive all cash dividends paid in respect of the Pledged Stock
and all payments made in respect of the Pledged Notes, to the extent permitted
in the Credit Agreement, and to exercise all voting and corporate rights with
respect to the Pledged Securities; provided that no vote shall be cast or
corporate right exercised or other action taken which, in the Administrative
Agent's reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Credit Document.
(b) If an Event of Default shall occur and be continuing and
the Administrative Agent shall give notice of its intent to exercise such
rights to the relevant Grantor or Grantors (i) the Administrative Agent shall
have the right to receive any and all cash dividends, payments or other
Proceeds paid in respect of the Pledged Securities and make application thereof
to the Obligations in such order as the Administrative Agent may, in its
reasonable judgment, determine, and (ii) any or all of the Pledged Securities
shall be
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registered in the name of the Administrative Agent or its nominee, and the
Administrative Agent or its nominee may thereafter exercise (x) all voting,
corporate and other rights pertaining to such Pledged Securities at any meeting
of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and
all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Pledged Securities as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of any Issuer, or upon the exercise by any Grantor or
the Administrative Agent of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege
or option and shall not be responsible for any failure to do so or delay in so
doing.
(c) Each Grantor hereby authorizes and instructs each Issuer
of any Pledged Securities pledged by such Grantor hereunder to (i) comply with
any instruction received by it from the Administrative Agent in writing that
(x) states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each
Issuer shall be fully protected in so complying, and (ii) unless otherwise
expressly permitted hereby, pay any dividends or other payments with respect to
the Pledged Securities directly to the Administrative Agent.
6.4. Proceeds to be Turned Over To Administrative Agent. In
addition to the rights of the Administrative Agent and the Lenders specified in
Section 6.1 with respect to payments of Receivables, if an Event of Default
shall occur and be continuing, all Proceeds received by any Grantor consisting
of cash, checks and other near-cash items shall be held by such Grantor in
trust for the Administrative Agent and the Lenders, segregated from other funds
of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned
over to the Administrative Agent in the exact form received by such Grantor
(duly indorsed by such Grantor to the Administrative Agent, if required). All
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a
Collateral Account (or by such Grantor in trust for the Administrative Agent
and the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 6.5.
6.5. Application of Proceeds. At such intervals as may be
agreed upon by the Borrower and the Administrative Agent, or, if an Event of
Default shall have occurred and be continuing, at any time at the
Administrative Agent's election, the Administrative Agent may apply all or any
part of Proceeds held in any Collateral Account in payment of the Obligations
in such order as the Administrative Agent, in its reasonable judgment, may
<PAGE> 17
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elect, and any part of such funds which the Administrative Agent elects not so
to apply and deems not required as collateral security for the Obligations
shall be paid over from time to time by the Administrative Agent to the
Borrower or to whomsoever may be lawfully entitled to receive the same. Any
balance of such Proceeds remaining after the Obligations shall have been paid
in full, no Letters of Credit shall be outstanding and the Commitments shall
have terminated shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive the same.
6.6. Code and Other Remedies. If an Event of Default shall
occur and be continuing, the Administrative Agent, on behalf of the Lenders,
may exercise, in addition to all other rights and remedies granted to them in
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the New York UCC or any other applicable law. Without limiting the generality
of the foregoing, the Administrative Agent, without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon any Grantor or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase,
or otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of the
Administrative Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in any Grantor, which right or equity is
hereby waived and released. Each Grantor further agrees, at the Administrative
Agent's request, to assemble the Collateral and make it available to the
Administrative Agent at places which the Administrative Agent shall reasonably
select, whether at such Grantor's premises or elsewhere. The Administrative
Agent shall apply the net proceeds of any action taken by it pursuant to this
Section 6.6, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of
any of the Collateral or in any way relating to the Collateral or the rights of
the Administrative Agent and the Lenders hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Administrative Agent
may, in its reasonable judgment, elect, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
New York UCC, need the Administrative Agent account for the surplus, if any, to
any Grantor. To the extent permitted by applicable law, each Grantor waives
all claims, damages and demands it may acquire against the Administrative Agent
or any Lender arising out of the exercise by them of any rights hereunder. If
any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition.
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6.7. Registration Rights. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to Section 6.6, and if in the opinion of the Administrative Agent it
is necessary or advisable to have the Pledged Stock, or that portion thereof to
be sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as
may be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering
of the Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the reasonable
opinion of the Administrative Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Grantor agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) Each Grantor recognizes that the Administrative Agent may
be unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this Section 6.7
valid and binding and in compliance with any and all other applicable
Requirements of Law. Each Grantor further agrees that a breach of any of the
covenants contained in this Section 6.7 will cause irreparable injury to the
Administrative Agent and the Lenders, that the Administrative Agent and the
Lenders have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 6.7 shall
be specifically enforceable against such Grantor, and such Grantor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no Event of Default has
occurred under the Credit Agreement.
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6.8. Waiver; Deficiency. Each Grantor waives and agrees not
to assert any rights or privileges which it may acquire under Section 9-112 of
the New York UCC. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay its Obligations and the fees and disbursements of any attorneys employed by
the Administrative Agent or any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1. Administrative Agent's Appointment as Attorney-in-Fact,
etc. (a) Each Grantor hereby irrevocably constitutes and appoints the
Administrative Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be reasonably necessary or desirable to
accomplish the purposes of this Agreement, and, without limiting the generality
of the foregoing, each Grantor hereby gives the Administrative Agent the power
and right, on behalf of such Grantor, without notice to or assent by such
Grantor, to do any or all of the following:
(i) in the name of such Grantor or its own name, or
otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Receivable or with respect to any other
Collateral and file any claim or take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any and all such
moneys due under any Receivable or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and
deliver, and have recorded, any and all agreements, instruments,
documents and papers as the Administrative Agent may request to
evidence the Administrative Agent's and the Lenders' security interest
in such Intellectual Property and the goodwill and general intangibles
of such Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral, effect any repairs or any
insurance called for by the terms of this Agreement and pay all or any
part of the premiums therefor and the costs thereof; provided that (i)
if any tax is the subject of a protest permitted hereunder or under
the Credit Agreement and (ii) such tax could not have a material
adverse effect on the value of the Collateral to the Administrative
Agent and the Lenders, then the Administrative Agent shall not
prejudice Grantor's rights to contest such tax;
(iv) execute, in connection with any sale provided for in
Section 6.6 or 6.7, any indorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral; and
<PAGE> 20
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(v) (i) direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Administrative Agent or as the
Administrative Agent shall direct; (ii) ask or demand for, collect,
and receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or
arising out of any Collateral; (iii) sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (iv)
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (v) defend any suit, action or proceeding
brought against such Grantor with respect to any Collateral; (vi)
settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, give such discharges or releases as the
Administrative Agent may deem appropriate; (vii) assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which
any such Copyright, Patent or Trademark pertains), throughout the
world for such term or terms, on such conditions, and in such manner,
as the Administrative Agent shall in its reasonable discretion
determine; and (viii) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Administrative Agent were the
absolute owner thereof for all purposes, and do, at the Administrative
Agent's option and such Grantor's expense, at any time, or from time
to time, all acts and things which the Administrative Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Administrative Agent's and the Lenders' security interests therein and
to effect the intent of this Agreement, all as fully and effectively
as such Grantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the
power of attorney provided for in this Section 7.1(a) unless an Event of
Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in
connection with actions undertaken as provided in this Section 7.1, together
with interest thereon at a rate per annum equal to the rate per annum at which
interest would then be payable on past due ABR Loans under the Credit
Agreement, from the date of payment by the Administrative Agent to the date
reimbursed by the relevant Grantor, shall be payable by such Grantor to the
Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. All powers,
authorizations and agencies contained in this
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Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.
7.2. Duty of Administrative Agent. The Administrative
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
New York UCC or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar property for its own account. Neither
the Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct
or their breach of a Credit Document to which they are a party.
7.3. Execution of Financing Statements. Pursuant to Section
9-402 of the New York UCC and any other applicable law, each Grantor authorizes
the Administrative Agent to file or record financing statements and other
filing or recording documents or instruments with respect to the Collateral
without the signature of such Grantor in such form and in such offices as the
Administrative Agent reasonably determines appropriate to perfect the security
interests of the Administrative Agent under this Agreement. A photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement or other filing or recording document or instrument for filing or
recording in any jurisdiction.
7.4. Authority of Administrative Agent. Each Grantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and
by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Administrative Agent and the Grantors, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
no Grantor shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
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SECTION 8. MISCELLANEOUS
8.1. Amendments in Writing. None of the terms or provisions
of this Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with subsection 14.1 of the Credit Agreement.
8.2. Notices. All notices, requests and demands to or upon
the Administrative Agent or any Grantor hereunder shall be effected in the
manner provided for in subsection 14.2 of the Credit Agreement; provided that
any such notice, request or demand to or upon any Guarantor shall be addressed
to such Guarantor at its notice address set forth on Schedule 1.
8.3. No Waiver by Course of Conduct; Cumulative Remedies.
Neither the Administrative Agent nor any Lender shall by any act (except by a
written instrument pursuant to Section 8.1), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which the Administrative Agent or such Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
8.4. Enforcement Expenses; Indemnification. (a) Each
Guarantor agrees to pay or reimburse each Lender and the Administrative Agent
for all its costs and expenses incurred in collecting against such Guarantor
under the guarantee contained in Section 2 or otherwise enforcing or preserving
any rights under this Agreement and the other Credit Documents to which such
Guarantor is a party, including, without limitation, the reasonable fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent.
(b) Each Guarantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.
(c) Each Guarantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement to the extent the Borrower would be required to do so pursuant to
subsection 14.5 of the Credit Agreement.
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(d) The agreements in this Section 8.4 shall survive
repayment of the Obligations and all other amounts payable under the Credit
Agreement and the other Credit Documents.
8.5. Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Administrative Agent and the Lenders and their successors and assigns;
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6. Set-Off. Each Grantor hereby irrevocably authorizes the
Administrative Agent and each Lender at any time and from time to time while an
Event of Default shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender or any bank controlling any
Lender to or for the credit or the account of such Grantor, or any part thereof
in such amounts as the Administrative Agent or such Lender may elect, against
and on account of the obligations and liabilities of such Grantor to the
Administrative Agent or such Lender hereunder and claims of every nature and
description of the Administrative Agent or such Lender against such Grantor, in
any currency, whether arising hereunder, under the Credit Agreement, any other
Credit Document or otherwise, as the Administrative Agent or such Lender may
elect, whether or not the Administrative Agent or any Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent and each Lender shall notify
such Grantor promptly of any such set-off and the application made by the
Administrative Agent or such Lender of the proceeds thereof, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent and each Lender under this
Section 8.6 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Administrative Agent or such
Lender may have.
8.7. Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.8. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE> 24
24
8.9. Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
8.10. Integration. This Agreement and the other Credit
Documents represent the agreement of the Grantors, the Administrative Agent and
the Lenders with respect to the subject matter hereof and thereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Credit
Documents.
8.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
8.12. Submission To Jurisdiction; Waivers. Each Grantor
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Credit
Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Grantor at its address referred to in Section 8.2 or
at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
<PAGE> 25
25
8.13. Acknowledgements. Each Grantor hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Credit
Documents to which it is a party;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to any Grantor arising out of or
in connection with this Agreement or any of the other Credit
Documents, and the relationship between the Grantors, on the one hand,
and the Administrative Agent and Lenders, on the other hand, in
connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Grantors and the
Lenders.
8.14. WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
8.15. Additional Grantors. Each Subsidiary of the Borrower
that is required to become a party to this Agreement pursuant to subsection
10.10 of the Credit Agreement shall become a Grantor for all purposes of this
Agreement upon execution and delivery by such Subsidiary of an Assumption
Agreement in the form of Annex 1 hereto.
8.16. Releases. (a) At such time as the Loans, the
Reimbursement Obligations and the other Obligations shall have been paid in
full, the Commitments have been terminated and no Letters of Credit shall be
outstanding, the Collateral shall be released from the Liens created hereby,
and this Agreement and all obligations (other than those expressly stated to
survive such termination) of the Administrative Agent and each Grantor
hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantors. At the request and sole expense of any Grantor
following any such termination, the Administrative Agent shall deliver to such
Grantor any Collateral held by the Administrative Agent hereunder, and execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the Credit
Agreement, then the Administrative Agent, at the request and sole expense of
such Grantor, shall execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral. At the request and sole expense of the
Borrower, a Subsidiary Guarantor shall be released from its obligations
hereunder in the event that all the Capital Stock of such Subsidiary Guarantor
shall be sold, transferred or otherwise disposed of in a transaction permitted
by the Credit Agreement.
<PAGE> 26
26
IN WITNESS WHEREOF, each of the undersigned has caused this
Master Guarantee and Collateral Agreement to be duly executed and delivered as
of the date first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
HEDSTROM CORPORATION
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
ERO, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
ERO INDUSTRIES, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
<PAGE> 27
27
ERO MARKETING, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
PRISS PRINTS, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
IMPACT, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
ERO CANADA, INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
AMAV INDUSTRIES INC.
By: /s/ ANDREW S. ROSEN
------------------------------
Name: Andrew S. Rosen
Title: Vice President
<PAGE> 28
Schedule 1
NOTICE ADDRESSES OF GUARANTORS
Guarantors
----------
Hedstrom Holdings, Inc.
Hedstrom Corporation
HC Acquisition Corp.
ERO, Inc.
ERO Industries, Inc.
ERO Marketing, Inc.
Priss Prints, Inc.
Impact, Inc.
ERO Canada, Inc.
AMAV Industries, Inc.
ERO Acquisition Corp.
Address
-------
585 Slawin Court
Mt. Prospect, Illinois 60056-2183
Notice Address of Borrower - Page 1
<PAGE> 29
Schedule 2
DESCRIPTION OF PLEDGED SECURITIES
PLEDGED STOCK:
<TABLE>
<CAPTION>
Issuer Issuer Class of Stock Stock Certificate No. No. of Shares
- -------------------- -------------------------------- -------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Hedstrom Holdings, Inc. Hedstrom Corporation Common 1 10
Hedstrom Corporation Hedstrom U.K. Limited Ordinary 3 65
Hedstrom Corporation ERO, Inc. (1) Common 001 1,000
ERO, Inc. ERO Industries, Inc. Common
ERO Industries, Inc. ERO Marketing, Inc. Common 1 1,000
ERO Industries, Inc. Priss Prints, Inc. Common 2 100
ERO Industries, Inc. Impact, Inc. Common 1 1,000
ERO Industries, Inc. ERO Canada, Inc. Common 1 1,000
ERO Industries, Inc. AMAV Industries, Inc. Common 1 1,000
Amav Industries, Inc. (2) AMAV Industries, Inc. Common C- 650
Ltd. (3)
AMAV Industries, Inc. AMAV Industries,
Limited ---- 650
</TABLE>
PLEDGED NOTES:
<TABLE>
<CAPTION>
Pledger Issuer Payee Principal Amount
- --------------------- ------------------ --------------------- ----------------------------
<S> <C> <C> <C>
</TABLE>
- ----------------------------
1. f/k/a HC Acquisition Corp.
2. f/k/a ERO NY Acquisition, Inc.
3. f/k/a ERO Canada Acquisition, Ltd.
Description of Pledged Securities - Page 1
<PAGE> 1
EXHIBIT 10.7
Pennsylvania
OPEN-END MORTGAGE
from
HEDSTROM CORPORATION, Mortgagor
to
CREDIT SUISSE FIRST BOSTON, Mortgagee
DATED AS OF JUNE 12, 1997
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Erin L. Rothfuss, Esq.
<PAGE> 2
Pennsylvania
OPEN-END MORTGAGE
THIS OPEN-END MORTGAGE, dated as of June __, 1997 is made by
HEDSTROM CORPORATION, a Delaware corporation ("Mortgagor"), whose address is
585 Slawin Court, Mt. Prospect, Illinois 60056-2183, to CREDIT SUISSE FIRST
BOSTON, a Swiss banking corporation, as administrative agent for the Lenders
referred to below (in such capacity, "Mortgagee"), whose address is 11 Madison
Avenue, New York, New York 10010. References to this "Mortgage" shall mean
this instrument and any and all renewals, modifications, amendments,
supplements, extensions, consolidations, substitutions, spreaders and
replacements of this instrument.
Background
A. Mortgagor is the owner of the parcel(s) of real property
described on Schedule A attached (such real property, together with all of the
buildings, improvements, structures and fixtures now or subsequently located
thereon (the "Improvements"), being collectively referred to as the "Real
Estate").
B. Mortgagor is a party to that certain Credit Agreement dated
as of even date herewith (as the same may be amended, supplemented, modified,
extended, restated or replaced from time to time, the "Credit Agreement") among
Mortgagor, the several banks and other financial institutions from time to time
parties thereto (the "Lenders") and Mortgagee. All defined terms used and not
defined herein shall have the meanings assigned thereto in the Credit
Agreement.
C. Pursuant to the Credit Agreement, (i) certain of the
Lenders have agreed to make the loans as described in Section 2 of the Credit
Agreement to Mortgagor (the "Tranche A Loans"); (ii) certain of the Lenders
have agreed to make term loans as described in Section 3 of the Credit
Agreement to Mortgagor (the "Tranche B Loans"); (iii) certain of the Lenders
have agreed to make revolving credit loans to Mortgagor (the "Revolving Credit
Loans"); (iv) the Issuing Lender has agreed to issue letters of credit for the
account of Mortgagor; and (v) the Swing Line Lender has agreed to make swing
line loans to Mortgagor (the "Swing Line Loans"). The maximum aggregate
principal amount of the Tranche A Loans, the Tranche B Loans, the Revolving
Credit Loans, the Swing Line Loans and the L/C Obligations outstanding at any
one time shall not exceed $180,000,000.
D. The Loans may be evidenced by promissory notes of Mortgagor
made payable to the order of the relevant Lender (as
<PAGE> 3
2
the same may be amended, supplemented, modified, extended, restated or replaced
from time to time, the "Notes"). Each Loan bears interest at the rate stated
in the Credit Agreement; references in this Mortgage to the "Default Rate"
shall mean, at any time, the interest rate applicable to overdue principal
amounts of the Loans as provided in the Credit Agreement. The obligation of
Mortgagor to reimburse the Issuing Lender for amounts drawn under Letters of
Credit (the "Reimbursement Obligation") is governed by the section of the
Credit Agreement entitled "Letters of Credit."
E. It is a condition precedent to the obligation of the
Lenders to make their respective Loans to Mortgagor and of the issuing Lender
to issue the Letters of Credit for the account of Mortgagor that Mortgagor
shall have executed and delivered this Mortgage to Mortgagee for the benefit of
Mortgagee and the other Lenders, and Mortgagor is willing to so execute and
deliver this Mortgage in order to obtain the benefits available to it from
entering into the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
Mortgagee and the other Lenders to make their respective Loans to Mortgagor and
the Issuing Lender to issue the Letters of Credit for the account of Mortgagor,
Mortgagor hereby agrees with Mortgagee, for the benefit of Mortgagee and the
other Lenders, as follows:
Granting Clauses
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the Notes,
(ii) all interest (including, without limitation, interest accruing after
the maturity of the Loans and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Mortgagor whether or not a
claim for post-filing or post-petition interest is allowed in such
proceeding) and fees, indemnities, costs, expenses (including, without
limitation, all reasonable fees and disbursements of counsel to Mortgagee or
to the Lenders that are required to be paid by Mortgagor pursuant to the
terms of the Credit Agreement or this Mortgage) or otherwise payable thereon
and (iii) payment of the Reimbursement Obligation with respect to the
Letters of Credit, whether in respect of any drawings under any Letters of
Credit, fees, commissions, expenses or otherwise (the items set forth in
clauses (i), (ii) and (iii) being referred to collectively as the
"Indebtedness"); and
(b) the performance of all covenants, agreements, obligations and
liabilities of Mortgagor (the "Obligations") whether direct or indirect,
absolute or contingent, due or to
<PAGE> 4
3
become due, or now existing or hereinafter incurred, which may arise under
or pursuant to the provisions of the Notes, this Mortgage, any other
document securing payment of the Indebtedness (the "Security Documents") and
any amendments, supplements, extensions, renewals, restatements,
replacements or modifications of any of the foregoing (the Notes, the
Security Documents, the Credit Agreement and all other documents and
instruments from time to time evidencing, securing or guaranteeing the
payment of the Indebtedness or the performance of the Obligations, as any of
the same may be amended, supplemented, extended, renewed, restated, replaced
or modified from time to time, are collectively referred to as the "Loan
Documents");
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN,
AND HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE:
(A) the Real Estate;
(B) all the estate, right, title, claim or demand whatsoever of
Mortgagor, in possession or expectancy, in and to the Real Estate or any
part thereof;
(C) all right, title and interest of Mortgagor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian rights,
development rights, air rights, mineral rights, oil and gas rights and all
estates, rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to the
Real Estate, and any reversions, remainders, rents, issues, profits and
revenue thereof and all land lying in the bed of any street, road or avenue,
in front of or adjoining the Real Estate to the center line thereof;
(D) all right, title and interest of Mortgagor in all of the
fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind and
nature whatsoever, and all appurtenances and additions thereto and
substitutions or replacements thereof (together with, in each case,
attachments, components, parts and accessories) currently owned or
subsequently acquired by Mortgagor and now or subsequently attached to, or
contained in or used or usable in any way in connection with any operation
or letting of the Real Estate, including but without limiting the generality
of the foregoing, all screens, awnings, shades, blinds, curtains, draperies,
artwork, carpets, rugs, storm doors and windows, furniture and furnishings,
heating, electrical, and mechanical equipment, lighting, switchboards,
plumbing, ventilating, air conditioning and air-cooling apparatus,
refrigerating, and incinerating equipment, escalators, elevators, loading
and unloading equipment and systems, stoves, ranges, laundry equipment,
<PAGE> 5
4
cleaning systems (including window cleaning apparatus), telephones,
communication systems (including satellite dishes and antennae),
televisions, computers, sprinkler systems and other fire prevention and
extinguishing apparatus and materials, security systems, motors, engines,
machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures
of every kind and description (all of the foregoing in this paragraph (D)
being referred to as the "Equipment");
(E) all right, title and interest of Mortgagor in and to all
substitutes and replacements of, and all additions and improvements to, the
Real Estate and the Equipment, subsequently acquired by or released to
Mortgagor or constructed, assembled or placed by Mortgagor on the Real
Estate, immediately upon such acquisition, release, construction, assembling
or placement, including, without limitation, any and all building materials
whether stored at the Real Estate or offsite, and, in each such case,
without any further mortgage, conveyance, assignment or other act by
Mortgagor;
(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or occupancy
of the Real Estate or the Equipment or any part thereof, now existing or
subsequently entered into by Mortgagor and whether written or oral and all
guarantees of any of the foregoing (collectively, as any of the foregoing
may be amended, restated, extended, renewed or modified from time to time,
the "Leases"), and all rights of Mortgagor in respect of cash and securities
deposited thereunder and the right to receive and collect the revenues,
income, rents, issues and profits thereof, together with all other rents,
royalties, issues, profits, revenue, income and other benefits arising from
the use and enjoyment of the Mortgaged Property (as defined below)
(collectively, the "Rents");
(G) all trade names, trade marks, logos, copyrights, good will and
books and records relating to or used in connection with the operation of
the Real Estate or the Equipment or any part thereof; all general
intangibles related to the operation of the Improvements now existing or
hereafter arising (collectively, the "Intellectual Property");
(H) all right, title and interest of Mortgagor in all unearned
premiums under insurance policies now or subsequently obtained by Mortgagor
relating to the Real Estate or Equipment and Mortgagor's interest in and to
all proceeds of any such insurance policies (including title insurance
policies) including the right to collect and receive such proceeds, subject
to the provisions relating to insurance generally set forth in the Credit
Agreement; and all awards and other compensation, including the interest
payable thereon and the
<PAGE> 6
5
right to collect and receive the same, made to the present or any subsequent
owner of the Real Estate or Equipment for the taking by eminent domain,
condemnation or otherwise, of all or any part of the Real Estate or any
easement or other right therein;
(I) to the extent assignable by Mortgagor, all right, title and
interest of Mortgagor in and to (i) all contracts from time to time executed
by Mortgagor or any manager or agent on its behalf relating to the
ownership, construction, maintenance, repair, operation, occupancy, sale or
financing of the Real Estate or Equipment or any part thereof and all
agreements relating to the purchase or lease of any portion of the Real
Estate or any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise such options and all leases of Equipment
(collectively, the "Contracts"), (ii) all consents, licenses, building
permits, certificates of occupancy and other governmental approvals relating
to construction, completion, occupancy, use or operation of the Real Estate
or any part thereof (collectively, the "Permits") and (iii) all drawings,
plans, specifications and similar or related items relating to the Real
Estate (collectively, the "Plans");
(J) all right, title and interest of Mortgagor in any and all
monies now or subsequently on deposit for the payment of real estate taxes
or special assessments against the Real Estate or for the payment of
premiums on insurance policies covering the foregoing property; all capital,
operating, reserve or similar accounts held by or on behalf of Mortgagor and
related to the operation of the Mortgaged Property, whether now existing or
hereafter arising and all monies held in any of the foregoing accounts and
any certificates or instruments related to or evidencing such accounts;
(K) all accounts and revenues arising from the operation of the
Improvements including, without limitation, (i) any right to payment now
existing or hereafter arising for rental of hotel rooms or other space or
for goods sold or leased or for services rendered, whether or not yet earned
by performance, arising from the operation of the Improvements or any other
facility on the Mortgaged Property and (ii) to the extent assignable by
Mortgagor, all rights to payment from any consumer credit-charge card
organization or entity including, without limitation, payments arising from
the use of the American Express Card, the Visa Card, the Carte Blanche Card,
the Mastercard or any other credit card, including those now existing or
hereafter created, substitutions therefor, proceeds thereof (whether cash or
non-cash, movable or immovable, tangible or intangible) received upon the
sale, exchange, transfer, collection or other disposition or substitution
thereof and any and all of the foregoing and proceeds therefrom; and
<PAGE> 7
6
(L) all proceeds, both cash and noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned
or held or subsequently acquired by Mortgagor and described in the foregoing
clauses (A) through (E) are collectively referred to as the "Premises", and
those described in the foregoing clauses (A) through (L) are collectively
referred to as the "Mortgaged Property"; notwithstanding the foregoing,
"Mortgaged Property" shall not include, with respect to Mortgagor, any Leases,
Intellectual Property, Contracts, Permits or Plans to the extent the grant by
Mortgagor of a security interest pursuant to this Mortgage in its rights under
such item is prohibited thereby and the consent of applicable Persons has not
been obtained, provided that the foregoing limitation shall not affect, limit,
restrict or impair the grant by Mortgagor of a security interest pursuant to
this Mortgage in any Account or any money or other amounts due or to become due
under such Lease, Intellectual Property, Contract, Permit or Plan, to the
extent provided in Section 9-318 of the New York UCC as in effect on the date
hereof.).
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for the
uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
Terms and Conditions
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. Warranty of Title. Mortgagor warrants that Mortgagor has good
title to the Real Estate in fee simple and good title to the rest of the
Mortgaged Property, subject only to the matters that are set forth in Schedule
B of the title insurance policy or policies being issued to Mortgagee to insure
the lien of this Mortgage and those items permitted by the Credit Agreement
(collectively, the "Permitted Exceptions") and Mortgagor shall warrant, defend
and preserve such title and the lien of the Mortgage thereon against all claims
of all persons and entities. Mortgagor further warrants that it has the right
to mortgage the Mortgaged Property.
2. Payment of Indebtedness. Mortgagor shall pay the Indebtedness
at the times and places and in the manner specified in the Notes and shall
perform all the Obligations.
3. Requirements.
(a) Mortgagor shall promptly comply with, or cause to be complied
with, and conform to all present and future laws, statutes, codes, ordinances,
orders, judgments, decrees, rules, regulations and requirements, and
irrespective of the nature of
<PAGE> 8
7
the work to be done, of each of the United States of America, any State and any
municipality, local government or other political subdivision thereof and any
agency, department, bureau, board, commission or other instrumentality of any
of them, now existing or subsequently created (collectively, "Governmental
Authority") which has jurisdiction over the Mortgaged Property and all
covenants, restrictions and conditions now or later of record which may be
applicable to any of the Mortgaged Property, or to the use, manner of use,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of any of the Mortgaged Property, except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect. All present and future laws, statutes,
codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements of every Governmental Authority applicable to Mortgagor or to any
of the Mortgaged Property and all covenants, restrictions, and conditions which
now or later may be applicable to any of the Mortgaged Property are
collectively referred to as the "Legal Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall not
by act or omission permit any building or other improvement on any premises not
subject to the lien of this Mortgage to rely on the Premises or any part
thereof or any interest therein to fulfill any Legal Requirement, and Mortgagor
hereby assigns to Mortgagee any and all rights to give consent for all or any
portion of the Premises or any interest therein to be so used. Mortgagor shall
not by act or omission impair the integrity of any of the Real Estate which is
a single zoning lot as of the date hereof as a single zoning lot separate and
apart from all other premises. Any act or omission by Mortgagor which would
result in a violation of any of the provisions of this subsection shall be
void.
4. Payment of Taxes and Other Impositions. (a) Mortgagor shall
pay and discharge taxes and other charges in accordance with the Credit
Agreement.
(b) Any sums paid by Mortgagee in discharge of any taxes permitted
to be paid by Mortgagee pursuant to the Credit Agreement shall be (i) a lien on
the Premises secured hereby prior to any right or title to, interest in, or
claim upon the Premises subordinate to the lien of this Mortgage and (ii)
payable to Mortgagee as set forth in the Credit Agreement.
(c) Mortgagor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Mortgage or on any
interest payable thereon for any taxes assessed against the Mortgaged Property
or any part thereof, and shall not claim any deduction from the taxable value
of the Mortgaged Property by reason of this Mortgage.
<PAGE> 9
8
5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises insurance as required under the Credit
Agreement.
(b) Mortgagor promptly shall comply in all material respects with
and conform to (i) all provisions of each such insurance policy, and (ii) all
requirements of the insurers applicable to Mortgagor or to any of the Mortgaged
Property or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Mortgaged Property. Mortgagor
shall not use or permit the use of the Mortgaged Property in any manner which
would permit any insurer to cancel any insurance policy or void coverage
required to be maintained by this Mortgage.
(c) In the event of foreclosure of this Mortgage or other
transfer of title to the Mortgaged Property all right, title and interest of
Mortgagor in and to any insurance policies then in force shall pass to the
purchaser or grantee.
6. Restrictions on Liens and Encumbrances. Except for the lien of
this Mortgage and the Permitted Exceptions, Mortgagor shall not further
mortgage, nor otherwise encumber the Mortgaged Property nor create or suffer to
exist any lien, charge or encumbrance on the Mortgaged Property, or any part
thereof, whether superior or subordinate to the lien of this Mortgage and
whether recourse or non-recourse.
7. Due on Sale and Other Transfer Restrictions. Except as
expressly permitted under the Credit Agreement, Mortgagor shall not sell,
transfer, convey or assign all or any portion of, or any interest in, the
Mortgaged Property.
8. Maintenance; No Alteration; Inspection; Utilities. (a)
Mortgagor shall maintain or cause to be maintained all the Improvements in good
condition and repair (ordinary wear and tear excepted) and shall not commit or
suffer any waste of the Improvements. The Improvements shall not be demolished
or materially altered, nor any material additions built, without the prior
written consent of Mortgagee, such consent not to be unreasonably withheld.
(b) Subject to Section 10.3 of the Credit Agreement, Mortgagor
shall pay or cause to be paid utility charges and all other assessments or
charges of a similar nature, whether public or private, affecting the Premises
or any portion thereof.
9. Condemnation/Eminent Domain. Immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Mortgaged Property, or any portion thereof, Mortgagor will notify Mortgagee of
the pendency of such proceedings. During the continuance of an Event of
Default, and subject to Section 7.5(i) of the Credit Agreement, Mortgagee is
hereby authorized and empowered by Mortgagor to settle or
<PAGE> 10
9
compromise any claim in connection with such condemnation and to receive all
awards and proceeds thereof to be held by Mortgagee as collateral to secure the
payment and performance of the Indebtedness and the Obligations.
Notwithstanding the preceding sentence, subject to the provisions of the Credit
Agreement and provided that no Event of Default shall have occurred and be
continuing, Mortgagor shall, at its expense, diligently prosecute any such
proceeding relating to such condemnation, settle or compromise any claims in
connection therewith and receive any awards or proceeds thereof, provided that
Mortgagor shall comply with the applicable provisions of the Credit Agreement.
10. Restoration. Mortgagor will apply insurance proceeds and
condemnation proceeds and awards in accordance with the Credit Agreement.
11. Leases. Except as otherwise provided in the Credit Agreement,
(a) Mortgagor shall not (i) execute an assignment or pledge of any Lease
relating to all or any portion of the Mortgaged Property other than in favor of
Mortgagee, or (ii) without the prior written consent of Mortgagee, execute or
permit to exist any Lease of any of the Mortgaged Property, except as provided
in the Credit Agreement.
(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall not accept a surrender or terminate,
cancel, rescind, supplement, alter, revise, modify or amend such Lease or
permit any such action to be taken nor shall Mortgagor accept the payment of
rent more than thirty (30) days in advance of its due date, except to the
extent such action or payment occurs either in the ordinary course of business
or according to Mortgagor's reasonable business judgment.
12. Further Assurances/Estoppel Certificates. To further assure
Mortgagee's rights under this Mortgage, Mortgagor agrees upon demand of
Mortgagee to do any act or execute any additional documents (including, but not
limited to, security agreements on any personalty included or to be included in
the Mortgaged Property and a separate assignment of each Lease in recordable
form) as may be reasonably required by Mortgagee to confirm the lien of this
Mortgage and all other rights or benefits conferred on Mortgagee.
13. Mortgagee's Right to Perform. If Mortgagor fails to perform
any of the covenants or agreements of Mortgagor, Mortgagee may at any time (but
shall be under no obligation to) pay or perform the same, and the amount or
cost thereof, as set forth in the Credit Agreement, shall immediately be due
from Mortgagor to Mortgagee and the same shall be secured by this Mortgage and
shall be a lien on the Mortgaged Property prior to any right, title to,
interest in or claim upon the Mortgaged Property attaching subsequent to the
lien of this Mortgage. No payment or advance of money by Mortgagee under this
Section shall
<PAGE> 11
10
be deemed or construed to cure Mortgagor's default or waive any right or remedy
of Mortgagee.
14. Materials of Environmental Concern. Mortgagor shall comply in
all respects with Section 8.15 of the Credit Agreement.
15. Events of Default. The occurrence of any Event of Default as
such term is defined in the Credit Agreement shall constitute an Event of
Default hereunder.
16. Remedies.
(a) Subject to the provisions of the Credit Agreement, upon the
occurrence of any Event of Default, in addition to any other rights and
remedies Mortgagee may have pursuant to the Loan Documents, or as provided by
law, and without limitation, (x) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of Section 12 of the Credit Agreement,
automatically the Indebtedness and all other amounts owing under the Notes,
this Mortgage and the other Security Documents immediately shall become due and
payable, and (y) if such event is any other Event of Default, with the consent
of the Required Lenders, the Mortgagee may, or upon the request of the Required
Lenders, the Mortgagee shall, by notice to Mortgagor, declare the Indebtedness
(together with accrued interest thereon) and all other amounts payable under
the Notes, this Mortgage and the other Security Documents to be immediately due
and payable. Except as expressly provided in the Credit Agreement, notice of
intention to accelerate, notice of acceleration, presentment, demand, protest
and all other notices of any kind are hereby expressly waived. In addition,
upon the occurrence of any Event of Default, Mortgagee may immediately take
such action, without notice or demand, as it deems advisable to protect and
enforce its rights against Mortgagor and in and to the Mortgaged Property,
including, but not limited to, the following actions, each of which may be
pursued concurrently or otherwise, at such time and in such manner as Mortgagee
may determine, in its sole discretion, without impairing or otherwise affecting
the other rights and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law, (A)
institute and maintain an action of mortgage foreclosure against all or any
part of the Mortgaged Property, (B) institute and maintain an action on the
Indebtedness or the Notes, (C) sell all or part of the Mortgaged Property
(Mortgagor expressly granting to Mortgagee the power of sale), or (D) take
such other action at law or in equity for the enforcement of this Mortgage
or any of the Loan Documents as the law may allow. Mortgagee may proceed in
any such action to final judgment and execution thereon for all sums due
hereunder, together with interest thereon at the Default Rate and all costs
of suit, including, without limitation, reasonable attorneys' fees and
disbursements. Interest at the Default Rate shall be due on any judgment
obtained by Mortgagee
<PAGE> 12
11
from the date of judgment until the date upon which actual payment is made
of the full amount of the judgment.
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the Mortgaged
Property or any other collateral as security for the Indebtedness and
Obligations enter into and upon the Mortgaged Property and each and every
part thereof and exclude Mortgagor and its agents and employees therefrom
without liability for trespass, damage or otherwise (Mortgagor hereby
agreeing to surrender possession of the Mortgaged Property to Mortgagee upon
demand at any such time) and use, operate, manage, maintain and control the
Mortgaged Property and every part thereof. Following such entry and taking
of possession, Mortgagee shall be entitled, without limitation, (x) to lease
all or any part or parts of the Mortgaged Property for such periods of time
and upon such conditions as Mortgagee may, in its discretion, deem proper,
(y) to enforce, cancel or modify any Lease and (z) generally to execute, do
and perform any other act, deed, matter or thing concerning the Mortgaged
Property as Mortgagee shall deem appropriate as fully as Mortgagor might do.
(b) The holder of this Mortgage, in any action to foreclose it,
shall be entitled to the appointment of a receiver. In case of a foreclosure
sale, the Real Estate may be sold, at Mortgagee's election, in one parcel or in
more than one parcel and Mortgagee is specifically empowered, (without being
required to do so, and in its sole and absolute discretion) to cause successive
sales of portions of the Mortgaged Property to be held.
(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Mortgage, and notwithstanding
to the contrary any exculpatory or non-recourse language which may be contained
herein, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Mortgage.
(d) MORTGAGOR AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF
RECORD OF THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR AND TO CONFESS
JUDGMENT IN EJECTMENT AGAINST MORTGAGOR (AND, AT THE ELECTION OF SAID ATTORNEY,
AGAINST ANY PERSON CLAIMING UNDER, BY OR THROUGH MORTGAGOR) FOR THE RECOVERY BY
MORTGAGEE OF POSSESSION OF THE ENTIRE PREMISES OR, AT THE ELECTION OF SAID
ATTORNEY, ANY PORTION OR PORTIONS OF THE PREMISES. THE FOREGOING AUTHORITY TO
CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF BUT SHALL
CONTINUE FROM TIME TO TIME UNTIL MORTGAGEE IS FULLY AND FINALLY VESTED WITH
POSSESSION OF THE ENTIRE PREMISES. MORTGAGOR EXPRESSLY AGREES THAT ANY
JUDGMENT ENTERED PURSUANT TO THE FOREGOING AUTHORITY SHALL BE FINAL AND
RELEASES TO MORTGAGEE, AND TO ANY ATTORNEY APPEARING FOR
<PAGE> 13
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MORTGAGOR OR MORTGAGEE, ALL ERRORS IN SAID PROCEEDINGS AND ALL LIABILITY
THEREFOR. UPON CONFESSION OF JUDGMENT IN EJECTMENT PURSUANT TO THE FOREGOING
AUTHORITY, A WRIT OF POSSESSION (OR LIKE WRIT APPROPRIATE UNDER THEN APPLICABLE
LAW) MAY ISSUE FORTHWITH WITHOUT ANY PRIOR PROCEEDINGS AND MAY INCLUDE THE
COSTS OF MORTGAGEE. JUDGMENT MAY BE ENTERED PURSUANT TO THE FOREGOING
AUTHORITY ON THE BASIS OF AN AFFIDAVIT MADE ON MORTGAGEE'S BEHALF AND SETTING
FORTH THE RELEVANT FACTS, OF WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE
EVIDENCE, AND IF A TRUE COPY OF THIS MORTGAGE IS FILED IN ANY ACTION FOR SUCH
JUDGMENT IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS MORTGAGE.
MORTGAGOR VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO A PRIOR HEARING UNDER
THE CONSTITUTIONS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA.
17. Right of Mortgagee to Credit Sale. Upon the occurrence of any
sale made under this Mortgage, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for
the purchase price by crediting upon the Indebtedness or other sums secured by
this Mortgage the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage. In such event, this Mortgage, the
Notes and documents evidencing expenditures secured hereby may be presented to
the person or persons conducting the sale in order that the amount so used or
applied may be credited upon the Indebtedness as having been paid.
18. Appointment of Receiver. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice
to Mortgagor, unless otherwise required by applicable law, and without regard
to the adequacy or inadequacy of the Mortgaged Property or any other collateral
as security for the Indebtedness and Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.
19. Extension, Release, etc. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged
<PAGE> 14
13
Property not then or theretofore released as security for the full amount of
the Indebtedness, Mortgagee may, from time to time and without notice, agree to
(i) release any person liable for the Indebtedness, (ii) extend the maturity or
alter any of the terms of the Indebtedness or any guaranty thereof, (iii) grant
other indulgences, (iv) release or reconvey, or cause to be released or
reconveyed at any time at Mortgagee's option any parcel, portion or all of the
Mortgaged Property, (v) take or release any other or additional security for
any obligation herein mentioned, or (vi) make compositions or other
arrangements with debtors in relation thereto. If at any time this Mortgage
shall secure less than all of the principal amount of the Indebtedness, it is
expressly agreed that any repayments of the principal amount of the
Indebtedness shall not reduce the amount of the lien of this Mortgage until the
lien amount shall equal the principal amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.
(c) If Mortgagee shall have the right to foreclose this
Mortgage, Mortgagor authorizes Mortgagee at its option to foreclose the lien of
this Mortgage subject to the rights of any tenants of the Mortgaged Property.
The failure to make any such tenants defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Indebtedness
or to foreclose the lien of this Mortgage.
(d) Unless expressly provided otherwise, in the event that
ownership of this Mortgage and title to the Mortgaged Property or any estate
therein shall become vested in the same person or entity, this Mortgage shall
not merge in such title but shall continue as a valid lien on the Mortgaged
Property for the amount secured hereby.
(e) Mortgagor waives and releases, to the fullest extent
permitted by law, any rights which it may have to send a written notice
pursuant to 42 Pa. Cons. Stat. Ann. Section 8143(c).
20. Security Agreement under Uniform Commercial Code. (a) It is
the intention of the parties hereto that this Mortgage shall constitute a
Security Agreement within the meaning of the Uniform Commercial Code (the
"Code") of the State in which the Mortgaged Property is located. If an Event
of Default shall occur under this Mortgage, then in addition to having any
other right or remedy available at law or in equity, Mortgagee shall have the
option of either (i) proceeding under the Code and exercising such rights and
remedies as may be provided to a secured party by the Code with respect to all
or any portion of
<PAGE> 15
14
the Mortgaged Property which is personal property (including, without
limitation, taking possession of and selling such property) or (ii) treating
such property as real property and proceeding with respect to both the real and
personal property constituting the Mortgaged Property in accordance with
Mortgagee's rights, powers and remedies with respect to the real property (in
which event the default provisions of the Code shall not apply). If Mortgagee
shall elect to proceed under the Code, then ten days' notice of sale of the
personal property shall be deemed reasonable notice and the reasonable expenses
of retaking, holding, preparing for sale, selling and the like incurred by
Mortgagee shall include, but not be limited to, reasonable attorneys' fees and
legal expenses. At Mortgagee's request, Mortgagor shall assemble the personal
property and make it available to Mortgagee at a place designated by Mortgagee
which is reasonably convenient to both parties.
(b) Mortgagor and Mortgagee agree, to the extent permitted by law,
that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this
Mortgage upon recording or registration in the real estate records of the
proper office shall constitute a financing statement filed as a "fixture
filing" within the meaning of Sections 9-313 and 9-402 of the Code; (iii)
Mortgagor is the record owner of the Real Estate; and (iv) the addresses of
Mortgagor and Mortgagee are as set forth on the first page of this Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or more separate security
agreements, in form satisfactory to Mortgagee, covering all or any part of the
Mortgaged Property and will further execute, acknowledge and deliver, or cause
to be executed, acknowledged and delivered, any financing statement, affidavit,
continuation statement or certificate or other document as Mortgagee may
reasonably request in order to perfect, preserve, maintain, continue or extend
the security interest under and the priority of this Mortgage and such security
instrument. Mortgagor further agrees to pay to Mortgagee on demand all
reasonable costs and expenses incurred by Mortgagee in connection with the
preparation, execution, recording, filing and re-filing of any such document.
Mortgagor shall from time to time, on request of Mortgagee, deliver to
Mortgagee an inventory in reasonable detail of any of the Mortgaged Property
which constitutes personal property. If Mortgagor shall fail to furnish any
financing or continuation statement within 10 days after request by Mortgagee,
then pursuant to the provisions of the Code, Mortgagor hereby authorizes
Mortgagee, without the signature of Mortgagor, to execute and file any such
financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or
chattels shall not be construed as in any way impairing the right of Mortgagee
to proceed against any personal
<PAGE> 16
15
property encumbered by this Mortgage as real property, as set forth above.
21. Assignment of Rents. Mortgagor hereby assigns to Mortgagee
the Rents as further security for the payment of the Indebtedness and
performance of the Obligations, and Mortgagor grants to Mortgagee the right to
enter the Mortgaged Property for the purpose of collecting the same and to let
the Mortgaged Property or any part thereof, and to apply the Rents on account
of the Indebtedness. The foregoing assignment and grant is present and
absolute and shall continue in effect until the Indebtedness is paid in full,
but Mortgagee hereby waives the right to enter the Mortgaged Property for the
purpose of collecting the Rents and Mortgagor shall be entitled to collect,
receive, use and retain the Rents until the occurrence and continuance of an
Event of Default under this Mortgage; such right of Mortgagor to collect,
receive, use and retain the Rents may be revoked by Mortgagee upon the
occurrence and continuance of any Event of Default under this Mortgage by
giving not less than five days' written notice of such revocation to Mortgagor;
in the event such notice is given, Mortgagor shall pay over to Mortgagee, or to
any receiver appointed to collect the Rents, any lease security deposits.
Mortgagor shall not accept prepayments of installments of Rent to become due
for a period of more than one month in advance (except for security deposits
and estimated payments of percentage rent, if any, or as otherwise provided in
such Lease).
22. Additional Rights. The holder of any subordinate lien on the
Mortgaged Property shall have no right to terminate any Lease whether or not
such Lease is subordinate to this Mortgage nor shall any holder of any
subordinate lien join any tenant under any Lease in any action to foreclose the
lien or modify, interfere with, disturb or terminate the rights of any tenant
under any Lease. By recordation of this Mortgage all subordinate lienholders
are subject to and notified of this provision, and any action taken by any such
lienholder contrary to this provision shall be null and void. The holder of
any encumbrance on the Mortgaged Property, whether or not consented to by
Mortgagee, expressly agrees by acceptance of such encumbrance and without any
further act or documentation being required by it, waives and reqlinquishes any
rights which it may have to file or send a notice pursuant to 42 Pa. Cons.
Stat. Ann. Section 8143(b) and (d).
23. Notices. All notices, requests, demands and other
communications hereunder, including, without limitation, all notices given to
Mortgagee pursuant to 42 Pa. Cons. Stat. Ann. Section 8143(d), shall be given
in accordance with subsection 10.7 of the Credit Agreement to Mortgagor and
Mortgagee as specified therein.
24. No Oral Modification. This Mortgage may not be amended,
supplemented, terminated or otherwise modified except in accordance with
subsection 14.1 of the Credit Agreement. Any
<PAGE> 17
16
agreement made by Mortgagor and Mortgagee after the date of this Mortgage
relating to this Mortgage shall be superior to the rights of the holder of any
intervening or subordinate lien or encumbrance.
25. Partial Invalidity. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision hereof, but each shall
be construed as if such invalid, illegal or unenforceable provision had never
been included. Notwithstanding to the contrary anything contained in this
Mortgage or in any provisions of the Indebtedness or Loan Documents, the
obligations of Mortgagor and of any other obligor under the Indebtedness or
Loan Documents shall be subject to the limitation that Mortgagee shall not
charge, take or receive, nor shall Mortgagor or any other obligor be obligated
to pay to Mortgagee, any amounts constituting interest in excess of the maximum
rate permitted by law to be charged by Mortgagee.
26. Mortgagor's Waiver of Rights. To the fullest extent permitted
by law, Mortgagor waives the benefit of all laws now existing or that may
subsequently be enacted providing for (i) any appraisement before sale of any
portion of the Mortgaged Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Mortgaged Property from attachment, levy or sale under
execution or exemption from civil process. To the full extent Mortgagor may do
so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, exemption, extension or
redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created. Mortgagor
further waives, to the extent permitted by applicable law, all errors and
imperfections in any proceedings instituted by Mortgagee under this Mortgage
and all notices of any Event of Default (except as may be provided for under
the terms of this Mortgage or the Credit Agreement) or of Mortgagee's election
to exercise or its actual exercise of any right, remedy or recourse provided
for under this Mortgage.
27. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment of the Indebtedness and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Loan Documents or other
<PAGE> 18
17
agreement or any laws now or hereafter in force, notwithstanding some or all of
the Indebtedness and Obligations may now or hereafter be otherwise secured,
whether by mortgage, security agreement, pledge, lien, assignment or otherwise.
Neither the acceptance of this Mortgage nor its enforcement, shall prejudice or
in any manner affect Mortgagee's right to realize upon or enforce any other
security now or hereafter held by Mortgagee, it being agreed that Mortgagee
shall be entitled to enforce this Mortgage and any other security now or
hereafter held by Mortgagee in such order and manner as Mortgagee may determine
in its absolute discretion. No remedy herein conferred upon or reserved to
Mortgagee is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given by any of the Loan Documents
to Mortgagee or to which it may otherwise be entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by Mortgagee. In no event shall Mortgagee, in the exercise of the
remedies provided in this Mortgage (including, without limitation, in
connection with the assignment of Rents to Mortgagee, or the appointment of a
receiver and the entry of such receiver on to all or any part of the Mortgaged
Property), be deemed a "mortgagee in possession," and Mortgagee shall not in
any way be made liable for any act, either of commission or omission, in
connection with the exercise of such remedies.
28. Multiple Security. If (a) the Premises shall consist of one
or more parcels, whether or not contiguous and whether or not located in the
same county, or (b) in addition to this Mortgage, Mortgagee shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or other
security (directly or indirectly) for the Indebtedness upon other property in
the State in which the Premises are located (whether or not such property is
owned by Mortgagor or by others) or (c) both the circumstances described in
clauses (a) and (b) shall be true, then to the fullest extent permitted by law,
Mortgagee may, at its election, commence or consolidate in a single foreclosure
action all foreclosure proceedings against all such collateral securing the
Indebtedness (including the Mortgaged Property), which action may be brought or
consolidated in the courts of any county in which any of such collateral is
located. Mortgagor acknowledges that the right to maintain a consolidated
foreclosure action is a specific inducement to Mortgagee to extend the
Indebtedness, and Mortgagor expressly and irrevocably waives any objections to
the commencement or consolidation of the foreclosure proceedings in a single
action and any objections to the laying of venue or based on the grounds of
forum non conveniens which it may now or hereafter have. Mortgagor further
agrees that if Mortgagee shall be prosecuting one or more foreclosure or other
proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly
<PAGE> 19
18
secures the Indebtedness, or if Mortgagee shall have obtained a judgment of
foreclosure and sale or similar judgment against such collateral, then, whether
or not such proceedings are being maintained or judgments were obtained in or
outside the State in which the Premises are located, Mortgagee may commence or
continue foreclosure proceedings and exercise its other remedies granted in
this Mortgage against all or any part of the Mortgaged Property and Mortgagor
waives any objections to the commencement or continuation of a foreclosure of
this Mortgage or exercise of any other remedies hereunder based on such other
proceedings or judgments, and waives any right to seek to dismiss, stay,
remove, transfer or consolidate either any action under this Mortgage or such
other proceedings on such basis. Neither the commencement nor continuation of
proceedings to foreclose this Mortgage nor the exercise of any other rights
hereunder nor the recovery of any judgment by Mortgagee in any such proceedings
shall prejudice, limit or preclude Mortgagee's right to commence or continue
one or more foreclosure or other proceedings or obtain a judgment against any
other collateral (either in or outside the State in which the Premises are
located) which directly or indirectly secures the Indebtedness, and Mortgagor
expressly waives any objections to the commencement of, continuation of, or
entry of a judgment in such other proceedings or exercise of any remedies in
such proceedings based upon any action or judgment connected to this Mortgage,
and Mortgagor also waives any right to seek to dismiss, stay, remove, transfer
or consolidate either such other proceedings or any action under this Mortgage
on such basis. It is expressly understood and agreed that to the fullest
extent permitted by law, Mortgagee may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Indebtedness (directly or
indirectly) in the most economical and least time-consuming manner.
29. Successors and Assigns. All covenants of Mortgagor contained
in this Mortgage are imposed solely and exclusively for the benefit of
Mortgagee and its successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may
be freely waived in whole or in part by Mortgagee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Mortgagor
shall run with the land and bind Mortgagor, the successors and assigns of
Mortgagor (and each of them) and all subsequent owners, encumbrancers and
tenants of the Mortgaged Property, and shall inure to the benefit of Mortgagee,
its successors and assigns. The word "Mortgagor" shall be construed as if it
read "Mortgagors" whenever the sense of this Mortgage so requires and if there
shall be more than one Mortgagor, the obligations of the Mortgagors shall be
joint and several.
<PAGE> 20
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30. No Waivers, etc. Any failure by Mortgagee to insist upon
the strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Mortgagee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Mortgagor of any and all of
the terms and provisions of this Mortgage to be performed by Mortgagor.
Mortgagee may release, regardless of consideration and without the necessity
for any notice to or consent by the holder of any subordinate lien on the
Mortgaged Property, any part of the security held for the obligations secured
by this Mortgage without, as to the remainder of the security, in anywise
impairing or affecting the lien of this Mortgage or the priority of such lien
over any subordinate lien.
31. Governing Law, etc. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor expressly acknowledges that by its terms the
Note shall be governed and construed in accordance with the laws of the State
of New York, without regard to principles of conflict of law, and for purposes
of consistency, Mortgagor agrees that in any in personam proceeding related to
this Mortgage the rights of the parties to this Mortgage shall also be governed
by and construed in accordance with the laws of the State of New York governing
contracts made and to be performed in that State, without regard to principles
of conflict of law.
32. Waiver of Trial by Jury. Mortgagor and Mortgagee each hereby
irrevocably and unconditionally waive trial by jury in any action, claim, suit
or proceeding relating to this Mortgage and for any counterclaim brought
therein. Mortgagor hereby waives all rights to interpose any counterclaim in
any suit brought by Mortgagee hereunder and all rights to have any such suit
consolidated with any separate suit, action or proceeding.
33. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "Mortgagor" shall mean "each Mortgagor or any subsequent owner or owners
of the Mortgaged Property or any part thereof or interest therein," the word
"Mortgagee" shall mean "Mortgagee or any subsequent holder of the Notes," the
word "Note" shall mean "the Note or Notes or any other evidence of indebtedness
secured by this Mortgage," the word "person" shall include any individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, or other entity, and the words "Mortgaged Property"
shall include any portion of the Mortgaged Property or interest therein.
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa. The
<PAGE> 21
20
captions in this Mortgage are for convenience or reference only and in no way
limit or amplify the provisions hereof.
34. Industrial Plant Mortgage. This Mortgage is an industrial
plant mortgage within the broadest interpretation of the "industrial plant
mortgage doctrine" under the laws of the Commonwealth of Pennsylvania.
35. Future Advances. This Mortgage is executed and delivered to
secure, among other things, future advances. It is understood and agreed that
this Mortgage secures present and future advances made for the benefit of
Mortgagor and that the lien of such future advances shall relate back to the
date of this Mortgage.
36. Receipt of Copy. Mortgagor acknowledges that it has received
a true copy of this Mortgage.
37. Release. If Mortgagor shall and does pay to Mortgagee the
full principal amount of the indebtedness secured hereby, together with all
interest accrued thereon, and keeps all the other covenants and agreements
contained herein and in the Notes and in the other Loan Documents, all in the
manner and at the times set forth herein or in the Notes and in the other Loan
Documents, and if Mortgagor shall also pay all satisfaction costs, including,
but not limited to, reasonable attorneys' fees and the cost of recording a
satisfaction piece and, if appropriate, a power-of- attorney to satisfy this
Mortgage, then and from thenceforth this Mortgage and the estate hereby
created, granted, transferred and assigned shall cease and become void.
38. Open-End Mortgage Provisions. Subject to the provisions of
the Credit Agreement, (a) Mortgagor agrees that maintenance charges and costs
incurred to protect the Mortgaged Property or the lien of this Mortgage shall
include without limitation, expenses incurred and expenditures made by
Mortgagee for any one or more of the following: (i) premiums upon casualty and
liability insurance paid by Mortgagee whether or not Mortgagee or a receiver is
in possession, if reasonably required, without regard to the amount or type of
insurance in effect at the time any receiver or mortgagee takes possession of
the Mortgaged Property; (ii) payments required or deemed by Mortgagee to be for
the benefit of the Mortgaged Property or required to be made by the owner of
the Mortgaged Property under any grant or declaration of easement, easement
agreement, reciprocal easement agreement, agreement with any adjoining land
owners or other instruments creating covenants or restricition for the benefit
of or affect the Mortgaged Property; and (iii) operating deficits incurred by
Mortgagee in possession of the Mortgaged Property or reimbursed by Mortgagee to
any receiver.
(b) Mortgagor agrees that expenses incurred by Mortgagee by
reason of a default by Mortgagor under this Mortgage shall include without
limitation (i) reasonable attorneys' fees and
<PAGE> 22
21
other costs incurred in connection with the foreclosure of the Mortgage, or
execution upon the Note or enforcement of the other remedies provided in this
Mortgage or the other Loan Documents and in connection with any other
litigation or administrative proceeding to which the Mortgagee may be or become
or be threatened or contemplated to be a party, including probate and
bankruptcy proceedings, or in the preparation for the commencement or defense
of any such suit or proceeding, including filing fees; (ii) appraisers' fee;
(iii) outlays for documents and expert evidence, witness fees, stenographer's
charges, and publication costs; (iv) costs (which may be estimated as to items
to be expended after entry of judgment) for procuring all such abstracts of
title, title charges and examinations, title insurance policies and similar
data and assurances with respect to title and value as Mortgagee may deem
reasonably necessary either to prosecute or defend such suit, or in case of
foreclosure, to evidence to bidders at any sale which may be had pursuant to
the foreclosure judgment the true condition of the title to or the value of the
Mortgaged Property; and (v) reasonable fees and expenses of professional
consultants including preparation of environmental reports and engineering
reports with respect to the condition of the Mortgaged Property.
(c) Any agreement or contract, whether written or oral, entered
into by Mortgagor shall expressly provided that any party, person or entity
("Contractor") who has a direct agreement or contract with Mortgagor or any
party, person or entity who entered into a direct agreement or contract with
Contractor to perform work or provide materials to the Mortgaged Property
irrevocably waives and relinquishes any rights which it may have to send a
written notice pursuant to 42 Pa. Cons. Stat. Ann. Section 8143(b) and (d).
(d) By delivery of this Open-End Mortgage, Mortgagee and
Mortgagor agree that the provisions of 42 Pa. Cons. Stat. Ann Section 8144
are not waived, but rather, all benefits under said statute shall be applicable
to this Open-End Mortgage.
<PAGE> 23
22
This Mortgage has been duly executed by Mortgagor on the date first above
written.
ATTEST HEDSTROM CORPORATION
[corporate seal]
By: /s/ ANDREW S. ROSEN By: /s/ ALAN B. MENKES
--------------------- -----------------------
Andrew S. Rosen Alan B. Menkes
Vice President Vice President
The address of the within-named Mortgagee is 11 Madison Avenue, New York, New
York 10010.
For the Mortgagee:
CREDIT SUISSE FIRST BOSTON
/s/ IRA LUBINSKY
-----------------------------
Name: Ira Lubinsky
Vice President
/s/ EDWARD E. BARR
Edward E. Barr
Associate
<PAGE> 24
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this, the ____ day of June, 1997, before me, a Notary Public in
and for the State and County aforesaid, the undersigned officer, personally
appeared Alan B. Menkes, who acknowledged himself/herself to be a
Vice Presidnet of HEDSTROM CORPORATION, a Delaware corporation, and that
s/he, as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ SARAH L. MORRIS
------------------------------
Notary Public
[Notarial Seal]
My Commission Expires: SARAH L. MORRIS
NOTARY PUBLIC State of New York
No. 01M05071845
Qualified in New York County
Commission Exprires January 21, 1999
<PAGE> 25
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this, the ____ day of June, 1997, before me, a Notary Public in
and for the State and County aforesaid, the undersigned officer, personally
appeared Ira Lubinsky, who acknowledged himself/herself to be a Vice President
of CREDIT SUISSE FIRST BOSTON, a Swiss banking corporation, and that s/he, as
such officer, being authorized to do so, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ SARAH L. MORRIS
------------------------------
Notary Public
[Notarial Seal]
My Commission Expires: SARAH L. MORRIS
NOTARY PUBLIC State of New York
No. 01M05071845
Qualified in New York County
Commission Exprires January 21, 1999
<PAGE> 26
Schedule A
PARCEL ONE: (fee simple title)
All that certain piece, parcel or trace of land situate, lying and being in the
Township and County of Bedford and Commonwealth of Pennsylvania, more
particularly bounded and described in accordance with the Survey of Norman S.
Van Why, Professional Land Surveyor No. 22353-E, said survey dated May 1, 1985,
revised January 4, 1991 as follows:
BEGINNING at a railroad spike located 18.7 feet Southeast of the centerline of
Legislative Route No. 05042, thence along and in the right-of-way of same the
following courses and distances: North 66 degrees 56 East 278.3 feet to an iron
pipe located 22.3 feet Southeast of the centerline of L.R. No. 05042; North 74
degrees 36' East 162.8 feet to an iron pipe located 28 feet Southeast of said
centerline; North 78 degrees 36' East 203.7 feet to an iron pipe located 29.5
feet Southeast of said centerline; thence North 62 degrees 41' East 350.87 feet
to a nail in L.R. No. 05042 on the right-of-way of the Pennsylvania Turnpike;
thence by right-of-way of the Pennsylvania Turnpike, South 43 degrees 49' East
crossing over a 60-foot right-of-way of the Bedford Branch of the Pennsylvania
Railroad (abandoned) a distance of 1328.40 feet to an iron pipe along the
Pennsylvania Turnpike right-of-way and 110 feet Southwest of Pennsylvania
Turnpike station marker 998 + 16.44; thence by lands formerly of Mary C.
Fisher, the following courses and distances: South 57 degrees 38' West 263.10
feet to an iron pipe; South 41 degrees 55' West 99.00 feet to an iron pipe;
South 56 degrees West 247.50 feet to an iron pipe; and South 54 degrees 47'
West 186.00 feet to an iron pipe located in the 60-foot right-of-way of Mt.
Dallas Branch of the Pennsylvania Railroad (abandoned) thence continuing across
the right-of-way of the Mt. Dallas Branch of the Pennsylvania Railroad
(abandoned), South 40 degrees 26' West 47.81 feet to an iron pipe located at
the intersection of the right-of-way of L.R. No. 1064 - Sec. 1 of the
Pennsylvania Railroad (abandoned); thence along the 60-foot right-of-way of the
Mt. Dallas Branch of the Pennsylvania Railroad (abandoned), North 85 degrees
18' West 1039.87 feet to a point; thence again crossing over the right-of-way
of the Pennsylvania Railroad (abandoned), North 04 degrees 42' East 60 feet to
an iron pipe; thence along a curve whose degree of curvature is 14 degrees 20'
and whose radius is 400.78 feet and whose chord bearing is North 74 degrees 58'
East a chord distance of 233.2 feet to an iron pipe; thence North 24 degrees
18' West 961.71 feet to an iron pipe in the right-of-way of L.R. No. 05042 a
distance of 18.0 feet Southeast of the centerline of L.R. No. 05042; thence in
said right-of-way, North 66 degrees East 40.0 feet to a railroad spike, the
place of BEGINNING.
EXCEPTING AND RESERVING two parcels of land containing 1.108 acres and 0.630
acres respectively and the access easements for
<PAGE> 27
ingress, egress and regress referenced therein conveyed by Hedstrom Company to
Bedford County, Pennsylvania Industrial Development Authority by Deed dated
December 5, 1978 and recorded in the Office of the Recorder of Deeds in and for
Bedford County, Pennsylvania, in Record Book 7, page 197.
PARCEL TWO: (equitable title)
ALL those two certain pieces, parcels or tracts of land situate, lying and
being in the Township of Bedford, County of Bedford and Commonwealth of
Pennsylvania, more particularly bounded and described as follows:
BEGINNING at a nail, which nail is 96.73 feet East of the Northwest corner of
the existing Hedstrom plant facility; thence by other lands of Hedstrom Co.,
North 28 degrees 26' West 100 feet to an iron pin; thence by same, North 61
degrees 34' East 482.66 feet to an iron pin; thence by same, South 28 degrees
26' East 100 feet to a stake at the existing plant facility; thence by the said
existing plant facility, South 61 degrees 34' West 482.66 feet to a nail, the
place of BEGINNING
TRACT NO. 2:
BEGINNING at an iron pin, said iron pin being 2.7 feet South of the
Southeastern corner of the existing plant facility; thence by the said existing
Hedstrom plant facility, North 28 degrees 26' West 285.66 feet to a point;
thence by same, North 61 degrees 34' East 96 feet to a railroad spike; thence
by other lands of Hedstrom Co., South 28 degrees 26' East 285.66 feet to an
iron pin; thence by same, South 61 degrees 34' West 96 feet to an iron pin, the
place of BEGINNING.
TOGETHER with a right-of-way across the driveways of the existing Hedstrom
plant facility for ingress, egress and regress to and from the tracts above
described.
<PAGE> 1
EXHIBIT 10.8
OHIO
OPEN-END MORTGAGE AND SECURITY AGREEMENT
from
HEDSTROM CORPORATION, Mortgagor
to
CREDIT SUISSE FIRST BOSTON, Mortgagee
DATED AS OF JUNE 12, 1997
This Mortgage has been prepared by, and
after recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Erin L. Rothfuss, Esq.
THE TOTAL PRINCIPAL AMOUNT OF THE INDEBTEDNESS SECURED BY THIS OPEN-END
MORTGAGE SHALL NOT EXCEED $180,000,000.
<PAGE> 2
OHIO
OPEN-END MORTGAGE AND SECURITY AGREEMENT
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT, dated as of June _
, 1997 is made by HEDSTROM CORPORATION, a Delaware corporation ("Mortgagor"),
whose address is 585 Slawin Court, Mt. Prospect, Illinois 60056-2183, to
CREDIT SUISSE FIRST BOSTON, a Swiss banking corporation, as administrative
agent for the Lenders referred to below (in such capacity, "Mortgagee"), whose
address is 11 Madison Avenue, New York, New York 10010. References to this
"Mortgage" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders
and replacements of this instrument.
Background
A. Mortgagor is the owner of the parcel(s) of real property
described on Schedule A attached located in the City and County of Ashland,
State of Ohio (such real property, together with all of the buildings,
improvements, structures and fixtures now or subsequently located thereon (the
"Improvements"), being collectively referred to as the "Real Estate").
B. Mortgagor is a party to that certain Credit Agreement
dated as of even date herewith (as the same may be amended, supplemented,
modified, extended, restated or replaced from time to time, the "Credit
Agreement") among Mortgagor, the several banks and other financial institutions
from time to time parties thereto (the "Lenders") and Mortgagee. All defined
terms used and not defined herein shall have the meanings assigned thereto in
the Credit Agreement.
C. Pursuant to the Credit Agreement, (i) certain of the
Lenders have agreed to make the loans as described in Section 2 of the Credit
Agreement to Mortgagor (the "Tranche A Loans"); (ii) certain of the Lenders
have agreed to make term loans as described in Section 3 of the Credit
Agreement to Mortgagor (the "Tranche B Loans"); (iii) certain of the Lenders
have agreed to make revolving credit loans to Mortgagor (the "Revolving Credit
Loans"); (iv) the Issuing Lender has agreed to issue letters of credit for the
account of Mortgagor; and (v) the Swing Line Lender has agreed to make swing
line loans to Mortgagor (the "Swing Line Loans"). The maximum aggregate
principal amount of the Tranche A Loans, the Tranche B Loans, the Revolving
Credit Loans, the Swing Line Loans and the L/C Obligations outstanding at any
one time shall not exceed $180,000,000.
D. The Loans may be evidenced by promissory notes of
Mortgagor made payable to the order of the relevant Lender (as the same may be
amended, supplemented, modified, extended,
<PAGE> 3
2
restated or replaced from time to time, the "Notes"). Each Loan bears interest
at the rate stated in the Credit Agreement; references in this Mortgage to the
"Default Rate" shall mean, at any time, the interest rate applicable to overdue
principal amounts of the Loans as provided in the Credit Agreement. The
obligation of Mortgagor to reimburse the Issuing Lender for amounts drawn under
Letters of Credit (the "Reimbursement Obligation") is governed by the section
of the Credit Agreement entitled "Letters of Credit."
E. It is a condition precedent to the obligation of the
Lenders to make their respective Loans to Mortgagor and of the issuing Lender
to issue the Letters of Credit for the account of Mortgagor that Mortgagor
shall have executed and delivered this Mortgage to Mortgagee for the benefit of
Mortgagee and the other Lenders, and Mortgagor is willing to so execute and
deliver this Mortgage in order to obtain the benefits available to it from
entering into the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
Mortgagee and the other Lenders to make their respective Loans to Mortgagor and
the Issuing Lender to issue the Letters of Credit for the account of Mortgagor,
Mortgagor hereby agrees with Mortgagee, for the benefit of Mortgagee and the
other Lenders, as follows:
Granting Clauses
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the
Notes, (ii) all interest (including, without limitation, interest
accruing after the maturity of the Loans and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to Mortgagor
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and fees, indemnities, costs, expenses
(including, without limitation, all reasonable fees and disbursements of
counsel to Mortgagee or to the Lenders that are required to be paid by
Mortgagor pursuant to the terms of the Credit Agreement or this
Mortgage) or otherwise payable thereon and (iii) payment of the
Reimbursement Obligation with respect to the Letters of Credit, whether
in respect of any drawings under any Letters of Credit, fees,
commissions, expenses or otherwise (the items set forth in clauses (i),
(ii) and (iii) being referred to collectively as the "Indebtedness");
and
(b) the performance of all covenants, agreements, obligations
and liabilities of Mortgagor (the "Obligations")
<PAGE> 4
3
whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereinafter incurred, which may arise under or
pursuant to the provisions of the Notes, this Mortgage, any other
document securing payment of the Indebtedness (the "Security Documents")
and any amendments, supplements, extensions, renewals, restatements,
replacements or modifications of any of the foregoing (the Notes, the
Security Documents, the Credit Agreement and all other documents and
instruments from time to time evidencing, securing or guaranteeing the
payment of the Indebtedness or the performance of the Obligations, as
any of the same may be amended, supplemented, extended, renewed,
restated, replaced or modified from time to time, are collectively
referred to as the "Loan Documents");
Granting Clauses
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN,
AND HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE:
(A) the Real Estate;
(B) all the estate, right, title, claim or demand whatsoever of
Mortgagor, in possession or expectancy, in and to the Real Estate or any
part thereof;
(C) all right, title and interest of Mortgagor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian
rights, development rights, air rights, mineral rights and all estates,
rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to
the Real Estate, and any reversions, remainders, rents, issues, profits
and revenue thereof and all land lying in the bed of any street, road or
avenue, in front of or adjoining the Real Estate to the center line
thereof;
(D) all right, title and interest of Mortgagor in all of the
fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind
and nature whatsoever, and all appurtenances and additions thereto and
substitutions or replacements thereof (together with, in each case,
attachments, components, parts and accessories) currently owned or
subsequently acquired by Mortgagor and now or subsequently attached to,
or contained in or used or usable in any way in connection with any
operation or letting of the Real Estate, including but without limiting
the generality of the foregoing, all screens, awnings, shades, blinds,
curtains, draperies, artwork, carpets, rugs, storm doors and windows,
furniture and furnishings, heating, electrical, and mechanical
equipment, lighting,
<PAGE> 5
4
switchboards, plumbing, ventilating, air conditioning and air-cooling
apparatus, refrigerating, and incinerating equipment, escalators,
elevators, loading and unloading equipment and systems, stoves, ranges,
laundry equipment, cleaning systems (including window cleaning
apparatus), telephones, communication systems (including satellite
dishes and antennae), televisions, computers, sprinkler systems and
other fire prevention and extinguishing apparatus and materials,
security systems, motors, engines, machinery, pipes, pumps, tanks,
conduits, appliances, fittings and fixtures of every kind and
description (all of the foregoing in this paragraph (D) being referred
to as the "Equipment");
(E) all right, title and interest of Mortgagor in and to all
substitutes and replacements of, and all additions and improvements to,
the Real Estate and the Equipment, subsequently acquired by or released
to Mortgagor or constructed, assembled or placed by Mortgagor on the
Real Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and, in
each such case, without any further mortgage, conveyance, assignment or
other act by Mortgagor;
(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or
occupancy of the Real Estate or the Equipment or any part thereof, now
existing or subsequently entered into by Mortgagor and whether written
or oral and all guarantees of any of the foregoing (collectively, as any
of the foregoing may be amended, restated, extended, renewed or modified
from time to time, the "Leases"), and all rights of Mortgagor in respect
of cash and securities deposited thereunder and the right to receive and
collect the revenues, income, rents, issues and profits thereof,
together with all other rents, royalties, issues, profits, revenue,
income and other benefits arising from the use and enjoyment of the
Mortgaged Property (as defined below) (collectively, the "Rents");
(G) all trade names, trade marks, logos, copyrights, good will
and books and records relating to or used in connection with the
operation of the Real Estate or the Equipment or any part thereof; all
general intangibles related to the operation of the Improvements now
existing or hereafter arising (collectively, the "Intellectual
Property");
(H) all right, title and interest of Mortgagor in all unearned
premiums under insurance policies now or subsequently obtained by
Mortgagor relating to the Real
<PAGE> 6
5
Estate or Equipment and Mortgagor's interest in and to all proceeds of
any such insurance policies (including title insurance policies)
including the right to collect and receive such proceeds, subject to the
provisions relating to insurance generally set forth in the Credit
Agreement; and all awards and other compensation, including the interest
payable thereon and the right to collect and receive the same, made to
the present or any subsequent owner of the Real Estate or Equipment for
the taking by eminent domain, condemnation or otherwise, of all or any
part of the Real Estate or any easement or other right therein;
(I) to the extent assignable by Mortgagor, all right, title and
interest of Mortgagor in and to (i) all contracts from time to time
executed by Mortgagor or any manager or agent on its behalf relating to
the ownership, construction, maintenance, repair, operation, occupancy,
sale or financing of the Real Estate or Equipment or any part thereof
and all agreements relating to the purchase or lease of any portion of
the Real Estate or any property which is adjacent or peripheral to the
Real Estate, together with the right to exercise such options and all
leases of Equipment (collectively, the "Contracts"), (ii) all consents,
licenses, building permits, certificates of occupancy and other
governmental approvals relating to construction, completion, occupancy,
use or operation of the Real Estate or any part thereof (collectively,
the "Permits") and (iii) all drawings, plans, specifications and similar
or related items relating to the Real Estate (collectively, the
"Plans");
(J) all right, title and interest of Mortgagor in any and all
monies now or subsequently on deposit for the payment of real estate
taxes or special assessments against the Real Estate or for the payment
of premiums on insurance policies covering the foregoing property; all
capital, operating, reserve or similar accounts held by or on behalf of
Mortgagor and related to the operation of the Mortgaged Property,
whether now existing or hereafter arising and all monies held in any of
the foregoing accounts and any certificates or instruments related to or
evidencing such accounts;
(K) all accounts and revenues arising from the operation of the
Improvements including, without limitation, (i) any right to payment now
existing or hereafter arising for rental of hotel rooms or other space
or for goods sold or leased or for services rendered, whether or not yet
earned by performance, arising from the operation of the Improvements or
any other facility on the Mortgaged Property and (ii) to the extent
assignable by Mortgagor, all rights to payment from any consumer credit-
charge card organization or entity including, without limitation,
payments arising from the use of the American Express Card, the Visa
Card,
<PAGE> 7
6
the Carte Blanche Card, the Mastercard or any other credit card,
including those now existing or hereafter created, substitutions
therefor, proceeds thereof (whether cash or non-cash, movable or
immovable, tangible or intangible) received upon the sale, exchange,
transfer, collection or other disposition or substitution thereof and
any and all of the foregoing and proceeds therefrom; and
(L) all proceeds, both cash and noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned
or held or subsequently acquired by Mortgagor and described in the foregoing
clauses (A) through (E) are collectively referred to as the "Premises", and
those described in the foregoing clauses (A) through (L) are collectively
referred to as the "Mortgaged Property"; notwithstanding the foregoing,
"Mortgaged Property" shall not include, with respect to Mortgagor, any Leases,
Intellectual Property, Contracts, Permits or Plans to the extent the grant by
Mortgagor of a security interest pursuant to this Mortgage in its rights under
such item is prohibited thereby and the consent of applicable Persons has not
been obtained, provided that the foregoing limitation shall not affect, limit,
restrict or impair the grant by Mortgagor of a security interest pursuant to
this Mortgage in any Account or any money or other amounts due or to become due
under such Lease, Intellectual Property, Contract, Permit or Plan, to the
extent provided in Section 9-318 of the New York UCC as in effect on the date
hereof.).
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for the
uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
Terms and Conditions
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. Warranty of Title. Mortgagor warrants that Mortgagor has
good title to the Real Estate in fee simple and good title to the rest of the
Mortgaged Property, subject only to the matters that are set forth in Schedule
B of the title insurance policy or policies being issued to Mortgagee to insure
the lien of this Mortgage and those items permitted by the Credit Agreement
(collectively, the "Permitted Exceptions") and Mortgagor shall warrant, defend
and preserve such title and the lien of the Mortgage thereon against all claims
of all persons and entities. Mortgagor further warrants that it has the right
to mortgage the Mortgaged Property.
<PAGE> 8
7
2. Payment of Indebtedness. Mortgagor shall pay the
Indebtedness at the times and places and in the manner specified in the Notes
and shall perform all the Obligations.
3. Requirements.
(a) Mortgagor shall promptly comply with, or cause to be
complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements,
and irrespective of the nature of the work to be done, of each of the United
States of America, any State and any municipality, local government or other
political subdivision thereof and any agency, department, bureau, board,
commission or other instrumentality of any of them, now existing or
subsequently created (collectively, "Governmental Authority") which has
jurisdiction over the Mortgaged Property and all covenants, restrictions and
conditions now or later of record which may be applicable to any of the
Mortgaged Property, or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction of any of the
Mortgaged Property, except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse
Effect. All present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements of every Governmental
Authority applicable to Mortgagor or to any of the Mortgaged Property and all
covenants, restrictions, and conditions which now or later may be applicable to
any of the Mortgaged Property are collectively referred to as the "Legal
Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall
not by act or omission permit any building or other improvement on any premises
not subject to the lien of this Mortgage to rely on the Premises or any part
thereof or any interest therein to fulfill any Legal Requirement, and Mortgagor
hereby assigns to Mortgagee any and all rights to give consent for all or any
portion of the Premises or any interest therein to be so used. Mortgagor shall
not by act or omission impair the integrity of any of the Real Estate which is
a single zoning lot as of the date hereof as a single zoning lot separate and
apart from all other premises. Any act or omission by Mortgagor which would
result in a violation of any of the provisions of this subsection shall be
void.
4. Payment of Taxes and Other Impositions. (a) Mortgagor shall
pay and discharge taxes and other charges in accordance with the Credit
Agreement.
(b) Any sums paid by Mortgagee in discharge of any taxes
permitted to be paid by Mortgagee pursuant to the Credit Agreement shall be (i)
a lien on the Premises secured hereby prior to any right or title to, interest
in, or claim upon the Premises subordinate to the lien of this Mortgage and
(ii) payable to Mortgagee as set forth in the Credit Agreement.
<PAGE> 9
8
(c) Mortgagor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Mortgage or on any
interest payable thereon for any taxes assessed against the Mortgaged Property
or any part thereof, and shall not claim any deduction from the taxable value
of the Mortgaged Property by reason of this Mortgage.
5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises insurance as required under the Credit
Agreement.
(b) Mortgagor promptly comply in all material respects with and
conform to (i) all provisions of each such insurance policy, and (ii) all
requirements of the insurers applicable to Mortgagor or to any of the Mortgaged
Property or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Mortgaged Property. Mortgagor
shall not use or permit the use of the Mortgaged Property in any manner which
would permit any insurer to cancel any insurance policy or void coverage
required to be maintained by this Mortgage.
(c) In the event of foreclosure of this Mortgage or other
transfer of title to the Mortgaged Property all right, title and interest of
Mortgagor in and to any insurance policies then in force shall pass to the
purchaser or grantee.
6. Restrictions on Liens and Encumbrances. Except for the lien
of this Mortgage and the Permitted Exceptions, Mortgagor shall not further
mortgage, nor otherwise encumber the Mortgaged Property nor create or suffer to
exist any lien, charge or encumbrance on the Mortgaged Property, or any part
thereof, whether superior or subordinate to the lien of this Mortgage and
whether recourse or non-recourse.
7. Due on Sale and Other Transfer Restrictions. Except as
expressly permitted under the Credit Agreement, Mortgagor shall not sell,
transfer, convey or assign all or any portion of, or any interest in, the
Mortgaged Property.
8. Maintenance; No Alteration; Inspection; Utilities. (a)
Mortgagor shall maintain or cause to be maintained all the Improvements in good
condition and repair (ordinary wear and tear excepted) and shall not commit or
suffer any waste of the Improvements. The Improvements shall not be demolished
or materially altered, nor any material additions built, without the prior
written consent of Mortgagee, such consent not to be unreasonably withheld.
(b) Subject to Section 10.3 of the Credit Agreement, Mortgagor
shall pay or cause to be paid utility charges and all other assessments or
charges of a similar nature, whether public or private, affecting the Premises
or any portion thereof.
<PAGE> 10
9
9. Condemnation/Eminent Domain. Immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Mortgaged Property, or any portion thereof, Mortgagor will notify Mortgagee of
the pendency of such proceedings. During the continuance of an Event of
Default, and subject to Section 7.5(i) of the Credit Agreement, Mortgagee is
hereby authorized and empowered by Mortgagor to settle or compromise any claim
in connection with such condemnation and to receive all awards and proceeds
thereof to be held by Mortgagee as collateral to secure the payment and
performance of the Indebtedness and the Obligations. Notwithstanding the
preceding sentence, subject to the provisions of the Credit Agreement and
provided that no Event of Default shall have occurred and be continuing,
Mortgagor shall, at its expense, diligently prosecute any such proceeding
relating to such condemnation, settle or compromise any claims in connection
therewith and receive any awards or proceeds thereof, provided that Mortgagor
shall comply with the applicable provisions of the Credit Agreement.
10. Restoration. Mortgagor will apply insurance proceeds and
condemnation proceeds and awards in accordance with the Credit Agreement.
11. Leases. Except as otherwise provided in the Credit
Agreement, (a) Mortgagor shall not (i) execute an assignment or pledge of any
Lease relating to all or any portion of the Mortgaged Property other than in
favor of Mortgagee, or (ii) without the prior written consent of Mortgagee,
execute or permit to exist any Lease of any of the Mortgaged Property, except
as provided in the Credit Agreement.
(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall not accept a surrender or terminate,
cancel, rescind, supplement, alter, revise, modify or amend such Lease or
permit any such action to be taken nor shall Mortgagor accept the payment of
rent more than thirty (30) days in advance of its due date, except to the
extent such action or payment occurs either in the ordinary course of business
or according to Mortgagor's reasonable business judgment.
12. Further Assurances/Estoppel Certificates. To further assure
Mortgagee's rights under this Mortgage, Mortgagor agrees upon demand of
Mortgagee to do any act or execute any additional documents (including, but not
limited to, security agreements on any personalty included or to be included in
the Mortgaged Property and a separate assignment of each Lease in recordable
form) as may be reasonably required by Mortgagee to confirm the lien of this
Mortgage and all other rights or benefits conferred on Mortgagee.
13. Mortgagee's Right to Perform. If Mortgagor fails to perform
any of the covenants or agreements of Mortgagor, Mortgagee may at any time (but
shall be under no obligation to) pay or perform the same, and the amount or
cost thereof, as set
<PAGE> 11
10
forth in the Credit Agreement, shall immediately be due from Mortgagor to
Mortgagee and the same shall be secured by this Mortgage and shall be a lien on
the Mortgaged Property prior to any right, title to, interest in or claim upon
the Mortgaged Property attaching subsequent to the lien of this Mortgage. No
payment or advance of money by Mortgagee under this Section shall be deemed or
construed to cure Mortgagor's default or waive any right or remedy of
Mortgagee.
14. Materials of Environmental Concern. Mortgagor shall comply
in all respects with Section 8.15 of the Credit Agreement.
15. Events of Default. The occurrence of any Event of Default
as such term is defined in the Credit Agreement shall constitute an Event of
Default hereunder.
16. Remedies.
(a) Subject to the provisions of the Credit Agreement, upon the
occurrence of any Event of Default, in addition to any other rights and
remedies Mortgagee may have pursuant to the Loan Documents, or as provided by
law, and without limitation, (x) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of Section 12 of the Credit Agreement,
automatically the Indebtedness and all other amounts owing under the Notes,
this Mortgage and the other Security Documents immediately shall become due and
payable, and (y) if such event is any other Event of Default, with the consent
of the Required Lenders, the Mortgagee may, or upon the request of the Required
Lenders, the Mortgagee shall, by notice to Mortgagor, declare the Indebtedness
(together with accrued interest thereon) and all other amounts payable under
the Notes, this Mortgage and the other Security Documents to be immediately due
and payable. Except as expressly provided in the Credit Agreement, notice of
intention to accelerate, notice of acceleration, presentment, demand, protest
and all other notices of any kind are hereby expressly waived. In addition,
upon the occurrence of any Event of Default, Mortgagee may immediately take
such action, without notice or demand, as it deems advisable to protect and
enforce its rights against Mortgagor and in and to the Mortgaged Property,
including, but not limited to, the following actions, each of which may be
pursued concurrently or otherwise, at such time and in such manner as Mortgagee
may determine, in its sole discretion, without impairing or otherwise affecting
the other rights and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law,
(A) institute and maintain an action of mortgage foreclosure against all
or any part of the Mortgaged Property, (B) institute and maintain an
action on the Indebtedness or the Notes, (C) sell all or part of the
Mortgaged Property (Mortgagor expressly granting to Mortgagee the power
of sale), or (D) take such other action
<PAGE> 12
11
at law or in equity for the enforcement of this Mortgage or any of the
Loan Documents as the law may allow. Mortgagee may proceed in any such
action to final judgment and execution thereon for all sums due
hereunder, together with interest thereon at the Default Rate and all
costs of suit, including, without limitation, reasonable attorneys' fees
and disbursements. Interest at the Default Rate shall be due on any
judgment obtained by Mortgagee from the date of judgment until the date
upon which actual payment is made of the full amount of the judgment.
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Mortgaged Property or any other collateral as security for the
Indebtedness and Obligations enter into and upon the Mortgaged Property
and each and every part thereof and exclude Mortgagor and its agents and
employees therefrom without liability for trespass, damage or otherwise
(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee shall
be entitled, without limitation, (x) to lease all or any part or parts
of the Mortgaged Property for such periods of time and upon such
conditions as Mortgagee may, in its discretion, deem proper, (y) to
enforce, cancel or modify any Lease and (z) generally to execute, do and
perform any other act, deed, matter or thing concerning the Mortgaged
Property as Mortgagee shall deem appropriate as fully as Mortgagor might
do.
(b) The holder of this Mortgage, in any action to foreclose it,
shall be entitled to the appointment of a receiver. In case of a foreclosure
sale, the Real Estate may be sold, at Mortgagee's election, in one parcel or in
more than one parcel and Mortgagee is specifically empowered, (without being
required to do so, and in its sole and absolute discretion) to cause successive
sales of portions of the Mortgaged Property to be held.
(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Mortgage, and notwithstanding
to the contrary any exculpatory or non-recourse language which may be contained
herein, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Mortgage.
(d) MORTGAGOR AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT
OF RECORD OF THE STATE OF OHIO TO APPEAR FOR AND TO CONFESS JUDGMENT IN
EJECTMENT AGAINST MORTGAGOR (AND, AT THE
<PAGE> 13
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ELECTION OF SAID ATTORNEY, AGAINST ANY PERSON CLAIMING UNDER, BY OR THROUGH
MORTGAGOR) FOR THE RECOVERY BY MORTGAGEE OF POSSESSION OF THE ENTIRE PREMISES
OR, AT THE ELECTION OF SAID ATTORNEY, ANY PORTION OR PORTIONS OF THE PREMISES.
THE FOREGOING AUTHORITY TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY
EXERCISE THEREOF BUT SHALL CONTINUE FROM TIME TO TIME UNTIL MORTGAGEE IS FULLY
AND FINALLY VESTED WITH POSSESSION OF THE ENTIRE PREMISES. MORTGAGOR EXPRESSLY
AGREES THAT ANY JUDGMENT ENTERED PURSUANT TO THE FOREGOING AUTHORITY SHALL BE
FINAL AND RELEASES TO MORTGAGEE, AND TO ANY ATTORNEY APPEARING FOR MORTGAGOR OR
MORTGAGEE, ALL ERRORS IN SAID PROCEEDINGS AND ALL LIABILITY THEREFOR. UPON
CONFESSION OF JUDGMENT IN EJECTMENT PURSUANT TO THE FOREGOING AUTHORITY, A WRIT
OF POSSESSION (OR LIKE WRIT APPROPRIATE UNDER THEN APPLICABLE LAW) MAY ISSUE
FORTHWITH WITHOUT ANY PRIOR PROCEEDINGS AND MAY INCLUDE THE COSTS OF MORTGAGEE.
JUDGMENT MAY BE ENTERED PURSUANT TO THE FOREGOING AUTHORITY ON THE BASIS OF AN
AFFIDAVIT MADE ON MORTGAGEE'S BEHALF AND SETTING FORTH THE RELEVANT FACTS, OF
WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE COPY OF
THIS MORTGAGE IS FILED IN ANY ACTION FOR SUCH JUDGMENT IT SHALL NOT BE
NECESSARY TO FILE THE ORIGINAL OF THIS MORTGAGE.
17. Right of Mortgagee to Credit Sale. Upon the occurrence of
any sale made under this Mortgage, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for
the purchase price by crediting upon the Indebtedness or other sums secured by
this Mortgage the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage. In such event, this Mortgage, the
Notes and documents evidencing expenditures secured hereby may be presented to
the person or persons conducting the sale in order that the amount so used or
applied may be credited upon the Indebtedness as having been paid.
18. Appointment of Receiver. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice
to Mortgagor, unless otherwise required by applicable law, and without regard
to the adequacy or inadequacy of the Mortgaged Property or any other collateral
as security for the Indebtedness and Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any
<PAGE> 14
13
part of the Mortgaged Property, and shall continue as such and exercise all
such powers until the date of confirmation of sale of the Mortgaged Property
unless such receivership is sooner terminated.
19. Extension, Release, etc. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged Property not then or
theretofore released as security for the full amount of the Indebtedness,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of
the terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Mortgage shall secure
less than all of the principal amount of the Indebtedness, it is expressly
agreed that any repayments of the principal amount of the Indebtedness shall
not reduce the amount of the lien of this Mortgage until the lien amount shall
equal the principal amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.
(c) If Mortgagee shall have the right to foreclose this
Mortgage, Mortgagor authorizes Mortgagee at its option to foreclose the lien of
this Mortgage subject to the rights of any tenants of the Mortgaged Property.
The failure to make any such tenants defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Indebtedness
or to foreclose the lien of this Mortgage.
(d) Unless expressly provided otherwise, in the event that
ownership of this Mortgage and title to the Mortgaged Property or any estate
therein shall become vested in the same person or entity, this Mortgage shall
not merge in such title but shall continue as a valid lien on the Mortgaged
Property for the amount secured hereby.
20. Security Agreement under Uniform Commercial Code. (a) It is
the intention of the parties hereto that this Mortgage shall constitute a
Security Agreement within the meaning of the Uniform Commercial Code (the
"Code") of the State in which the Mortgaged Property is located. If an Event
of Default shall occur under this Mortgage, then in addition to having any
other right or remedy available at law or in equity, Mortgagee shall
<PAGE> 15
14
have the option of either (i) proceeding under the Code and exercising such
rights and remedies as may be provided to a secured party by the Code with
respect to all or any portion of the Mortgaged Property which is personal
property (including, without limitation, taking possession of and selling such
property) or (ii) treating such property as real property and proceeding with
respect to both the real and personal property constituting the Mortgaged
Property in accordance with Mortgagee's rights, powers and remedies with
respect to the real property (in which event the default provisions of the Code
shall not apply). If Mortgagee shall elect to proceed under the Code, then ten
days' notice of sale of the personal property shall be deemed reasonable notice
and the reasonable expenses of retaking, holding, preparing for sale, selling
and the like incurred by Mortgagee shall include, but not be limited to,
reasonable attorneys' fees and legal expenses. At Mortgagee's request,
Mortgagor shall assemble the personal property and make it available to
Mortgagee at a place designated by Mortgagee which is reasonably convenient to
both parties.
(b) Mortgagor and Mortgagee agree, to the extent permitted by
law, that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this
Mortgage upon recording or registration in the real estate records of the
proper office shall constitute a financing statement filed as a "fixture
filing" within the meaning of Sections 9-313 and 9-402 of the Code; (iii)
Mortgagor is the record owner of the Real Estate; and (iv) the addresses of
Mortgagor and Mortgagee are as set forth on the first page of this Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or more separate security
agreements, in form satisfactory to Mortgagee, covering all or any part of the
Mortgaged Property and will further execute, acknowledge and deliver, or cause
to be executed, acknowledged and delivered, any financing statement, affidavit,
continuation statement or certificate or other document as Mortgagee may
reasonably request in order to perfect, preserve, maintain, continue or extend
the security interest under and the priority of this Mortgage and such security
instrument. Mortgagor further agrees to pay to Mortgagee on demand all
reasonable costs and expenses incurred by Mortgagee in connection with the
preparation, execution, recording, filing and re-filing of any such document.
Mortgagor shall from time to time, on request of Mortgagee, deliver to
Mortgagee an inventory in reasonable detail of any of the Mortgaged Property
which constitutes personal property. If Mortgagor shall fail to furnish any
financing or continuation statement within 10 days after request by Mortgagee,
then pursuant to the provisions of the Code, Mortgagor hereby authorizes
Mortgagee, without the signature of Mortgagor, to execute and file any such
financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal
<PAGE> 16
15
property or chattels shall not be construed as in any way impairing the right
of Mortgagee to proceed against any personal property encumbered by this
Mortgage as real property, as set forth above.
21. Assignment of Rents. Mortgagor hereby assigns to Mortgagee
the Rents as further security for the payment of the Indebtedness and
performance of the Obligations, and Mortgagor grants to Mortgagee the right to
enter the Mortgaged Property for the purpose of collecting the same and to let
the Mortgaged Property or any part thereof, and to apply the Rents on account
of the Indebtedness. The foregoing assignment and grant is present and
absolute and shall continue in effect until the Indebtedness is paid in full,
but Mortgagee hereby waives the right to enter the Mortgaged Property for the
purpose of collecting the Rents and Mortgagor shall be entitled to collect,
receive, use and retain the Rents until the occurrence and continuance of an
Event of Default under this Mortgage; such right of Mortgagor to collect,
receive, use and retain the Rents may be revoked by Mortgagee upon the
occurrence and continuance of any Event of Default under this Mortgage by
giving not less than five days' written notice of such revocation to Mortgagor;
in the event such notice is given, Mortgagor shall pay over to Mortgagee, or to
any receiver appointed to collect the Rents, any lease security deposits.
Mortgagor shall not accept prepayments of installments of Rent to become due
for a period of more than one month in advance (except for security deposits
and estimated payments of percentage rent, if any, or as otherwise provided in
such Lease).
22. Additional Rights. The holder of any subordinate lien on
the Mortgaged Property shall have no right to terminate any Lease whether or
not such Lease is subordinate to this Mortgage nor shall any holder of any
subordinate lien join any tenant under any Lease in any action to foreclose the
lien or modify, interfere with, disturb or terminate the rights of any tenant
under any Lease. By recordation of this Mortgage all subordinate lienholders
are subject to and notified of this provision, and any action taken by any such
lienholder contrary to this provision shall be null and void. Upon the
occurrence of any Event of Default, Mortgagee may, in its sole discretion and
without regard to the adequacy of its security under this Mortgage, apply all
or any part of any amounts on deposit with Mortgagee under this Mortgage
against all or any part of the Indebtedness. Any such application shall not be
construed to cure or waive any Default or Event of Default or invalidate any
act taken by Mortgagee on account of such Default or Event of Default.
23. Notices. All notices, requests, demands and other
communications hereunder shall be given in accordance with subsection 10.7 of
the Credit Agreement to Mortgagor and Mortgagee as specified therein.
<PAGE> 17
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24. No Oral Modification. This Mortgage may not be amended,
supplemented, terminated or otherwise modified except in accordance with
subsection 14.1 of the Credit Agreement. Any agreement made by Mortgagor and
Mortgagee after the date of this Mortgage relating to this Mortgage shall be
superior to the rights of the holder of any intervening or subordinate lien or
encumbrance.
25. Partial Invalidity. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision hereof, but each shall
be construed as if such invalid, illegal or unenforceable provision had never
been included. Notwithstanding to the contrary anything contained in this
Mortgage or in any provisions of the Indebtedness or Loan Documents, the
obligations of Mortgagor and of any other obligor under the Indebtedness or
Loan Documents shall be subject to the limitation that Mortgagee shall not
charge, take or receive, nor shall Mortgagor or any other obligor be obligated
to pay to Mortgagee, any amounts constituting interest in excess of the maximum
rate permitted by law to be charged by Mortgagee.
26. Mortgagor's Waiver of Rights. To the fullest extent
permitted by law, Mortgagor waives the benefit of all laws now existing or that
may subsequently be enacted providing for (i) any appraisement before sale of
any portion of the Mortgaged Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Mortgaged Property from attachment, levy or sale under
execution or exemption from civil process. To the full extent Mortgagor may do
so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, exemption, extension or
redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created.
27. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment of the Indebtedness and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Loan Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Indebtedness and Obligations may now or
hereafter be otherwise secured, whether by mortgage, security
<PAGE> 18
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agreement, pledge, lien, assignment or otherwise. Neither the acceptance of
this Mortgage nor its enforcement, shall prejudice or in any manner affect
Mortgagee's right to realize upon or enforce any other security now or
hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled
to enforce this Mortgage and any other security now or hereafter held by
Mortgagee in such order and manner as Mortgagee may determine in its absolute
discretion. No remedy herein conferred upon or reserved to Mortgagee is
intended to be exclusive of any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by any of the Loan Documents to Mortgagee
or to which it may otherwise be entitled, may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
Mortgagee. In no event shall Mortgagee, in the exercise of the remedies
provided in this Mortgage (including, without limitation, in connection with
the assignment of Rents to Mortgagee, or the appointment of a receiver and the
entry of such receiver on to all or any part of the Mortgaged Property), be
deemed a "mortgagee in possession," and Mortgagee shall not in any way be made
liable for any act, either of commission or omission, in connection with the
exercise of such remedies.
28. Multiple Security. If (a) the Premises shall consist of one
or more parcels, whether or not contiguous and whether or not located in the
same county, or (b) in addition to this Mortgage, Mortgagee shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or other
security (directly or indirectly) for the Indebtedness upon other property in
the State in which the Premises are located (whether or not such property is
owned by Mortgagor or by others) or (c) both the circumstances described in
clauses (a) and (b) shall be true, then to the fullest extent permitted by law,
Mortgagee may, at its election, commence or consolidate in a single foreclosure
action all foreclosure proceedings against all such collateral securing the
Indebtedness (including the Mortgaged Property), which action may be brought or
consolidated in the courts of any county in which any of such collateral is
located. Mortgagor acknowledges that the right to maintain a consolidated
foreclosure action is a specific inducement to Mortgagee to extend the
Indebtedness, and Mortgagor expressly and irrevocably waives any objections to
the commencement or consolidation of the foreclosure proceedings in a single
action and any objections to the laying of venue or based on the grounds of
forum non conveniens which it may now or hereafter have. Mortgagor further
agrees that if Mortgagee shall be prosecuting one or more foreclosure or other
proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly secures the Indebtedness, or if Mortgagee shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being
<PAGE> 19
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maintained or judgments were obtained in or outside the State in which the
Premises are located, Mortgagee may commence or continue foreclosure
proceedings and exercise its other remedies granted in this Mortgage against
all or any part of the Mortgaged Property and Mortgagor waives any objections
to the commencement or continuation of a foreclosure of this Mortgage or
exercise of any other remedies hereunder based on such other proceedings or
judgments, and waives any right to seek to dismiss, stay, remove, transfer or
consolidate either any action under this Mortgage or such other proceedings on
such basis. Neither the commencement nor continuation of proceedings to
foreclose this Mortgage nor the exercise of any other rights hereunder nor the
recovery of any judgment by Mortgagee in any such proceedings shall prejudice,
limit or preclude Mortgagee's right to commence or continue one or more
foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Indebtedness, and Mortgagor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Mortgage, and
Mortgagor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Mortgage on
such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Mortgagee may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Indebtedness (directly or
indirectly) in the most economical and least time-consuming manner.
29. Successors and Assigns. All covenants of Mortgagor
contained in this Mortgage are imposed solely and exclusively for the benefit
of Mortgagee and its successors and assigns, and no other person or entity
shall have standing to require compliance with such covenants or be deemed,
under any circumstances, to be a beneficiary of such covenants, any or all of
which may be freely waived in whole or in part by Mortgagee at any time if in
its sole discretion it deems such waiver advisable. All such covenants of
Mortgagor shall run with the land and bind Mortgagor, the successors and
assigns of Mortgagor (and each of them) and all subsequent owners,
encumbrancers and tenants of the Mortgaged Property, and shall inure to the
benefit of Mortgagee, its successors and assigns. The word "Mortgagor" shall
be construed as if it read "Mortgagors" whenever the sense of this Mortgage so
requires and if there shall be more than one Mortgagor, the obligations of the
Mortgagors shall be joint and several.
30. No Waivers, etc. Any failure by Mortgagee to insist upon
the strict performance by Mortgagor of any of the
<PAGE> 20
19
terms and provisions of this Mortgage shall not be deemed to be a waiver of any
of the terms and provisions hereof, and Mortgagee, notwithstanding any such
failure, shall have the right thereafter to insist upon the strict performance
by Mortgagor of any and all of the terms and provisions of this Mortgage to be
performed by Mortgagor. Mortgagee may release, regardless of consideration and
without the necessity for any notice to or consent by the holder of any
subordinate lien on the Mortgaged Property, any part of the security held for
the obligations secured by this Mortgage without, as to the remainder of the
security, in anywise impairing or affecting the lien of this Mortgage or the
priority of such lien over any subordinate lien.
31. Governing Law, etc. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor expressly acknowledges that by its terms the
Note shall be governed and construed in accordance with the laws of the State
of New York, without regard to principles of conflict of law, and for purposes
of consistency, Mortgagor agrees that in any in personam proceeding related to
this Mortgage the rights of the parties to this Mortgage shall also be governed
by and construed in accordance with the laws of the State of New York governing
contracts made and to be performed in that State, without regard to principles
of conflict of law.
32. Waiver of Trial by Jury. Mortgagor and Mortgagee each
hereby irrevocably and unconditionally waive trial by jury in any action,
claim, suit or proceeding relating to this Mortgage and for any counterclaim
brought therein. Mortgagor hereby waives all rights to interpose any
counterclaim in any suit brought by Mortgagee hereunder and all rights to have
any such suit consolidated with any separate suit, action or proceeding.
33. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "Mortgagor" shall mean "each Mortgagor or any subsequent owner or owners
of the Mortgaged Property or any part thereof or interest therein," the word
"Mortgagee" shall mean "Mortgagee or any subsequent holder of the Notes," the
word "Note" shall mean "the Note or Notes or any other evidence of indebtedness
secured by this Mortgage," the word "person" shall include any individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, or other entity, and the words "Mortgaged Property"
shall include any portion of the Mortgaged Property or interest therein.
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa. The captions in
this Mortgage are for convenience or reference only and in no way limit or
amplify the provisions hereof.
<PAGE> 21
20
34. Protective Advances. Mortgagee shall have the right, but
not the obligation, to make protective advances with respect to the Mortgaged
Property for the payment of taxes, assessments, insurance premiums, repairs,
maintenance and other costs incurred in the protection of the Mortgaged
Property as contemplated by Section 5301.233 of the Ohio Revised Code, and such
protective advances, together with interest thereon at the Default Rate from
the date of each such advance until it is repaid in full, shall be secured by
this Mortgage to the fullest extent and with the highest priority contemplated
by such Section 5301.233.
35. Mortgagee's Rights Under Mechanics' Lien Laws. Mortgagee
is hereby authorized and empowered, at its option, to do as Mortgagee all
things provided in the mechanics' lien laws of Ohio, including without
limitation, Section 1311.14 of the Ohio Revised Code, and all amendments and
supplements thereto.
36. Future Advances. This Mortgage is executed and delivered to
secure, among other things, obligatory future advances pursuant to the terms of
the Credit Agreement. It is understood and agreed that this Mortgage secures
all present and future advances made for the benefit of Mortgagor pursuant to
the terms of the Credit Agreement and that the lien of such future advances
shall relate back to the date of this Mortgage.
<PAGE> 22
This Mortgage has been duly executed by Mortgagor on the date
first above written.
Signed and acknowledged HEDSTROM CORPORATION
in the presence of:
/s/ WILLIAM B. SHEEHAN By: /s/ ANDREW S. ROSEN
- --------------------------- ----------------------------
Name: William B. Sheehan Name: Andrew S. Rosen
Vice President
/s/ ERIN ROTHFUSS
- ---------------------------
Name: Erin Rothfuss
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 11th day of June, 1997, before me personally came Andrew
S. Rosen, to me known, who, being by me duly sworn, did depose and say that he
resides at 585 Slawin Court, Mt. Prospect, Illinois; that he is a Vice
President of Hedstrom Corporation, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by
authority of the board of directors of said corporation.
/s/ SARAH L. MORRIS
-------------------------
Notary Public
[Notarial Stamp]
SARAH L. MORRIS
NOTARY PUBLIC, State of New York
No. 01M05071845
Qualified in New York County
Commission Expires January 21, 1999
This Open-End Mortgage was prepared by:
Erin L. Rothfuss, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
<PAGE> 23
Schedule A
Situated in the City of Ashland, County of Ashland, and State of Ohio: And
known as being a part of the Southeast Quarter of Section 7 and a part of the
Southwest Quarter of Section 8, Township 22, Range 16 and more fully described
as follows: Commencing for boundary at a railroad spike set at the point of
intersection of the East right-of-way line of Cottage Street (60 feet wide) and
the South right-of-way of a certain alley (16.0 feet wide), said alley location
being recorded in Plat Book 4, Page 13 of the Ashland County Deed Records;
thence North 80 degrees 56'20" East, along the South right-of-way of said
alley, a distance of 422.11 feet to an iron pin found at the East right-of-way
of a certain alley (10 feet wide); thence North 01 degree 21'48" West, along
the East right-of-way of said 10 foot alley, a distance of 58.66 feet to an
iron pin found at the Southwest corner of Lot No. 547, North Ashland, now owned
by F. and G. Holland, as recorded in Volume 558, Page 669 of the Ashland County
Deed Records; thence South 85 degrees 12'49" East, along the South line of said
Lot No. 547, distance of 471.63 feet to an iron pin found at the Southeast
corner of said lot, said iron pin also being on the West right-of-way line of
Orange Street (50 feet wide); thence South 00 degrees 01'04" East along the
West right-of-way line of Orange Street, a distance of 949.08 feet to an iron
pin set on the North right-of-way line of the railroad; now owned by the
Ashland Community Improvement Corporation as recorded in Volume 542, Page 669
of the Ashland County Deed Records; thence North 62 degrees 41'11" West, along
said railroad right-of-way line, a distance of 79.70 feet to an iron pin set;
thence continuing along said railroad right-of-way in a Northwesterly direction
and on a curve to the right (Delta = 10 05'25"; Radius = 1402.40 feet) a chord
bearing of North 56 degrees 10'11" West and chord distance of 246.66 feet to an
iron pin set; thence North 74 degrees 02'23" West, along said railroad
right-of-way, a distance of 15.00 feet to an iron pin set; thence North 47
degrees 29'55" West, along said right-of-way line, a distance of 54.30 feet to
the Southwesterly corner of a 3-story brick building; thence North 44 degrees
17'15" West along said right-of-way line and the Southwesterly line of said
3-story brick building, a distance of 142.00 feet to an angle point in said
building; thence North 38 degrees 50'48" West, along said right-of-way and
building line, a distance of 123.22 feet to the Northwesterly corner of a
2-story brick building; thence North 50 degrees 05'00" East, along the
Northerly line of said 2-story brick building, a distance of 5.00 feet to a
point; thence North 37 degrees 05'30" West, along said railroad right-of-way
line a distance of 140.00 feet to an iron pin found; thence North 40 degrees
18'17" West, along said railroad right-of-way line, a distance of 121.02 feet
to an iron pin found; thence North 45 degrees 11'17" West, along said railroad
right-of-way, a distance of 303.76 feet to an iron pin found on the east
right-of-way line of Cottage Street; thence North 09 degrees 03'40" West, along
the East right-of-way line of Cottage Street, a distance of 30.10 feet to the
place of beginning, containing 11.416 acres but subject to all legal highways
and easements of record.
<PAGE> 1
EXHIBIT 10.9
Georgia
THIS INSTRUMENT IS TO BE RECORDED IN THE DEED RECORDS AND IS ALSO TO BE INDEXED
IN THE INDEX OF FINANCING STATEMENTS.
THE NAMES OF THE DEBTOR AND THE SECURED PARTY, THE MAILING ADDRESS OF THE
SECURED PARTY FROM WHICH INFORMATION CONCERNING THE SECURITY INTEREST MAY BE
OBTAINED, THE MAILING ADDRESS OF THE DEBTOR AND A STATEMENT INDICATING THE
TYPES, OR DESCRIBING THE ITEMS, OF COLLATERAL, ARE AS DESCRIBED IN SECTION 23
HEREOF, IN COMPLIANCE WITH THE REQUIREMENTS OF ARTICLE 9, SECTION 11-9-402 OF
THE OFFICIAL CODE OF GEORGIA, ANNOTATED (MICHIE, 1982).
Deed and Security Agreement
from
ERO INDUSTRIES, INC., Grantor
to
CREDIT SUISSE FIRST BOSTON, Grantee
DATED AS OF JUNE 12, 1997
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Erin L. Rothfuss, Esq.
<PAGE> 2
Georgia
DEED TO SECURE DEBT AND SECURITY AGREEMENT
THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT, dated as of
June __, 1997 is made by ERO INDUSTRIES, INC., a ____________corporation
("Grantor"), whose address is 585 Slawin Court, Mt. Prospect, Illinois
60056-2183, to CREDIT SUISSE FIRST BOSTON, a Swiss banking corporation, as
administrative agent for the Lenders referred to below (in such capacity,
"Grantee"), whose address is 11 Madison Avenue, New York, New York 10010.
References to this "Deed" shall mean this instrument and any and all renewals,
modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders and replacements of this instrument.
Background
A. Grantor is the owner of the parcel(s) of real
property described on Schedule A attached (such real property, together with
all of the buildings, improvements, structures and fixtures now or subsequently
located thereon (the "Improvements"), being collectively referred to as the
"Real Estate").
B. Grantor is a subsidiary of Hedstrom Corporation, a
Delaware corporation ("Borrower"). Borrower is a party to the Credit Agreement
dated as of even date herewith (as the same may be amended, supplemented,
modified, extended, restated or replaced from time to time, the "Credit
Agreement") among Borrower, the several banks and other financial institutions
from time to time parties thereto (the "Lenders") and Grantee. All defined
terms used and not defined herein shall have the meanings assigned thereto in
the Credit Agreement. The Credit Agreement is incorporated by reference in
this Deed as if the terms thereof were fully set forth herein.
C. Pursuant to the Credit Agreement, (i) certain of the
Lenders have agreed to make the loans as described in Section 2 of the Credit
Agreement to Borrower (the "Tranche A Loans"); (ii) certain of the Lenders have
agreed to make term loans as described in Section 3 of the Credit Agreement to
Borrower (the "Tranche B Loans"); (iii) certain of the Lenders have agreed to
make revolving credit loans to Borrower (the "Revolving Credit Loans"); (iv)
the Issuing Lender has agreed to issue letters of credit for the account of
Borrower; and (v) the Swing Line Lender has agreed to make swing line loans to
the Borrower (the "Swing Line Loans"). The maximum aggregate principal amount
of the Tranche A Loans, the Tranche B Loans, the Revolving Credit Loans, the
Swing Line Loans and the L/C Obligations outstanding at any one time shall not
exceed $180,000,000.
<PAGE> 3
2
D. The Loans may be evidenced by promissory notes of
Borrower made payable to the order of the relevant Lender (as the same may be
amended, supplemented, modified, extended, restated or replaced from time to
time, the "Notes"). Each Loan bears interest at the rate stated in the Credit
Agreement; references in this Deed to the "Default Rate" shall mean, at any
time, the interest rate applicable to overdue principal amounts of the Loans as
provided in the Credit Agreement. The obligation of Borrower to reimburse the
Issuing Lender for amounts drawn under Letters of Credit (the "Reimbursement
Obligation") is governed by the section of the Credit Agreement entitled
"Letters of Credit."
E. Grantee is the administrative agent for the Lenders
pursuant to the Credit Agreement and the Subsidiaries Guarantee and Collateral
Agreement (as defined in the Credit Agreement). Grantor will benefit, as a
subsidiary of Borrower, from Borrower entering into the Credit Agreement. In
recognition of the benefits conferred upon Grantor, Grantor has executed the
Subsidiaries Guarantee and Collateral Agreement (the "Guarantee"), under which
Grantor guarantees to Grantee, as administrative agent for the Lenders, the
prompt and complete payment and performance by Borrower when due of the
Borrower Obligations (as defined in the Guarantee).
F. It is a condition precedent to the obligation of the
Lenders to make their respective Loans to Borrower and of the issuing Lender to
issue the Letters of Credit for the account of Borrower that Grantor shall have
executed and delivered this Deed to Grantee for the benefit of Grantee and the
other Lenders, and Grantor is willing to so execute and deliver this Deed in
order to obtain the benefits available to it from Borrower entering into the
Credit Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
Grantee and the other Lenders to make their respective Loans to Borrower and
the Issuing Lender to issue the Letters of Credit for the account of Borrower,
Grantor hereby agrees with Grantee, for the benefit of Grantee and the other
Lenders, as follows:
Granting Clauses
THIS CONVEYANCE is intended to operate and is to be construed
as a deed passing title to the Subject Property (as defined below) to Grantee
and is made under those provisions of the existing laws of the State of Georgia
relating to deeds to secure debt, and not as a mortgage. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Grantor agrees that this Deed is given to secure the following:
(a) (i) the prompt and complete payment and performance when
due of the Borrower Obligations and (ii) all interest and fees,
indemnities, costs and expenses
<PAGE> 4
3
payable thereon by Grantor (the items set forth in clauses (i) and
(ii) being referred to collectively as the "Indebtedness"); and
(b) the performance of all covenants, agreements, obligations
and liabilities of Grantor (the "Obligations") whether direct or
indirect, absolute or contingent, due or to become due, or now
existing or hereinafter incurred, which may arise under or pursuant to
the provisions of the Guarantee, this Deed, any other document
securing payment of the Indebtedness (the "Security Documents") and
any amendments, supplements, extensions, renewals, restatements,
replacements or modifications of any of the foregoing (the Guarantee,
the Security Documents, the Credit Agreement and all other documents
and instruments from time to time evidencing, securing or guaranteeing
the payment of the Indebtedness or the performance of the Obligations,
as any of the same may be amended, supplemented, extended, renewed,
restated, replaced or modified from time to time, are collectively
referred to as the "Loan Documents");
GRANTOR HEREBY:
has bargained, sold, conveyed, granted, assigned, granted a security interest
in, warranted, pledged, given, aliened, remised, released, confirmed,
transferred and set over and by these presents does hereby bargain, sell,
convey, grant, assign, grant a security interest in, warrant, pledge, give,
alien, remise, release, confirm, transfer and set over unto Grantee, its
successors and assigns forever, in fee simple with power of sale, for the
benefit of Grantee, its successors and assigns:
(A) the Real Estate;
(B) all the estate, right, title, claim or demand whatsoever
of Grantor, in possession or expectancy, in and to the Real Estate or
any part thereof;
(C) all right, title and interest of Grantor in, to and under
all present and future easements, rights of way, gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses,
water and riparian rights, development rights, air rights, mineral
rights and all estates, rights, titles, interests, privileges,
licenses, tenements, hereditaments and appurtenances belonging,
relating or appertaining to the Real Estate, and any reversions,
remainders, rents, issues, profits and revenue thereof and all land
lying in the bed of any street, road or avenue, in front of or
adjoining the Real Estate to the center line thereof;
(D) all right, title and interest of Grantor in all of the
fixtures, chattels, business machines, machinery, apparatus,
equipment, furnishings, fittings and articles of
<PAGE> 5
4
personal property of every kind and nature whatsoever, and all
appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts
and accessories) currently owned or subsequently acquired by Grantor
and now or subsequently attached to, or contained in or used or usable
in any way in connection with any operation or letting of the Real
Estate, including but without limiting the generality of the
foregoing, all screens, awnings, shades, blinds, curtains, draperies,
artwork, carpets, rugs, storm doors and windows, furniture and
furnishings, heating, electrical, and mechanical equipment, lighting,
switchboards, plumbing, ventilating, air conditioning and air-cooling
apparatus, refrigerating, and incinerating equipment, escalators,
elevators, loading and unloading equipment and systems, stoves,
ranges, laundry equipment, cleaning systems (including window cleaning
apparatus), telephones, communication systems (including satellite
dishes and antennae), televisions, computers, sprinkler systems and
other fire prevention and extinguishing apparatus and materials,
security systems, motors, engines, machinery, pipes, pumps, tanks,
conduits, appliances, fittings and fixtures of every kind and
description (all of the foregoing in this paragraph (D) being referred
to as the "Equipment");
(E) all right, title and interest of Grantor in and to all
substitutes and replacements of, and all additions and improvements
to, the Real Estate and the Equipment, subsequently acquired by or
released to Grantor or constructed, assembled or placed by Grantor on
the Real Estate, immediately upon such acquisition, release,
construction, assembling or placement, including, without limitation,
any and all building materials whether stored at the Real Estate or
offsite, and, in each such case, without any further mortgage,
conveyance, assignment or other act by Grantor;
(F) all right, title and interest of Grantor in, to and under
all leases, subleases, underlettings, concession agreements,
management agreements, licenses and other agreements relating to the
use or occupancy of the Real Estate or the Equipment or any part
thereof, now existing or subsequently entered into by Grantor and
whether written or oral and all guarantees of any of the foregoing
(collectively, as any of the foregoing may be amended, restated,
extended, renewed or modified from time to time, the "Leases"), and
all rights of Grantor in respect of cash and securities deposited
thereunder and the right to receive and collect the revenues, income,
rents, issues and profits thereof, together with all other rents,
royalties, issues, profits, revenue, income and other benefits arising
from the use and enjoyment of the Subject Property (as defined below)
(collectively, the "Rents");
<PAGE> 6
5
(G) all trade names, trade marks, logos, copyrights, good
will and books and records relating to or used in connection with the
operation of the Real Estate or the Equipment or any part thereof; all
general intangibles related to the operation of the Improvements now
existing or hereafter arising (collectively, the "Intellectual
Property");
(H) all right, title and interest of Grantor in all unearned
premiums under insurance policies now or subsequently obtained by
Grantor relating to the Real Estate or Equipment and Grantor's
interest in and to all proceeds of any such insurance policies
(including title insurance policies) including the right to collect
and receive such proceeds, subject to the provisions relating to
insurance generally set forth in the Credit Agreement; and all awards
and other compensation, including the interest payable thereon and the
right to collect and receive the same, made to the present or any
subsequent owner of the Real Estate or Equipment for the taking by
eminent domain, condemnation or otherwise, of all or any part of the
Real Estate or any easement or other right therein;
(I) to the extent assignable by Grantor, all right, title and
interest of Grantor in and to (i) all contracts from time to time
executed by Grantor or any manager or agent on its behalf relating to
the ownership, construction, maintenance, repair, operation,
occupancy, sale or financing of the Real Estate or Equipment or any
part thereof and all agreements relating to the purchase or lease of
any portion of the Real Estate or any property which is adjacent or
peripheral to the Real Estate, together with the right to exercise
such options and all leases of Equipment (collectively, the
"Contracts"), (ii) all consents, licenses, building permits,
certificates of occupancy and other governmental approvals relating to
construction, completion, occupancy, use or operation of the Real
Estate or any part thereof (collectively, the "Permits") and (iii) all
drawings, plans, specifications and similar or related items relating
to the Real Estate (collectively, the "Plans");
(J) all right, title and interest of Grantor in any and all
monies now or subsequently on deposit for the payment of real estate
taxes or special assessments against the Real Estate or for the
payment of premiums on insurance policies covering the foregoing
property; all capital, operating, reserve or similar accounts held by
or on behalf of Grantor and related to the operation of the Subject
Property, whether now existing or hereafter arising and all monies
held in any of the foregoing accounts and any certificates or
instruments related to or evidencing such accounts;
<PAGE> 7
6
(K) all accounts and revenues arising from the operation of
the Improvements including, without limitation, (i) any right to
payment now existing or hereafter arising for rental of hotel rooms or
other space or for goods sold or leased or for services rendered,
whether or not yet earned by performance, arising from the operation
of the Improvements or any other facility on the Subject Property and
(ii) to the extent assignable by Grantor, all rights to payment from
any consumer credit-charge card organization or entity including,
without limitation, payments arising from the use of the American
Express Card, the Visa Card, the Carte Blanche Card, the Mastercard or
any other credit card, including those now existing or hereafter
created, substitutions therefor, proceeds thereof (whether cash or
non-cash, movable or immovable, tangible or intangible) received upon
the sale, exchange, transfer, collection or other disposition or
substitution thereof and any and all of the foregoing and proceeds
therefrom; and
(L) all proceeds, both cash and noncash, of the foregoing;
(All of the foregoing property and rights and interests now
owned or held or subsequently acquired by Grantor and described in the
foregoing clauses (A) through (E) are collectively referred to as the
"Premises", and those described in the foregoing clauses (A) through (L) are
collectively referred to as the "Subject Property"; notwithstanding the
foregoing, "Subject Property" shall not include, with respect to Mortgagor, any
Leases, Intellectual Property, Contracts, Permits or Plans to the extent the
grant by Grantor of a security interest pursuant to this Deed in its rights
under such item is prohibited thereby and the consent of applicable Persons has
not been obtained, provided that the foregoing limitation shall not affect,
limit, restrict or impair the grant by Grantor of a security interest pursuant
to this Deed in any Account or any money or other amounts due or to become due
under such Lease, Intellectual Property, Contract, Permit or Plan, to the
extent provided in Section 9-318 of the New York UCC as in effect on the date
hereof.).
TO HAVE AND TO HOLD the Subject Property and the estate,
members, rights, privileges and appurtenances hereby granted or intended to be
granted unto Grantee, its successors and assigns in fee simple, forever, for
the uses and purposes set forth herein, and to the use, benefit and behoof of
Grantee, its successors and assigns, until the Indebtedness is fully paid and
the Obligations fully performed.
Should the indebtedness secured by this Deed be paid according
to the tenor and effect thereof when the same shall become due and payable, and
should Grantor perform all covenants herein contained in a timely manner, then
this Deed shall be cancelled and surrendered.
<PAGE> 8
7
Terms and Conditions
Grantor further represents, warrants, covenants and agrees
with Grantee as follows:
1. Warranty of Title. Grantor warrants that Grantor has good
title to the Real Estate in fee simple and good title to the rest of the
Subject Property, subject only to the matters that are set forth in Schedule B
of the title insurance policy or policies being issued to Grantee to insure the
lien of this Deed and those items permitted by the Credit Agreement
(collectively, the "Permitted Exceptions") and Grantor shall warrant, defend
and preserve such title and the grant and lien of this Deed with respect
thereto against all claims of all persons and entities. Grantor further
warrants that it is lawfully seized and possessed of the Subject Property and
has the right to grant this Deed.
2. Payment of Indebtedness. Grantor shall pay the
Indebtedness at the times and places and in the manner specified in the
Guarantee and shall perform all the Obligations.
3. Requirements.
(a) Grantor shall promptly comply with, or cause to be
complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements,
and irrespective of the nature of the work to be done, of each of the United
States of America, any State and any municipality, local government or other
political subdivision thereof and any agency, department, bureau, board,
commission or other instrumentality of any of them, now existing or
subsequently created (collectively, "Governmental Authority") which has
jurisdiction over the Subject Property and all covenants, restrictions and
conditions now or later of record which may be applicable to any of the Subject
Property, or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration, repair or reconstruction of any of the Subject
Property, except to the extent that failure to comply therewith could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect. All
present and future laws, statutes, codes, ordinances, orders, judgments,
decrees, rules, regulations and requirements of every Governmental Authority
applicable to Grantor or to any of the Subject Property and all covenants,
restrictions, and conditions which now or later may be applicable to any of the
Subject Property are collectively referred to as the "Legal Requirements".
(b) From and after the date of this Deed, Grantor shall not
by act or omission permit any building or other improvement on any premises not
subject to the lien of this Deed to rely on the Premises or any part thereof or
any interest therein to fulfill any Legal Requirement, and Grantor hereby
assigns to Grantee any and all rights to give consent for all or
<PAGE> 9
8
any portion of the Premises or any interest therein to be so used. Grantor
shall not by act or omission impair the integrity of any of the Real Estate
which is a single zoning lot as of the date hereof as a single zoning lot
separate and apart from all other premises. Any act or omission by Grantor
which would result in a violation of any of the provisions of this subsection
shall be void.
4. Payment of Taxes and Other Impositions. (a) Mortgagor
shall pay and discharge taxes and other charges in accordance with the Credit
Agreement.
(b) Any sums paid by Grantee in discharge of any taxes
permitted to be paid by Mortgagee pursuant to the Credit Agreement shall be (i)
a lien on the Premises secured hereby prior to any right or title to, interest
in, or claim upon the Premises subordinate to the lien of this Deed and (ii)
payable to Grantee as set forth in the Credit Agreement.
(c) Grantor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Deed or on any interest
payable thereon for any taxes assessed against the Subject Property or any part
thereof, and shall not claim any deduction from the taxable value of the
Subject Property by reason of this Deed.
5. Insurance. (a) Grantor shall maintain or cause to be
maintained on all of the Premises insurance as required under the Credit
Agreement.
(b) Grantor promptly shall comply in all material respects
with and conform to (i) all provisions of each such insurance policy, and (ii)
all requirements of the insurers applicable to Grantor or to any of the Subject
Property or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Subject Property. Grantor
shall not use or permit the use of the Subject Property in any manner which
would permit any insurer to cancel any insurance policy or void coverage
required to be maintained by this Deed.
(c) In the event of foreclosure of this Deed or other
transfer of title to the Subject Property all right, title and interest of
Grantor in and to any insurance policies then in force shall pass to the
purchaser or grantee.
6. Restrictions on Liens and Encumbrances. Except for the
lien of this Deed and the Permitted Exceptions, Grantor shall not further
mortgage, nor otherwise encumber the Subject Property nor create or suffer to
exist any lien, charge or encumbrance on the Subject Property, or any part
thereof, whether superior or subordinate to the lien of this Deed and whether
recourse or non-recourse.
<PAGE> 10
9
7. Due on Sale and Other Transfer Restrictions. Except as
expressly permitted under the Credit Agreement, Grantor shall not sell,
transfer, convey or assign all or any portion of, or any interest in, the
Subject Property.
8. Maintenance; No Alteration; Inspection; Utilities. (a)
Grantor shall maintain or cause to be maintained all the Improvements in good
condition and repair (ordinary wear and tear excepted) and shall not commit or
suffer any waste of the Improvements. The Improvements shall not be demolished
or materially altered, nor any material additions built, without the prior
written consent of Grantee, such consent not to be unreasonably withheld.
(b) Subject to Section 10.3 of the Credit Agreement, Grantor
shall pay or cause to be paid utility charges and all other assessments or
charges of a similar nature, whether public or private, affecting the Premises
or any portion thereof.
9. Condemnation/Eminent Domain. Immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Subject Property, or any portion thereof, Grantor will notify Grantee of the
pendency of such proceedings. During the continuance of an Event of Default,
and subject to Section 7.5(i) of the Credit Agreement, Grantee is hereby
authorized and empowered by Grantor to settle or compromise any claim in
connection with such condemnation and to receive all awards and proceeds
thereof to be held by Grantee as collateral to secure the payment and
performance of the Indebtedness and the Obligations. Notwithstanding the
preceding sentence, subject to the provisions of the Credit Agreement and
provided that no Event of Default shall have occurred and be continuing,
Grantor shall, at its expense, diligently prosecute any such proceeding
relating to such condemnation, settle or compromise any claims in connection
therewith and receive any awards or proceeds thereof, provided that Grantor
shall comply with the applicable provisions of the Credit Agreement.
10. Restoration. Grantor will apply insurance proceeds and
condemnation proceeds and awards in accordance with the Credit Agreement.
11. Leases. Except as otherwise provided in the Credit
Agreement, (a) Grantor shall not (i) execute an assignment or pledge of any
Lease relating to all or any portion of the Subject Property other than in
favor of Grantee or (ii) without the prior written consent of Grantee, execute
or permit to exist any Lease of any of the Subject Property, except as provided
in the Credit Agreement.
(b) As to any Lease relating to all or any portion of the
Subject Property, Grantor shall not accept a surrender or terminate, cancel,
rescind, supplement, alter, revise, modify or amend such Lease or permit any
such action to be taken nor shall
<PAGE> 11
10
Grantor accept the payment of rent more than thirty (30) days in advance of its
due date, except to the extent such action or payment occurs either in the
ordinary course of business or according to Grantor's reasonable business
judgment.
12. Further Assurances/Estoppel Certificates. To further
assure Grantee's rights under this Deed, Grantor agrees upon demand of Grantee
to do any act or execute any additional documents (including, but not limited
to, security agreements on any personalty included or to be included in the
Subject Property and a separate assignment of each Lease in recordable form) as
may be reasonably required by Grantee to confirm the lien of this Deed and all
other rights or benefits conferred on Grantee.
13. Grantee's Right to Perform. If Grantor fails to perform
any of the covenants or agreements of Grantor, Grantee may at any time (but
shall be under no obligation to) pay or perform the same, and the amount or
cost thereof, as set forth in the Credit Agreement, shall immediately be due
from Grantor to Grantee and the same shall be secured by this Deed and shall be
a lien on the Subject Property prior to any right, title to, interest in or
claim upon the Subject Property attaching subsequent to the lien of this Deed.
No payment or advance of money by Grantee under this Section shall be deemed or
construed to cure Grantor's default or waive any right or remedy of Grantee.
14. Materials of Environmental Concern. Grantor shall comply
in all respects with Section 8.15 of the Credit Agreement.
15. Events of Default. The occurrence of any Event of
Default as such term is defined in the Credit Agreement shall constitute an
Event of Default hereunder.
16. Remedies.
(a) Subject to the provisions of the Credit Agreement, upon
the occurrence of any Event of Default, in addition to any other rights and
remedies Grantee may have pursuant to the Loan Documents, or as provided by
law, and without limitation, (x) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of Section 12 of the Credit Agreement,
automatically the Indebtedness and all other amounts owing under the Guarantee,
this Deed and the other Security Documents immediately shall become due and
payable, and (y) if such event is any other Event of Default, with the consent
of the Required Lenders, the Grantee may, or upon the request of the Required
Lenders, the Grantee shall, by notice to Grantor, declare the Indebtedness
(together with accrued interest thereon) and all other amounts payable under
the Guarantee, this Deed and the other Security Documents to be immediately due
and payable. Except as expressly provided in the Credit Agreement, notice of
intention to accelerate, notice of acceleration, presentment, demand, protest
and all other notices of any kind are hereby
<PAGE> 12
11
expressly waived. In addition, upon the occurrence of any Event of Default,
Grantee may immediately take such action, without notice or demand, as it deems
advisable to protect and enforce its rights against Grantor and in and to the
Subject Property, including, but not limited to, the following actions, each of
which may be pursued concurrently or otherwise, at such time and in such manner
as Grantee may determine, in its sole discretion, without impairing or
otherwise affecting the other rights and remedies of Grantee:
(i) Grantee may, to the extent permitted by applicable law,
(A) institute and maintain an action to foreclose this Deed as a lien
against all or any part of the Subject Property, (B) institute and
maintain an action on the Guarantee, (C) sell all or part of the
Subject Property (Grantor expressly granting to Grantee the power of
sale as more particularly described in subsection (iii) below), or (D)
take such other action at law or in equity for the enforcement of this
Deed or any of the Loan Documents as the law may allow. Grantee may
proceed in any such action to final judgment and execution thereon for
all sums due hereunder, together with interest thereon at the Default
Rate and all costs of suit, including, without limitation, reasonable
attorneys' fees and disbursements. Interest at the Default Rate shall
be due on any judgment obtained by Grantee from the date of judgment
until the date upon which actual payment is made of the full amount of
the judgment.
(ii) Grantee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Subject Property or any other collateral as security for the
Indebtedness and Obligations enter into and upon the Subject Property
and each and every part thereof and exclude Grantor and its agents and
employees therefrom without liability for trespass, damage or
otherwise (Grantor hereby agreeing to surrender possession of the
Subject Property to Grantee upon demand at any such time) and use,
operate, manage, maintain and control the Subject Property and every
part thereof. Following such entry and taking of possession, Grantee
shall be entitled, without limitation, (x) to lease all or any part or
parts of the Subject Property for such periods of time and upon such
conditions as Grantee may, in its discretion, deem proper, (y) to
enforce, cancel or modify any Lease and (z) generally to execute, do
and perform any other act, deed, matter or thing concerning the
Subject Property as Grantee shall deem appropriate as fully as Grantor
might do.
(iii) Grantor hereby grants to Grantee and assigns, the
following irrevocable power of attorney and agency (which are coupled
with an interest): to sell all or part of the Subject Property at
auction, at the usual place for conducting sales at the Court House in
the County where the
<PAGE> 13
12
land or any part thereof lies, in the State of Georgia, to the highest
bidder for cash, after advertising the time, terms and place of such
sale once a week for four weeks immediately preceding such sale (but
without regard to the number of days) in a newspaper published in the
County where the land lies, or in the paper in which the Sheriff's
advertisements for such County are published, all other notice being
hereby waived by Grantor, and Grantee or any person on behalf of
Grantee, or assigns, may bid and purchase at such sale and thereupon
execute and deliver to the purchaser or purchasers at such sale a
sufficient conveyance of said Subject Property with full warranty of
title (or without warranties if Grantee shall so elect), in fee
simple, which conveyance shall contain recitals as to the happenings
of the default upon which the execution of the power of sale herein
granted depends, and Grantor hereby constitutes and appoints Grantee
and assigns, the agent and attorney in fact of Grantor to make such
recitals, and hereby covenants and agrees that the recitals so to be
made by Grantee, or assigns, shall be binding and conclusive upon
Grantor, and assigns of Grantor, and that the conveyance to be made by
Grantee or assigns, shall be effectual to perpetually bar all suits in
law and in equity and the equity of redemption of Grantor, or the
successors in interest of Grantor, in and to the Subject Property, and
Grantee or assigns, shall collect the proceeds of such sale, and after
reserving therefrom the entire amount of principal and accrued
interest due, together with the amount of any taxes, liens, charges,
including utility charges, if any, assessments and premiums of
insurance or other payments theretofore paid by Grantee, with interest
thereon from date of payment, together with all costs and expenses of
sale and fifteen percentum of the aggregate amount due for attorney's
fees, shall pay any over-plus to Grantor, or to the heirs or assigns
of Grantor as provided by law. The power and agency hereby granted
are coupled with an interest and are irrevocable and are granted as
cumulative to all other remedies for collection and enforcement of the
Indebtedness and the Obligations provided for herein or otherwise
provided by law.
(iv) Grantee may adjourn from time to time any sale by
Grantee to be made under or by virtue of this Deed by announcement at
the time and place appointed for such sale or for such adjourned sale
or sales and upon notice to Grantor; and, except as otherwise provided
by any applicable provision of law, Grantee, without further notice or
publication, may make such sale at the time and place to which the
same shall be so adjourned.
(v) Upon the completion of any sale or sales made by Grantee
under or by virtue of this Section, Grantee, or an officer of any
court empowered to do so, shall execute and deliver to the accepted
purchaser or purchasers a good and
<PAGE> 14
13
sufficient instrument, or good and sufficient instruments, conveying,
assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Grantee is hereby irrevocably
appointed the true and lawful attorney of Grantor, in its name and
stead, to make all necessary conveyances, assignments, transfers and
deliveries of the Subject Property and rights so sold and for that
purpose Grantee may execute all necessary instruments of conveyance,
assignment and transfer, and may substitute one or more persons with
like power, Grantor hereby ratifying and confirming all that its said
attorney or such substitute or substitutes shall lawfully do by virtue
hereof. Any such sale or sales made under or by virtue of this
Section, whether made under the power of sale herein granted or under
or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, shall operate to divest all the estate, right,
title, interest, claim and demand whatsoever, whether at law or in
equity, of Grantor in and to the properties and rights so sold, and
shall be a perpetual bar both at law and in equity against Grantor and
against any and all persons claiming or who may claim the same, or any
part thereof from, through or under Grantor.
(vi) No recovery of any judgment by Grantee and no levy of an
execution under any judgment upon the Subject Property or upon any
other property of Grantor shall affect in any manner or to any extent,
the lien and title of this Deed upon the Subject Property or any part
thereof, or any liens, title, rights, powers or remedies of Grantee
hereunder, but such liens, titles, rights, powers and remedies of
Grantee shall continue unimpaired as before.
(b) The holder of this Deed, in any action to exercise the
rights granted hereunder (including, without limitation, exercise of the power
of sale contained herein or foreclosure of this Deed as a mortgage), shall be
entitled to the appointment of a receiver. In case of a any sale pursuant to
this Deed, the Real Estate may be sold, at Grantee's election, in one parcel or
in more than one parcel and Grantee is specifically empowered, (without being
required to do so, and in its sole and absolute discretion) to cause successive
sales of portions of the Subject Property to be held.
(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Deed, and notwithstanding to
the contrary any exculpatory or non-recourse language which may be contained
herein, Grantee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Grantee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Deed.
17. Right of Grantee to Credit Sale. Upon the occurrence of
any sale made under this Deed, whether made under
<PAGE> 15
14
the power of sale or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale, Grantee may bid for and acquire the Subject
Property or any part thereof. In lieu of paying cash therefor, Grantee may
make settlement for the purchase price by crediting upon the Indebtedness or
other sums secured by this Deed the net sales price after deducting therefrom
the expenses of sale and the cost of the action and any other sums which
Grantee is authorized to deduct under this Deed. In such event, this Deed, the
Guarantee and documents evidencing expenditures secured hereby may be presented
to the person or persons conducting the sale in order that the amount so used
or applied may be credited upon the Indebtedness as having been paid.
18. Appointment of Receiver. If an Event of Default shall
have occurred and be continuing, Grantee as a matter of right and without
notice to Grantor, unless otherwise required by applicable law, and without
regard to the adequacy or inadequacy of the Subject Property or any other
collateral as security for the Indebtedness and Obligations or the interest of
Grantor therein, shall have the right to apply to any court having jurisdiction
to appoint a receiver or receivers or other manager of the Subject Property,
and Grantor hereby irrevocably consents to such appointment and waives notice
of any application therefor (except as may be required by law). Any such
receiver or receivers shall have all the usual powers and duties of receivers
in like or similar cases and all the powers and duties of Grantee in case of
entry as provided in this Deed, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Subject Property, and shall continue as such and exercise all such powers until
the date of confirmation of sale of the Subject Property unless such
receivership is sooner terminated.
19. Extension, Release, etc. (a) Without affecting the lien
or charge of this Deed upon any portion of the Subject Property not then or
theretofore released as security for the full amount of the Indebtedness,
Grantee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of
the terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Grantee's option any parcel, portion or all of the Subject
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Deed shall secure less
than all of the principal amount of the Indebtedness, it is expressly agreed
that any repayments of the principal amount of the Indebtedness shall not
reduce the amount of the lien of this Deed until the lien amount shall equal
the principal amount of the Indebtedness outstanding.
<PAGE> 16
15
(b) No recovery of any judgment by Grantee and no levy of
an execution under any judgment upon the Subject Property or upon any other
property of Grantor shall affect the estate granted by this Deed or any liens,
rights, powers or remedies of Grantee hereunder, and such liens, rights, powers
and remedies shall continue unimpaired.
(c) If Grantee shall have the right to exercise the
rights granted herein (including, without limitation, exercise of the power of
sale or foreclosure of this Deed as a mortgage), Grantor authorizes Grantee at
its option to sell the Subject Property or to foreclose the lien of this Deed
subject to the rights of any tenants of the Subject Property. The failure to
make any such tenants parties defendant to any such sale or proceeding and to
extinguish their rights will not be asserted by Grantor as a defense to any
proceeding instituted by Grantee to collect the Indebtedness or to foreclose
the lien of this Deed.
(d) Unless expressly provided otherwise, in the event
that ownership of this Deed and title to the Subject Property or any estate
therein shall become vested in the same person or entity, this Deed shall not
merge in such title but shall continue as a valid lien on the Subject Property
for the amount secured hereby.
20. Security Agreement under Uniform Commercial Code. (a) It
is the intention of the parties hereto that this Deed shall constitute a
Security Agreement within the meaning of the Uniform Commercial Code (the
"Code") of the State of Georgia. If an Event of Default shall occur under this
Deed, then in addition to having any other right or remedy available at law or
in equity, Grantee shall have the option of either (i) proceeding under the
Code and exercising such rights and remedies as may be provided to a secured
party by the Code with respect to all or any portion of the Subject Property
which is personal property (including, without limitation, taking possession of
and selling such property) or (ii) treating such property as real property and
proceeding with respect to both the real and personal property constituting the
Subject Property in accordance with Grantee's rights, powers and remedies with
respect to the real property (in which event the default provisions of the Code
shall not apply). If Grantee shall elect to proceed under the Code, then ten
days' notice of sale of the personal property shall be deemed reasonable notice
and the reasonable expenses of retaking, holding, preparing for sale, selling
and the like incurred by Grantee shall include, but not be limited to,
reasonable attorneys' fees and legal expenses. At Grantee's request, Grantor
shall assemble the personal property and make it available to Grantee at a
place designated by Grantee which is reasonably convenient to both parties.
(b) Grantor and Grantee agree, to the extent permitted by law,
that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures
<PAGE> 17
16
on the Real Estate; (ii) this Deed upon recording or registration in the real
estate records of the proper office shall constitute a financing statement
filed as a "fixture filing" within the meaning of Sections 9-313 and 9-402 of
the Code; (iii) Grantor is the record owner of the Real Estate; and (iv) the
addresses of Grantor and Grantee are as set forth on the first page of this
Deed.
(c) Grantor, upon request by Grantee from time to time, shall
execute, acknowledge and deliver to Grantee one or more separate security
agreements, in form satisfactory to Grantee, covering all or any part of the
Subject Property and will further execute, acknowledge and deliver, or cause to
be executed, acknowledged and delivered, any financing statement, affidavit,
continuation statement or certificate or other document as Grantee may
reasonably request in order to perfect, preserve, maintain, continue or extend
the security interest under and the priority of this Deed and such security
instrument. Grantor further agrees to pay to Grantee on demand all reasonable
costs and expenses incurred by Grantee in connection with the preparation,
execution, recording, filing and re-filing of any such document. Grantor shall
from time to time, on request of Grantee, deliver to Grantee an inventory in
reasonable detail of any of the Subject Property which constitutes personal
property. If Grantor shall fail to furnish any financing or continuation
statement within 10 days after request by Grantee, then pursuant to the
provisions of the Code, Grantor hereby authorizes Grantee, without the
signature of Grantor, to execute and file any such financing and continuation
statements. The filing of any financing or continuation statements in the
records relating to personal property or chattels shall not be construed as in
any way impairing the right of Grantee to proceed against any personal property
encumbered by this Deed as real property, as set forth above.
21. Assignment of Rents. Grantor hereby assigns to Grantee
the Rents as further security for the payment of the Indebtedness and
performance of the Obligations, and Grantor grants to Grantee the right to
enter the Subject Property for the purpose of collecting the same and to let
the Subject Property or any part thereof, and to apply the Rents on account of
the Indebtedness. The foregoing assignment and grant is present and absolute
and shall continue in effect until the Indebtedness is paid in full, but
Grantee hereby waives the right to enter the Subject Property for the purpose
of collecting the Rents and Grantor shall be entitled to collect, receive, use
and retain the Rents until the occurrence and continuance of an Event of
Default under this Deed; such right of Grantor to collect, receive, use and
retain the Rents may be revoked by Grantee upon the occurrence and continuance
of any Event of Default under this Deed by giving not less than five days'
written notice of such revocation to Grantor; in the event such notice is
given, Grantor shall pay over to Grantee, or to any receiver appointed to
collect the Rents, any lease security deposits, and shall pay
<PAGE> 18
17
monthly in advance to Grantee, or to any such receiver, the fair and reasonable
rental value as determined by Grantee for the use and occupancy of the Subject
Property or of such part thereof as may be in the possession of Grantor or any
affiliate of Grantor, and upon default in any such payment Grantor and any such
affiliate will vacate and surrender the possession of the Subject Property to
Grantee or to such receiver, and in default thereof may be evicted by summary
proceedings or otherwise. Grantor shall not accept prepayments of installments
of Rent to become due for a period of more than one month in advance (except
for security deposits and estimated payments of percentage rent, if any, or as
otherwise provided in such Lease).
22. Additional Rights. The holder of any subordinate lien or
deed to secure debt on the Subject Property shall have no right to terminate
any Lease whether or not such Lease is subordinate to this Deed nor shall any
holder of any subordinate lien or deed to secure debt join any tenant under any
Lease in any action to foreclose the lien or exercise the rights under such
deed to secure debt or modify, interfere with, disturb or terminate the rights
of any tenant under any Lease. By recordation of this Deed all holders or
subordinate liens or deeds to secure debt are subject to and notified of this
provision, and any action taken by any such holder contrary to this provision
shall be null and void. Upon the occurrence of any Event of Default, Grantee
may, in its sole discretion and without regard to the adequacy of its security
under this Deed, apply all or any part of any amounts on deposit with Grantee
under this Deed against all or any part of the Indebtedness. Any such
application shall not be construed to cure or waive any Default or Event of
Default or invalidate any act taken by Grantee on account of such Default or
Event of Default.
23. Notices. All notices, requests, demands and other
communications hereunder shall be given in accordance with subsection 10.7 of
the Credit Agreement to Grantor and Grantee as specified therein.
24. No Oral Modification. This Deed may not be amended,
supplemented, terminated or otherwise modified except in accordance with
subsection 14.1 of the Credit Agreement. Any agreement made by Grantor and
Grantee after the date of this Deed relating to this Deed shall be superior to
the rights of the holder of any intervening or subordinate lien or encumbrance.
25. Partial Invalidity. In the event any one or more of the
provisions contained in this Deed shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but each shall be
construed as if such invalid, illegal or unenforceable provision had never been
included. Notwithstanding to the contrary anything contained in this Deed or
in any provisions of the Indebtedness or Loan Documents, the obligations of
Grantor and of any other obligor
<PAGE> 19
18
under the Indebtedness or Loan Documents shall be subject to the limitation
that Grantee shall not charge, take or receive, nor shall Grantor or any other
obligor be obligated to pay to Grantee, any amounts constituting interest in
excess of the maximum rate permitted by law to be charged by Grantee.
26. Grantor's Waiver of Rights. To the fullest extent
permitted by law, Grantor waives the benefit of all laws now existing or that
may subsequently be enacted providing for (i) any appraisement before sale of
any portion of the Subject Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Subject Property from attachment, levy or sale under execution
or exemption from civil process. To the full extent Grantor may do so, Grantor
agrees that Grantor will not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, exemption, homestead, extension or redemption,
or requiring Grantee to exercise the rights granted herein (including, without
limitation, exercise of the power of sale or foreclosure of this Deed as a
mortgage) before exercising any other remedy granted hereunder and Grantor, for
Grantor and its successors and assigns, and for any and all persons ever
claiming any interest in the Subject Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, homestead, valuation,
appraisement, stay of execution, notice of election to mature or declare due
the whole of the secured indebtedness and marshalling in the event of Grantee's
exercise of the rights granted herein (including, without limitation, exercise
of the power of sale or foreclosure of this Deed as a mortgage).
27. Remedies Not Exclusive. Grantee shall be entitled to
enforce payment of the Indebtedness and performance of the Obligations and to
exercise all rights and powers under this Deed or under any of the other Loan
Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Indebtedness and Obligations may now or
hereafter be otherwise secured, whether by deed to secure debt, mortgage,
security agreement, pledge, lien, assignment or otherwise. Neither the
acceptance of this Deed nor its enforcement, shall prejudice or in any manner
affect Grantee's right to realize upon or enforce any other security now or
hereafter held by Grantee, it being agreed that Grantee shall be entitled to
enforce this Deed and any other security now or hereafter held by Grantee in
such order and manner as Grantee may determine in its absolute discretion. No
remedy herein conferred upon or reserved to Grantee is intended to be exclusive
of any other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute. Every power or
remedy given by any of the Loan Documents to Grantee or to which it may
otherwise be entitled, may be exercised,
<PAGE> 20
19
concurrently or independently, from time to time and as often as may be deemed
expedient by Grantee. In no event shall Grantee, in the exercise of the
remedies provided in this Deed (including, without limitation, in connection
with the assignment of Rents to Grantee, or the appointment of a receiver and
the entry of such receiver on to all or any part of the Subject Property), be
deemed a "mortgagee in possession," and Grantee shall not in any way be made
liable for any act, either of commission or omission, in connection with the
exercise of such remedies.
28. Multiple Security. If (a) the Premises shall consist of
one or more parcels, whether or not contiguous and whether or not located in
the same county, or (b) in addition to this Deed, Grantee shall now or
hereafter hold one or more additional deeds to secure debt, mortgages, liens,
deeds of trust or other security (directly or indirectly) for the Indebtedness
upon other property in the State in which the Premises are located (whether or
not such property is owned by Grantor or by others) or (c) both the
circumstances described in clauses (a) and (b) shall be true, then to the
fullest extent permitted by law, Grantee may, at its election, commence or
consolidate in a single sale or foreclosure action all sales and foreclosure
proceedings against all such collateral securing the Indebtedness (including
the Subject Property), which action may be brought or consolidated in the
courts of any county in which any of such collateral is located. Grantor
acknowledges that the right to maintain a consolidated sale or foreclosure
action is a specific inducement to Grantee to extend the Indebtedness, and
Grantor expressly and irrevocably waives any objections to the commencement or
consolidation of the sale or foreclosure proceedings in a single action and any
objections to the laying of venue or based on the grounds of forum non
conveniens which it may now or hereafter have. Grantor further agrees that if
Grantee shall be prosecuting one or more sale or foreclosure or other
proceedings against a portion of the Subject Property or against any collateral
other than the Subject Property, which collateral directly or indirectly
secures the Indebtedness, or if Grantee shall have fulfilled the statutory
requirements for a sale or shall have obtained a judgment of foreclosure and
sale or similar judgment against such collateral, then, whether or not such
sale or other proceedings are being maintained or judgments were obtained in or
outside the State in which the Premises are located, Grantee may commence or
continue sale or foreclosure proceedings and exercise its other remedies
granted in this Deed against all or any part of the Subject Property and
Grantor waives any objections to the commencement or continuation of a sale or
foreclosure pursuant to this Deed or exercise of any other remedies hereunder
based on such other proceedings or judgments, and waives any right to seek to
dismiss, stay, remove, transfer or consolidate either any action under this
Deed or such other proceedings on such basis. Neither the commencement nor
continuation of proceedings to sell the Subject Property pursuant hereto or to
foreclose this Deed nor the exercise of any other rights hereunder nor the
recovery of any judgment by Grantee in
<PAGE> 21
20
any such proceedings shall prejudice, limit or preclude Grantee's right to
commence or continue one or more sales or foreclosure or other proceedings or
obtain a judgment against any other collateral (either in or outside the State
in which the Premises are located) which directly or indirectly secures the
Indebtedness, and Grantor expressly waives any objections to the commencement
of, continuation of, or entry of a judgment in such other sales or proceedings
or exercise of any remedies in such proceedings based upon any action or
judgment connected to this Deed, and Grantor also waives any right to seek to
dismiss, stay, remove, transfer or consolidate either such other proceedings or
any action under this Deed on such basis. It is expressly understood and
agreed that to the fullest extent permitted by law, Grantee may, at its
election, cause the sale of all collateral which is the subject of a single
sale or foreclosure action at either a single sale or at multiple sales
conducted simultaneously and take such other measures as are appropriate in
order to effect the agreement of the parties to dispose of and administer all
collateral securing the Indebtedness (directly or indirectly) in the most
economical and least time-consuming manner.
29. Successors and Assigns. All covenants of Grantor
contained in this Deed are imposed solely and exclusively for the benefit of
Grantee and its successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may
be freely waived in whole or in part by Grantee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Grantor shall
run with the land and bind Grantor, the successors and assigns of Grantor (and
each of them) and all subsequent owners, encumbrancers and tenants of the
Subject Property, and shall inure to the benefit of Grantee, its successors and
assigns. The word "Grantor" shall be construed as if it read "Grantors"
whenever the sense of this Deed so requires and if there shall be more than one
Grantor, the obligations of the Grantors shall be joint and several.
30. No Waivers, etc. Any failure by Grantee to insist upon
the strict performance by Grantor of any of the terms and provisions of this
Deed shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Grantee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Grantor of any and all of
the terms and provisions of this Deed to be performed by Grantor. Grantee may
release, regardless of consideration and without the necessity for any notice
to or consent by the holder of any subordinate lien on the Subject Property,
any part of the security held for the obligations secured by this Deed without,
as to the remainder of the security, in anywise impairing or affecting the lien
of this Deed or the priority of such lien over any subordinate lien.
<PAGE> 22
21
31. Governing Law, etc. This Deed shall be governed by and
construed in accordance with the laws of the State of Georgia, except that
Grantor expressly acknowledges that by its terms the Guarantee shall be
governed and construed in accordance with the laws of the State of New York,
without regard to principles of conflict of law, and for purposes of
consistency, Grantor agrees that in any in personam proceeding related to this
Deed the rights of the parties to this Deed shall also be governed by and
construed in accordance with the laws of the State of New York governing
contracts made and to be performed in that State, without regard to principles
of conflict of law.
32. Waiver of Trial by Jury. Grantor and Grantee each hereby
irrevocably and unconditionally waive trial by jury in any action, claim, suit
or proceeding relating to this Deed and for any counterclaim brought therein.
Grantor hereby waives all rights to interpose any counterclaim in any suit
brought by Grantee hereunder and all rights to have any such suit consolidated
with any separate suit, action or proceeding.
33. Certain Definitions. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Deed shall be used interchangeably in singular or plural
form and the word "Grantor" shall mean "each Grantor or any subsequent owner or
owners of the Subject Property or any part thereof or interest therein," the
word "Grantee" shall mean "Grantee or any subsequent holder of the Guarantee,"
the word "person" shall include any individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, or other
entity, and the words "Subject Property" shall include any portion of the
Subject Property or interest therein. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa. The captions in this Deed are for convenience or
reference only and in no way limit or amplify the provisions hereof.
<PAGE> 23
22
34. WAIVER OF GRANTOR'S RIGHTS. BY EXECUTION OF THIS DEED
AND BY INITIALING THIS ARTICLE 34, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE
RIGHT TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF
ATTORNEY GIVEN HEREIN TO GRANTEE TO SELL THE SUBJECT PROPERTY BY NONJUDICIAL
SALE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY
NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED
OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE
CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH
AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE
SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO
JUDICIAL HEARING PRIOR TO THE EXERCISE BY GRANTEE OF ANY RIGHT OR REMEDY HEREIN
PROVIDED TO GRANTEE; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS DEED AND ITS
PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR AND GRANTOR HAS CONSULTED WITH
COUNSEL OF GRANTOR'S CHOICE PRIOR TO EXECUTING THIS DEED; AND (D) ACKNOWLEDGES
THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN
TRANSACTION:
INITIALED BY GRANTOR:
ERO INDUSTRIES, INC.
By: /s/ ANDREW S. ROSEN
--------------------------
ANDREW S. ROSEN
<PAGE> 24
23
This Deed has been duly executed by Grantor on the date first above written.
ERO INDUSTRIES, INC.
By: /s/ ANDREW S. ROSEN
------------------------------------
[CORPORATE SEAL]
Signed, sealed and delivered
this 11th day of June, 1997,
in the presence of:
/s/ JAMIE L. RIEF
- ------------------------------
Unofficial Witness
/s/ ILLEGIBLE
- ------------------------------
Notary Public
My commission expires: ILLEGIBLE
[NOTARY SEAL]
<PAGE> 25
Schedule A
16.5 acres of land more or less, lying and being in the City of Hazlehurst, Jeff
Davis County, Georgia, and being located on the northwesterly side and fronting
along South Williams Street and being bounded on the southeast by South
Williams Street; southwest by Wilson Street; northwest by South Miller Street
and northeast by King's Lane, being the lands conveyed to BAWI Corporation by
Mrs. Gertrude Weatherly and the deed of conveyance being recorded in Deed
Records Book 33 on Page 310, in the office of the Clerk of Superior Court of
Jeff Davis County, Georgia, also described as follows:
BEGINNING at a point where the north right-of-way of Williams Street intersects
with the east right-of-way of Wilson Street.
THENCE north 01 degrees 15 minutes 00 seconds west a distance of 654.56 feet to
a point of curve;
THENCE along a curve to the right having a radius of 613.75 feet, a central
angle of 023 degrees 17 minutes 19 seconds, an arch length of 249.47 feet and a
chord which bears north 10 degrees 23 minutes 40 seconds east to its point of
tangency;
THENCE south 85 degrees 08 minutes 21 seconds east a distance of 759.32 feet to
a point for corner;
THENCE south 00 degrees 54 minutes 04 seconds east a distance of 857.88 feet to
a point for corner;
THENCE north 88 degrees 16 minutes 52 seconds west a distance of 800.87 feet to
the POINT OF BEGINNING, and containing 702,337.61 square feet or 16.1235 acres
of land.
<PAGE> 1
EXHIBIT 10.10
MORTGAGE OF SHARES
Dated 12th June, 1997
BETWEEN
HEDSTROM CORPORATION
as Chargor
- and -
CREDIT SUISSE FIRST BOSTON
as Administrative Agent
ALLEN & OVERY
London
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. Interpretation . . . . . . . . . . . . . . . . . . . . . . 1
2. Covenant To Pay . . . . . . . . . . . . . . . . . . . . . 5
3. Secured Liabilities . . . . . . . . . . . . . . . . . . . 5
4. Charges On Shares . . . . . . . . . . . . . . . . . . . . 6
5. Continuing Security . . . . . . . . . . . . . . . . . . . 7
6. Representations And Warranties . . . . . . . . . . . . . . 8
7. Undertakings . . . . . . . . . . . . . . . . . . . . . . . 9
8. Special Provisions Relating To The Shares . . . . . . . 10
9. When Security Becomes Enforceable . . . . . . . . . . . 12
10. Enforcement Of Security . . . . . . . . . . . . . . . . 12
11. Receiver . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Application Of Proceeds . . . . . . . . . . . . . . . . 15
13. No Liability As Mortgagee In Possession . . . . . . . . 15
14. Protection Of Third Parties . . . . . . . . . . . . . . 16
15. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 16
16. Delegation By Administrative Agent . . . . . . . . . . . 16
17. Further Assurances . . . . . . . . . . . . . . . . . . . 17
18. Redemption Of Prior Mortgages . . . . . . . . . . . . . 17
19. Power Of Attorney . . . . . . . . . . . . . . . . . . . 17
20. New Accounts . . . . . . . . . . . . . . . . . . . . . . 18
21. Stamp Taxes . . . . . . . . . . . . . . . . . . . . . . 18
22. Administrative Agent . . . . . . . . . . . . . . . . . . 18
23. Waivers, Remedies Cumulative . . . . . . . . . . . . . . 21
24. Severability . . . . . . . . . . . . . . . . . . . . . . 22
25. Counterparts . . . . . . . . . . . . . . . . . . . . . . 22
26. Notices . . . . . . . . . . . . . . . . . . . . . . . . 22
27. Covenant To Release . . . . . . . . . . . . . . . . . . 22
28. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 23
29. Governing Law . . . . . . . . . . . . . . . . . . . . . 24
Signatories . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE> 3
THIS MORTGAGE OF SHARES is dated 12th June, 1997 and is made BETWEEN:
(1) HEDSTROM CORPORATION, a Delaware Corporation (the "Chargor"); and
(2) CREDIT SUISSE FIRST BOSTON (the "Administrative Agent") as agent and
trustee for itself and each of the Secured Parties (as defined below).
WHEREAS:
(A) The Lenders have agreed to make available to the Chargor credit
facilities on and subject to the terms of the Credit Agreement.
(B) The Chargor has agreed to enter into this Deed to secure the payment of
the Secured Liabilities to the Secured Parties.
(C) It is intended by the parties hereto that this document shall take effect
as a deed notwithstanding the fact that a party may only execute this document
under hand.
NOW IT IS AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"COMPANY"
means Hedstrom (U.K.) Limited, an English incorporated company (Registered
no. 2721630).
"CREDIT AGREEMENT"
means the credit agreement dated as of 12th June, 1997 between Hedstrom
Holdings, Inc. as parent, the Chargor as borrower, the Lenders, Societe
Generale as documentation agent, UBS Securities as syndication agent
and Credit Suisse First Boston as administrative agent, and any and
each other agreement or instrument supplementing or amending it.
"CREDIT DOCUMENTS"
has the meaning given to it in the Credit Agreement.
"CREDIT PARTIES"
has the meaning given to it in the Credit Agreement.
"DEFAULT RATE"
at any time means the rate determined in accordance with Section 7.8(c)
of the Credit Agreement.
<PAGE> 4
2
"DEFAULT"
has the meaning given to it in the Credit Agreement
"EVENT OF DEFAULT"
has the meaning given to it in the Credit Agreement.
"FINANCE DOCUMENTS"
means:
(a) the Credit Agreement;
(b) the Security Documents;
(c) any Letter of Credit;
(d) the other Credit Documents;
(e) any Hedge Agreement entered into by the Chargor with any Lender (or
any Affiliate of any Lender);
(f) any document designated in writing as such by the Administrative
Agent (on the instructions of the Required Lenders) and the
Chargor; and
(g) any other document made, delivered or given in connection with any
of the foregoing.
"HEDGE AGREEMENT"
has the meaning given to it in the Master Guarantee and Collateral
Agreement.
"LENDERS"
has the meaning given to it in the Credit Agreement.
"LETTER OF CREDIT"
has the meaning given to it in the Credit Agreement.
"LIEN"
has the meaning given to it in the Credit Agreement.
"MASTER GUARANTEE AND COLLATERAL AGREEMENT"
has the meaning given to it in the Credit Agreement.
<PAGE> 5
3
"RECEIVER"
means a receiver and manager or (if the Administrative Agent so specifies
in the relevant appointment) a receiver.
"REIMBURSEMENT OBLIGATION"
has the meaning given to it in the Credit Agreement.
"RELATED RIGHTS"
means, in relation to the Shares, all dividends and other distributions
paid or payable after the date hereof on all or any of the Shares and all
stocks, shares, securities (and the dividends or interest thereon), rights,
money or property accruing or offered at any time by way of redemption,
bonus, preference, option rights or otherwise to or in respect of any of
the Shares or in substitution or exchange for any of the Shares.
"REQUIRED LENDERS"
has the meaning given to it in the Credit Agreement.
"SECURED LIABILITIES"
has the meaning given to it in Clause 3.1 (Scope).
"SECURED PARTIES"
means the Lenders (in any capacity under any Finance Document), (in the
case of a Hedge Agreement) any Affiliate of a Lender, the Documentation
Agent (as defined in the Credit Agreement), the Syndication Agent (as
defined in the Credit Agreement) and the Administrative Agent.
"SECURITY ASSETS"
means all assets, rights and property of the Chargor the subject of any
security created by this Deed or any other Security Document.
"SECURITY DOCUMENT"
means this Deed and the other Security Documents (as defined in the Credit
Agreement).
"SECURITY PERIOD"
means the period beginning on the date hereof and ending on the date (as
stated by the Administrative Agent) upon which all the Secured Liabilities
which has arisen have been unconditionally and irrevocably paid and
discharged in full and after which no further Secured Liabilities are
reasonably likely to arise or the security hereby created has been
unconditionally and irrevocably released and discharged.
<PAGE> 6
4
"SHARES"
means the 65 ordinary shares represented by share certificate numbered
of the Company owned by the Chargor (being 65 per
cent. of the issued ordinary share capital of Company), including all
Related Rights.
1.2 INTERPRETATION
(a) Save as expressly herein defined, capitalised terms defined in the
Credit Agreement shall have the same meaning herein.
(b) The provisions of Section 1.2 of the Credit Agreement shall also
apply hereto as if expressly set out herein (mutatis mutandis) with
each reference to the Credit Agreement being deemed to be a
reference to this Deed.
(c) The terms of the other Finance Documents and of any side letters between
the parties hereto in relation to the Finance Documents are incorporated
herein to the extent required for any purported disposition of the
Security Assets contained herein to be a valid disposition in
accordance with Section 2(1) of the Law of Property (Miscellaneous
Provisions) Act 1989.
(d) If the Administrative Agent (as appropriate, on the basis of legal
advice received by it for this purpose) considers that an amount
paid by any Credit Party to either the Administrative Agent or any
of the Secured Parties under any Finance Document is capable of
being avoided or otherwise set aside on the liquidation or
administration (or equivalent) of the Chargor or otherwise, then
such amount shall not be considered to have been irrevocably paid
for the purposes hereof.
(e) For the avoidance of doubt, an obligation in this Deed (or any
part thereof) which constitutes financial assistance within the
meaning of Section 151 of the Companies Act 1985, shall not be
excluded by the proviso to the definition of "Secured Liabilities"
in Clause 3.1 (Scope) if in relation to such obligation the
provisions of Sections 155-158 of the Companies Act 1985 have been
complied with.
1.3 CONSTRUCTION
(a) In this Deed, unless the contrary intention appears, a reference to:
(i) "ASSETS" means properties, revenues and rights of every
description;
an "AUTHORISATION" means an authorisation, consent, approval,
resolution, licence, exemption, filing, registration and
notarisation;
a "MONTH" or two or more "MONTHS" is a reference to a period
starting on one day in a calendar month and ending on the
numerically corresponding day in the next or relevant
subsequent calendar month, except that, if there is no
numerically corresponding day in the month in which that period
ends, that period shall end on the last Business Day in that
calendar month;
a "REGULATION" means any regulation, rule, official directive,
request or guideline (whether or not having the force of law, but,
if not having the force of law with which
<PAGE> 7
5
persons of the relevant category would customarily comply) of
any governmental body, agency, department or regulatory, self-
regulatory or other authority or organisation;
(ii) a provision of a law is a reference to that provision as
amended or re-enacted;
(iii) a Clause or a Schedule is a reference to a clause of or a schedule
to this Deed;
(iv) a person includes its successors and assigns;
(v) a Finance Document or another document is a reference to that
Finance Document or that other document as amended, novated
or supplemented; and
(vi) a time of day is a reference to London time.
(b) The index to and the headings in this Deed are for convenience only
and are to be ignored.
1.4 CERTIFICATES
A certificate of the Administrative Agent setting forth the amount of
any Secured Liability due from the Chargor shall be prima facie
evidence of such amount against the Chargor in the absence of
manifest error.
2. COVENANT TO PAY
2.1 COVENANT
The Chargor hereby, as primary obligor and not merely as surety,
covenants with the Administrative Agent (as agent and trustee as
aforesaid) that it will pay or discharge the Secured Liabilities
on the due date therefor in the manner provided in the relevant
Finance Document. Any amount not paid hereunder when due as set
forth in the Credit Agreement shall bear interest (as well after as
before judgment and payable on demand) at the Default Rate from
time to time (or, if higher, the default rate applicable to the
Secured Liability concerned) from the due date until the date
such amount is unconditionally and irrevocably paid and
discharged in full.
2.2 RIGHT OF APPROPRIATION
Upon and after the occurrence of an Event of Default and for so
long as the same is continuing, the Administrative Agent shall be
entitled to appropriate moneys and/or assets to Secured Liabilities
in such manner or order as it sees fit (subject to Clause 12
Application of Proceeds)) and any such appropriation shall override
any appropriation by the Chargor. This Clause 2.2 shall not,
however, override the principle that the Secured Parties are to share
in recoveries on a pro rata basis.
3. SECURED LIABILITIES
3.1 SCOPE
The security constituted by the Security Document secures the
"Secured Liabilities", being the unpaid principal of and interest
on the Loans and Reimbursement Obligations and all other obligations
and liabilities of the Chargor (including, without limitation,
interest accruing at the
<PAGE> 8
6
then applicable rate provided in the Credit Agreement after the
maturity of the Loans and Reimbursement Obligations and interest
accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganisation or like proceeding, relating to the
Chargor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) to the Secured Parties, whether
direct or indirect, absolute or contingent, due or to become due, or
now existing or hereafter incurred, which may arise under, out of, or
in connection with the Finance Documents, whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all
reasonable fees and disbursements of counsel to the Secured Parties
that are required to be paid by the Chargor pursuant to the terms of
any Finance Document) or otherwise provided always that any
obligation which, if it were so included within the definition of
"Secured Liabilities", would result in this Deed contravening Section
151 of the Companies Act 1985 shall not be included within the
definition of "Secured Liabilities".
3.2 COVENANT TO MAKE FACILITIES AVAILABLE
Each Secured Party, by the Administrative Agent's execution of this
Deed, hereby severally covenants with the Chargor that it will, upon and
subject to the terms of the relevant Finance Document, make advances and
further advances or other financial accommodation to the extent (if at
all) it is provided for in the relevant Finance Document.
4. CHARGES ON SHARES
(a) The Chargor hereby as continuing security for the payment, discharge
and performance of all the Secured Liabilities mortgages and charges and
agrees to mortgage and charge to the Administrative Agent (as agent and
trustee for the benefit of itself and each of the Secured Parties) all
Shares held now or in the future by it and/or any nominee on its behalf,
the same to be a security by way of a first mortgage.
PROVIDED THAT:
(i) whilst no Event of Default exists all dividends and other
distributions paid or payable with respect to the Shares may be
paid directly to the Chargor (in which case the Administrative
Agent or its nominee shall execute any necessary dividend
mandate) and, if paid directly to the Administrative Agent,
shall be paid promptly by it to the Chargor; and
(ii) unless an Event of Default is continuing, the Chargor may
exercise all voting rights attaching to the relevant Shares or,
where the shares have been registered in the name of the
Administrative Agent, or its nominee, as the relevant Chargor
may direct in writing (and the Administrative Agent and any
nominee of the Administrative Agent in whose name such Shares
are registered shall execute any form of proxy or other document
reasonably required in order for the Chargor to do so) provided
that no vote shall be cast or exercised which in the reasonable
opinion of the Administrative Agent would be likely to be
materially prejudicial to the rights or interest of the Secured
Parties under any of the Finance Documents.
(b) The mortgages and charges on shares created by this Clause 4 are made
with full title guarantee.
<PAGE> 9
7
5. CONTINUING SECURITY
5.1 CONTINUING SECURITY
The security constituted by this Deed shall be continuing and will
extend to the ultimate balance of the Secured Liabilities, regardless of
any intermediate payment or discharge in whole or in part.
5.2 REINSTATEMENT
Where any discharge (whether in respect of any amounts hereby secured or
otherwise) is made in whole or in part or any arrangement is made on the
faith of any payment, security or other disposition which is avoided or
must be repaid on bankruptcy, liquidation or otherwise without
limitation, the liability of the Chargor under this Deed shall continue
as if there had been no such discharge or arrangement. The Secured
Parties shall be entitled to concede or compromise any claim that any
such payment, security or other disposition is liable to avoidance or
repayment.
5.3 WAIVER OF DEFENCES
The liability of the Chargor hereunder shall not be prejudiced, affected
or diminished by any act, omission, circumstance, matter or thing which
but for this provision might operate to release or otherwise exonerate
the Chargor from its obligations hereunder in whole or in part,
including without limitation and whether or not known to the Chargor or
to any Secured Party:
(a) any time or waiver granted to or composition with any Credit
Party or any other person;
(b) the taking, variation, compromise, renewal or release of or
refusal or neglect to perfect or enforce any rights, remedies or
securities against any Credit Party or any other person;
(c) any limitation, disability, incapacity or other circumstances
relating to any Credit Party or the death, bankruptcy,
liquidation or change in the name or constitution of the Chargor
or any other person;
(d) any variation of, or extension of the due date for performance
of any term of any Finance Document or any other document or
security so that references to such documents in this Deed shall
include each variation or extension or any increase, exchange,
acceleration, renewal, surrender, release or loss of or failure
to perfect any security or any non-presentment or non-observance
of any formality in respect of any instruments; and
(e) any irregularity, unenforceability, invalidity or frustration
of any obligations of any Credit Party or any other person under
the Finance Documents or any other document or security, to the
intent that the Chargor's obligations hereunder shall remain in
full force and this Deed be construed accordingly as if there
were no such irregularity, unenforceability, invalidity or
frustration.
<PAGE> 10
8
5.4 IMMEDIATE RECOURSE
The Chargor waives any right it may have of first requiring any Secured
Party to proceed against or enforce any other rights or security of or
claim payment from any Credit party or any other person before claiming
from the Chargor hereunder.
5.5 PRESERVATION OF RIGHTS
Until all the Secured Liabilities have been irrevocably paid and
discharged in full, each Secured Party (or any trustee or the
Administrative Agent on its behalf) may:
(a) refrain from applying or enforcing any other security, moneys of
rights held or received by that Secured Party in respect of such
amounts or apply and enforce the same in such manner and order
as it sees fit (whether against such amounts or otherwise) and
the Chargor shall not be entitled to the benefit of the same; and
(b) hold in suspense account any moneys received from the Chargor or
on account of the Chargor's liability hereunder, on which the
Secured Party shall pay interest at the rate reasonably
determined by it to be usual for accounts of that type.
5.6 ADDITIONAL SECURITY
The security constituted by this Deed shall be in addition to and shall
not in any way be prejudiced by any other security now or hereafter held
by the Administrative Agent as security for the Secured Liabilities.
The Secured Parties' rights hereunder are in addition to and not
exclusive of those provided by law.
5.7 CERTIFICATE
A certificate of the Administrative Agent as to the amount of the
Secured Liabilities shall be prima facie evidence of that amount as
against the Chargor, save in the case of manifest error.
6. REPRESENTATIONS AND WARRANTIES
6.1 TO WHOM MADE
The Chargor makes the representations and warranties set out in Clause
6.2 (Matters represented) to each Secured Party.
6.2 MATTERS REPRESENTED
(a) SHARES
(i) The Chargor is and will remain the sole beneficial owner of the
Shares and save where the Shares have been registered in the
name of the Administrative Agent or its nominee pursuant hereto,
it is and will remain the absolute legal owner thereof (together
with its nominees(s)), except to the extent permitted by the
Credit Agreement;
(ii) the Chargor has not transferred, assigned, pledged or in any way
encumbered the Shares other than pursuant to the Security
Documents or as permitted by the Credit Agreement;
<PAGE> 11
9
(iii) the Chargor will not take any action whereby the rights
attaching to the Shares are altered in any way prejudicial to
the Secured Parties or diluted;
(iv) the Shares are fully paid and are not subject to any options to
purchase or similar rights of any person; and
(v) the Shares represent 65 per cent. of the issued share capital of
the Company.
(b) The Chargor is the beneficial and (subject to the security created by
this Deed) legal owner of all the issued shares of the Company.
6.3 TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES
The representations and warranties set out in this Clause 6:
(a) will survive the execution of each Finance Document and the
making of each Loan or other extension of credit under the
Finance Documents; and
(b) are made on the date hereof and are deemed to be repeated on
each date during the Security Period on which any of the
representations and warranties set out in Section VIII
(Representations and warranties) of the Credit Agreement are
repeated with reference to the facts and circumstances then
existing.
7. UNDERTAKINGS
7.1 DURATION AND WITH WHOM MADE
The undertakings in this Clause 7:
(a) shall remain in force throughout the Security Period; and
(b) are given by the Chargor to each Secured Party.
7.2 GENERAL UNDERTAKINGS
The Chargor shall at all times comply with the terms of this Deed.
7.3 RESTRICTIONS ON DEALING
The Chargor will not:
(a) create or permit to subsist any Lien over all or any of the
Security Assets other than pursuant to or contemplated by the
Security Documents or the Credit Agreement; or
(b) part with, lease, sell, transfer or otherwise dispose of or
agree to part with, lease, sell, transfer or otherwise dispose
of all or any part of the Security Assets or any interest there
in, other than as permitted by the Credit Agreement.
<PAGE> 12
10
7.4 UNDERTAKINGS RELATING SPECIFICALLY TO THE SECURITY ASSETS
The Chargor shall:
(a) deposit with the Administrative Agent or as the Administrative
Agent may direct all certificates and other documents of title
or evidence of ownership in relation to such Shares as are owned
by it and their Related Rights and to the assets specified in
Clause 4 (Charges on shares); and
(b) execute and deliver to the Administrative Agent all such share
transfers and other documents as may reasonably be requested by
the Administrative Agent in order to enable the Administrative
Agent or its nominees to be registered as the owner or otherwise
to obtain a legal title to the same and, without limiting the
generality of the foregoing, shall deliver to the Administrative
Agent on the date hereof or as soon as practicable thereafter
executed (and, if required to be stamped, pre-stamped) share
transfers for all Shares in favour of the Administrative Agent's
nominees as transferee and shall procure that all such share
transfers are forthwith registered by the relevant company and
that share certificates in the name of those nominees in respect
of all Shares are forthwith delivered to the Administrative
Agent.
7.5 MAINTENANCE
The Chargor will:
(a) TAXES AND OUTGOINGS pay as and when the same shall become due
all taxes, rates, duties, charges, assessments and outgoings
whatsoever (whether parliamentary, parochial, local or of any
other description) which shall be assessed, charged or imposed
upon or payable by it in respect of the Security Assets or any
part thereof (save to the extent that payment of the same is
being contested in good faith);
(b) NOTICES within 14 days after the receipt by the Chargor of any
application, requirement, order or notice served or given by any
public or local or any other authority with respect to the
Security Assets (or any part thereof) which is likely to have a
material adverse effect on the value of the Security Assets,
give written notice thereof to the Administrative Agent and also
(within seven days after demand) produce the same or a copy
thereof to the Administrative Agent and inform it of the steps
taken or proposed to be taken to comply with any requirement
thereby made or implicit therein; and
(c) STATUTES duly and punctually perform and observe all its
obligations in connection with the Security Assets under any
present or future statute or any regulation, order or notice
made or given thereunder.
8. SPECIAL PROVISIONS RELATING TO THE SHARES
8.1 REGISTRATION ON TRANSFER
The Chargor hereby authorises the Administrative Agent (at any time) to
arrange for the Shares to be delivered to any person or registered as
the Administrative Agent may feel appropriate to perfect the security
thereover and to transfer or cause the Shares to be transferred to and
registered in the name of any nominees of the Administrative Agent (as
agent and trustee, as
<PAGE> 13
11
aforesaid) and the Chargor undertakes from time to time to execute and
sign all transfers, contract notes, powers of attorney and other
documents which the Administrative Agent may require for perfecting its
title to any of the Shares or for vesting the same in itself or its
nominee or in any purchasers or transferees (under the powers of
realisation herein conferred).
8.2 POWERS
The Administrative Agent and its nominee may at any time after an Event
of Default has occurred and whilst it is continuing exercise or refrain
from exercising (in the name of the Chargor, the registered holder or
otherwise and without any further consent or authority from the Chargor
and irrespective of any direction given by the Chargor) in respect of
the Shares any voting rights and any powers or rights under the terms
thereof or otherwise which may be exercised by the person or persons in
whose name or names the shares are registered or who is the holder
thereof, including, without limitation, all the powers given to
trustees by Section 10(3) and (4) for the Trustee Act 1925 as amended
by Section 9 of the Trustee Investments Acts 1961 in respect of
securities or property subject to a trust PROVIDED THAT in the absence
of notice from the Administrative Agent that such circumstances are
applicable the Chargor may and shall continue to exercise any and all
voting rights with respect to the Shares subject always to the terms
hereof. the Chargor shall not without the previous consent in writing
of the Administrative Agent (such consent not to be unreasonably
withheld or delayed) exercise the voting rights attached to any of the
Shares in favour of resolutions having the effect of or prejudicing the
security hereunder or impairing the value of the Shares. Subject to
Clause 4 (Charges on shares) and this Clause 8.2, the Chargor hereby
irrevocably appoints the Administrative Agent or its nominees its proxy
so to exercise all voting rights so long as the Shares remain
registered in the names of the Chargor.
8.3 CALLS
The Chargor during the continuance of this security will make all
payments which may become due in respect of any of the Shares and in the
case of occurrence of an Event of Default as a result of the Chargor's
failure in making any such payments the Administrative Agent may if it
thinks fit make such payments on behalf of the Chargor. Any sums so
paid by the Administrative Agent shall be repayable by the Chargor to
the Administrative Agent on demand together with interest at the Default
Rate from the date of such payment by the Administrative Agent, and
pending such repayment shall constitute part of the Secured Liabilities.
8.4 LIABILITY TO PERFORM
It is expressly agreed that, notwithstanding anything to the contrary
herein contained, the Chargor shall remain liable to observe and perform
all of the conditions and obligations assumed by it in respect of the
Shares and none of the Administrative Agent and the Secured Parties
shall be under any obligation or liability by reason of or arising out
of this Deed. None of the Secured Parties shall be required in any
manner to perform or fulfil any obligation of the Chargor in respect of
the Shares, or to make any payment, or to receive any enquiry as to the
nature or sufficiency of any payment received by them, or to present or
file any claim or take any other action to collect or enforce the
payment of any amount to which they may have been or to which they may
be entitled hereunder at any time or times.
<PAGE> 14
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8.5 ENFORCEMENT
Upon the occurrence of an Event of Default and at any time whilst any
Event of Default exists, the Administrative Agent shall be entitled to
put into force and exercise immediately as and when it may see fit any
and every power possessed by the Administrative Agent by virtue of this
Deed or available to a secured creditor (so that Sections 93 and 103 of
the Law of Property Act 1925 shall not apply to this security) and in
particular (without limitation):
(a) to sell all or any of the Shares in any manner permitted by law
upon such terms as the Administrative Agent shall in its
absolute discretion determine;
(b) to collect, recover or compromise and give a good discharge for
any moneys payable to the Chargor in respect of the Shares or
in connection therewith; and
(c) to act generally in relation to the Shares in such manner as
the Administrative Agent shall determine.
9. WHEN SECURITY BECOMES ENFORCEABLE
The security constituted hereby shall become immediately enforceable
upon the occurrence of an Event of Default and the power of sale and
other powers conferred by Section 101 of the Law of Property Act 1925
as varied or amended by this Deed shall be immediately exercisable upon
this security becoming enforceable and at any time thereafter whilst
any Event of Default exists. After the security constituted hereby has
become enforceable, the Administrative Agent may in its absolute
discretion enforce all or any part of such security in such manner as
it sees fit or as the Required Lenders may direct.
10. ENFORCEMENT OF SECURITY
10.1 GENERAL
For the purposes of all powers implied by statute the Secured
Liabilities shall be deemed to have become due and payable on the date
hereof and Section 103 of the Law of Property Act 1925 (restricting the
power of sale) and Section 93 of the same Act (restricting the right of
consolidation) shall not apply to this security. The statutory powers
of leasing conferred on the Administrative Agent shall be extended so
as to authorise the Administrative Agent to lease, make agreements for
leases, accept surrenders of leases and grant options as the
Administrative Agent shall think fit and without the need to comply
with any of the provisions of sections 99 and 100 of the Law of
Property Act 1925.
10.2 CONTINGENCIES
(a) If the Administrative Agent enforces the security constituted by this
Deed (whether by the appointment of a Receiver or otherwise) at a time
when no amounts are due under the Finance Documents (but at a time when
amounts may become so due), the Administrative Agent (or such Receiver)
may pay the proceeds of any recoveries effected by it into such number
of realisations accounts (bearing interest at market rates prevailing
for like amounts) as it considers appropriate.
<PAGE> 15
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(b) The Administrative Agent (or such Receiver) may (subject to the
payment of any claims having priority to this security) withdraw
amounts standing to the credit of such realisations accounts
to:
(i) meet all costs, charges and expenses incurred and payments
made by the Administrative Agent (or such Receiver) in the
course of such enforcement;
(ii) pay remuneration to the Receiver as and when the same becomes
due and payable; and
(iii) meet amounts due and payable under the Finance Documents as
and when the same become due and payable.
in each case, together with interest thereon (as well after as before
judgment and payable on demand) at the Default Rate from the date the
same become due and payable until the date the same are
unconditionally and irrevocably paid and discharged in full.
(c) The Chargor will not be entitled to withdraw all or any moneys
(including interest) standing to the credit of any realisations
account until the expiry of the Security Period.
11. RECEIVER
11.1 APPOINTMENT OF RECEIVER
(a) At any time after this security becomes enforceable or if the
Chargor so requests the Administrative Agent in writing at any time,
the Administrative Agent may without further notice appoint under
seal or in writing under its hand any one or more qualified persons
to be a Receiver of all or any part of the Security Assets in like
manner in every respect as if the Administrative Agent had become
entitled under the Law of Property Act 1925 to exercise the power
of sale thereby conferred.
(b) In this Clause, "QUALIFIED PERSON" means a person who, under the
Insolvency Act 1986, is qualified to act as a receiver of the
property of the Chargor with respect to which he is appointed
or (as the case may require) and administrative receiver of the
Chargor.
11.2 POWERS OF RECEIVER
(a) Every Receiver appointed in accordance with Clause 11.1 (Appointment
of Receiver) shall have and be entitled to exercise all of the powers
set out in paragraph (b) below in addition to those conferred by the
Law of Property Act 1925 on any receiver appointed thereunder. A
Receiver who is an administrative receiver of the Chargor shall have
all the powers of an administrative receiver under the Insolvency
Act 1986. If at any time there is more than one Receiver of all or
any part of the Security Assets, each such Receiver may (unless
otherwise stated in any document appointing him) exercise all of the
powers conferred on a Receiver under this Deed individually and to the
exclusion of each other Receiver.
(b) The powers referred to in the first sentence of paragraph (a) above
are:
(i) TAKE POSSESSION to take immediate possession of, get in and
collect the Security Assets or any part thereof;
<PAGE> 16
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(ii) PROTECTION OF ASSETS to do all acts which the Chargor might do in
the ordinary conduct of its business as well for the protection
as for the improvement of the Security Assets;
(iii) EMPLOYEES to appoint and discharge managers, officers, agents,
accountants, servants, workmen and others for the purposes hereof
upon such terms as to remuneration or otherwise as he may think
proper and to discharge any such persons appointed by the
Chargor;
(iv) BORROW MONEY for the purpose of exercising any of the powers,
authorities and discretions conferred on him by or pursuant to
this Deed and/or of defraying any costs, charges, losses or
expenses (including his remuneration) which shall be incurred by
him in the exercise thereof or for any other purpose, to raise
and borrow money either unsecured or on the security of the
Security Assets or any part thereof either in priority to the
security constituted by this Deed or otherwise and generally on
such terms and conditions as he may think fit and no person
lending such money shall be concerned to enquire as to the
propriety or purpose of the exercise of such power or to see to
the application of any money so raised or borrowed;
(v) SELL ASSETS to sell, exchange, convert into money and realise
all or any part of the Security Assets by public auction or
private contract and generally in such manner and on such terms
as he shall think proper. Without prejudice to the generality of
the foregoing he may do any of these things for a consideration
consisting of cash, debentures or other obligations, shares,
stock or other valuable consideration and any such consideration
may be payable in a lump sum or by installments spread over such
period as he may think fit;
(vi) COMPROMISE to settle, adjust, refer to arbitration, compromise
and arrange any claims, accounts, disputes, questions and demands
with or by any person who is or claims to be a creditor of the
Chargor or relating in any way to the Security Assets or any part
thereof;
(vii) LEGAL ACTIONS to bring, prosecute, enforce, defend and abandon
all such actions, suits and proceedings in relation to the
Security Assets or any part thereof as may seem to him to be
expedient;
(viii) RECEIPTS to give valid receipts for all moneys and execute all
assurances and things which may be proper or desirable for
realising the Security Assets; and
(ix) GENERAL POWERS to do all such other acts and things as he may
consider desirable or necessary for realising the Security Assets
or any part thereof or incidental or conducive to any of the
matters, powers or authorities conferred on a Receiver under or
by virtue of this Deed, to exercise in relation to the Security
Assets or any part thereof all such powers, authorities and
things as he would be capable of exercising if he were the
absolute beneficial owner of the same and to use the name of the
Chargor for all or any such purposes.
11.3 REMOVAL AND REMUNERATION
The Administrative Agent may from time to time by writing under its hand
(subject to any requirement for an order of the court in the case of an
administrative receiver) remove any
<PAGE> 17
Receiver appointed it and may, whenever it may deem it expedient,
appoint a new Receiver in the place of any Receiver whose appointment
may for any reason have terminated and may from time to time fix the
remuneration of any Receiver appointed by it.
11.4 ADMINISTRATIVE AGENT MAY EXERCISE
To the fullest extent permitted by law, all or any of the powers,
authorities and discretions which are conferred by this Deed (either
expressly or impliedly) upon a Receiver of the Security Assets may be
exercised after the security hereby created becomes enforceable by the
Administrative Agent in relation to the whole of such Security Assets or
any part thereof without first appointing a Receiver of such property or
any part thereof or notwithstanding the appointment of a Receiver of
such property or any part thereof.
12. APPLICATION OF PROCEEDS
Any moneys received by the Administrative Agent or by any Receiver
appointed by it pursuant to this Deed and/or under the powers hereby
conferred shall, after the security hereby constituted shall have
become enforceable by subject to the payment of any claims having
priority to this security and to the Administrative Agent's and such
Receiver's rights under Clauses 10.2 (Contingencies) and 11.2 (Powers
of Receiver) be applied by the Administrative Agent or such Receiver,
in the following order or priority (but without prejudice to the right
of the Administrative Agent or any Secured Party to recover any
shortfall from the Chargor):
(a) in satisfaction of or provision for all costs, charges and
expenses incurred and payments made by the Administrative Agent
or any Receiver appointed hereunder and of all remuneration due
hereunder together with interest on the foregoing (as well after
as before judgment and payable on demand) at the Default Rate
from time to time from the date the same become due and payable
until the date the same are unconditionally and irrevocably paid
and discharged in full as set forth in the Credit Agreement;
(b) in or towards payment of the Secured Liabilities or such part of
them as is then due and payable, or as the case may be,
outstanding pari passu between themselves; and
(c) in payment of the surplus (if any) to the Chargor or other
person entitled thereto.
13. NO LIABILITY AS MORTGAGEE IN POSSESSION
The Administrative Agent shall not nor shall any Receiver appointed as
aforesaid by reason of it or the Receiver entering into possession of
the Security Assets or any part thereof be liable to account as
mortgagee in possession or be liable for any loss on realisation or for
any default or omission for which a mortgagee in possession might be
liable. Every Receiver duly appointed by the Administrative Agent under
the powers in that behalf herein contained shall be deemed to be the
agent of the Chargor for all purposes and shall as such agent for all
purposes be deemed to be in the same position as a Receiver duly
appointed by a mortgagee under the Law of Property Act 1925. The Chargor
alone shall be responsible for his contracts, engagements, acts,
omissions, defaults and losses and for liabilities incurred by him and
neither the Administrative Agent nor any Secured Party shall incur any
liability therefor (either to the Chargor or to any other person
whatsoever) by reason of the Administrative Agent's making his
appointment as such Receiver or for any other reason whatsoever. Every
such Receiver and the Administrative Agent shall be entitled to all the
rights, powers, privileges and immunities
<PAGE> 18
16
by the Law of Property Act 1925 conferred on mortgagees and receivers
when such receivers have been duly appointed under the said Act but so
that Section 103 of the Law of Property 1925 shall not apply.
14. PROTECTION OF THIRD PARTIES
No purchaser, mortgagee or the person or company dealing with the
Administrative Agent or the Receiver or its or his agents shall be
concerned to enquire whether the Secured Liabilities have become payable
or whether any power which the Receiver is purporting to exercise has
become exercisable or whether any money remains due under this Deed or
the Finance Documents or to see to the application of any money paid to
the Administrative Agent or to such Receiver.
15. EXPENSES
15.1 UNDERTAKING TO PAY
All reasonable costs, charges and expenses incurred and all payments
made by the Administrative Agent or any Receiver appointed hereunder in
the lawful exercise of the powers hereby conferred whether or not
occasioned by any act, neglect or default of the Chargor shall carry
interest (as well after as before judgment) at the Default Rate from
time to time as set forth in the Credit Agreement. The amount of all
such costs, charges, expenses and payments and all such interest thereon
and all remuneration payable hereunder shall be payable by the Chargor
on demand. All such costs, charges, expenses and payments shall be paid
and charged as between the Administrative Agent and the Chargor on the
basis of a full indemnity and not on the basis of party and party or any
other kind of taxation. No costs, charges, expenses or payments shall be
payable by the Chargor pursuant to this Clause 15.1 to the extent that
the same are incurred or made due to the negligence or wilful default of
the Administrative Agent or any Receiver.
15.2 INDEMNITY
The Secured Parties and every Receiver, attorney, manager, agent or
other person appointed by the Administrative Agent hereunder (each as an
"INDEMNIFIED PARTY") shall be entitled to be indemnified out of the
Security Assets in respect of all liabilities and expenses reasonably
and properly incurred by them in the execution or purported execution of
any of the powers, authorities or discretions vested in them pursuant
hereto and against all actions, proceedings, costs, claims and demands
in respect of any matter or thing done or omitted in any way relating to
the Security Assets and the Secured Parties and any such Receiver may
retain and pay all sums in respect of the same out of any moneys
received under the powers hereby conferred. Notwithstanding the
foregoing, no indemnified party shall be entitled to be indemnified in
respect of any part of the foregoing which results from such party's
negligence or wilful misconduct.
16. DELEGATION BY ADMINISTRATIVE AGENT
The Administrative Agent or any Receiver appointed hereunder may at any
time and from time to time delegate by power of attorney or in any other
manner to any person or persons all or any of the powers, authorities
and discretions which are for the time being exercisable by the
Administrative Agent or such Receiver under this Deed in relation to the
Security Assets or any part thereof. Any such delegation may be made
upon such terms (including power to
<PAGE> 19
17
sub-delegate) and subject to such regulations as the Administrative
Agent or such Receiver may think fit. The Administrative Agent or such
Receiver shall not be in any way liable or responsible to the Chargor
for any loss or damage arising from any act, default, omission or
misconduct on the part of any such delegate or sub- delegate unless the
delegation to such person was carried out negligently or without due
investigation.
17. FURTHER ASSURANCES
17.1 GENERAL
The Chargor shall at its own expense execute and do all such assurances,
acts and things as the Administrative Agent may reasonably require for
perfecting or protecting the security intended to be created hereby over
the Security Assets or any part thereof or for facilitating (if and when
this security becomes enforceable) the realisation of the Security
Assets or any part thereof and in the exercise of all powers, authorities
and discretions vested in the Administrative Agent or any Receiver of
the Security Assets or any part thereof or in any such delegate or
sub-delegate as aforesaid. To that intent, the Chargor shall in
particular execute all transfers, conveyances, assignments and
assurances of such property whether to the Administrative Agent or to its
nominees, amend (when it is able by control of the relevant company) the
Memorandum and Articles of Association of the Company and to remove, for
example and without limitation, restrictions on the transfer of those
shares, the registration of the transferee and existing preemption
rights, as the Administrative Agent may reasonably request and give all
notices, orders and directions and make all registrations which the
Administrative Agent may reasonably think expedient for perfecting or
protecting the security created hereby over the Security Assets.
17.2 LEGAL CHARGE
Without prejudice to the generality of Clause 17.1 (General), the
Chargor will forthwith at the request of the Administrative Agent
execute a legal mortgage, charge or assignment over all or any of the
Security Assets subject to or intended to be subject to any fixed
security hereby created in favour of the Administrative Agent (as agent
and trustee as aforesaid) in such form as the Administrative Agent may
require but containing terms no more onerous than those in this Deed.
18. REDEMPTION OF PRIOR MORTGAGES
The Administrative Agent may, at any time after the security hereby
constituted has become enforceable, redeem any prior Lien against the
Security Assets or any part thereof or procure the transfer thereof to
itself and may settle and pass the accounts of the prior mortgagee,
chargee or encumbrancer. Any accounts so settled and passed shall be
conclusive and binding on the Chargor. All principal moneys, interest,
costs, charges and expenses of and incidental to such redemption and
transfer shall be paid by the Chargor to the Administrative Agent on
demand.
19. POWER OF ATTORNEY
19.1 APPOINTMENT
The Chargor hereby by way of security and in order more fully to secure
the performance of its obligations hereunder irrevocably appoints the
Administrative Agent and every Receiver of the Security Assets or any
part thereof appointed hereunder and every such delegate or sub-
<PAGE> 20
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delegate as aforesaid to be its attorney acting severally, and on its
behalf and in its name or otherwise, after the occurrence of an Event of
Default and whilst it continues to execute and do all such assurances,
acts and things which the Chargor ought to do and fails to do under the
covenants and provisions contained in this Deed (including, without
limitation, to make any demand upon or to give any notice or receipt to
any person owing moneys to the Chargor and to execute and deliver any
charges, legal mortgages, assignments or other security and any
transfers of securities) and generally in its name and on its behalf to
exercise all or any of the powers, authorities and discretions conferred
by or pursuant to this Deed or by statute on the Administrative Agent or
any such Receiver, delegate or sub-delegate and (without prejudice to
the generality of the foregoing) to seal and deliver and otherwise
perfect any deed, assurance, agreement, instrument or act which it or he
may reasonably deem proper in or for the purpose of exercising any of
such powers, authorities and discretions.
19.2 RATIFICATION
The Chargor hereby ratifies and confirms and agrees to ratify and
confirm whatever any such attorney as is mentioned in Clause 19.1
(Appointment) shall do or purport to do in the exercise or purported
exercise of all or any of the powers, authorities and discretions
referred to in such Clause.
20. NEW ACCOUNTS
If the Administrative Agent or any Secured Party receives or is deemed
to be affected by notice whether actual or constructive of any
subsequent charge or other interest affecting any part of the Security
Assets and/or the proceeds of sale thereof, the Administrative Agent or
such Secured Party (as the case may be) may open a new account or
accounts with the Chargor. If the Administrative Agent or such Secured
Party (as the case may be) does not open a new account it shall
nevertheless be treated as if it had done so at the time when it
received or was deemed to have received notice and as from that time
all payments made to the Administrative Agent or such Secured Party (as
the case may be) shall be credited or be treated as having been
credited to the new account and shall not operate to reduce the amount
for which this Deed is security.
21. STAMP TAXES
The Chargor shall pay and, forthwith on demand, indemnify the
Administrative Agent and each Secured Party against any liability it
incurs in respect of any stamp, registration and similar tax which is or
becomes payable in connection with the entry into, performance or
enforcement of this Deed.
22. ADMINISTRATIVE AGENT
22.1 POWERS AND DISCRETIONS
Save as expressly provided in this Deed:
(a) until the security hereby constituted shall have become
enforceable the Administrative Agent shall in granting any
consent or waiver or exercising any power, trust, authority or
discretion vested in it under the Security Documents, act as it
in its reasonable discretion shall think fit, in which case it
shall be in no way responsible for any loss,
<PAGE> 21
19
costs, damages or expenses which may result from the exercise or
non-exercise thereof save in the case of its own negligence or
wilful misconduct; and
(b) as regards all the powers, trusts, authorities and discretions
vested in it under the Security Documents, after the security
hereby constituted shall have become enforceable, the
Administrative Agent shall have absolute discretion as to the
exercise thereof and shall be in no way responsible for any
loss, costs, damages or expenses which may result from the
exercise or non-exercise thereof save in the case of its own
negligence or wilful misconduct.
22.2 DIRECTIONS BY REQUIRED LENDERS
As regards all or any of the powers, trusts, authorities and discretions
vested in it under the Security Documents, the Administrative Agent
shall act, or refrain from acting, in accordance with the directions of
the Required Lenders.
22.3 PROTECTIONS
By way of supplement to the Trustee Act 1925, it is expressly declared
as follows:
(a) the Administrative Agent may in relation to any of the
provisions of the Security Documents act on the opinion or
advice of or any information obtained from any lawyer, valuers,
surveyor, broker, auctioneer, accountant or other expert whether
obtained by the Chargor or by the Administrative Agent or
otherwise and shall not be responsible for any loss occasioned
by so acting;
(b) any opinion, advice or information obtained pursuant to the
foregoing paragraph (a) may be sent or obtained by letter,
facsimile transmission, telephone or other means and the
Administrative Agent shall not be liable for acting on any
opinion, advice or information purporting to be so conveyed
although the same shall contain some error or shall not be
authentic;
(c) the Administrative Agent may call for and accept as sufficient
evidence a certificate signed by any Responsible Officer of the
Chargor to the effect that any particular dealing, transaction,
step or thing is in the opinion of the persons so certifying
suitable or expedient or as to any other fact or matter upon
which the Administrative Agent may require to be satisfied. The
Administrative Agent shall be in no way bound to call for
further evidence or be responsible for any loss that may be
occasioned by acting on any such certificate.
(d) the Administrative Agent may refrain from doing anything which
would or might in its opinion be contrary to any law of any
jurisdiction or any directive of any agency of any state or
which would or might in its opinion otherwise render it liable
to any such person and may do anything which is in its opinion
necessary to comply with any such law or directive;
(e) the Administrative Agent shall not be liable for any failure,
omission or defect in perfecting the security hereby constituted
including without prejudice to the generality of the foregoing
(i) failure to obtain any licence, consent or other authority
for the execution of any Security Document, (ii) failure to
register the same in accordance
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with the provisions of any of the documents of title of the Chargor to
any of the property hereby charged, (iii) failure to effect or procure
registration of or otherwise protect any floating charge created by any
Security Document by registering under the Land Registration Act 1925 or
any other registration laws in any territory any notice, caution or
other entry prescribed by or pursuant to the provisions of the Acts or
laws and (iv) failure to take or to require the Chargor to take any
steps to render any floating charge created by any Security Document
effective as regards assets (if any) outside England or Wales or to
secure the creation of any ancillary charge under the laws of any
territory concerned;
(f) the Administrative Agent shall accept without enquiry, requisition,
objection or investigation such title as the Chargor may have to that
part of the Security Assets belonging to it or any part thereof;
(g) the Administrative Agent shall be entitled to assume that no Event of
Default has occurred unless it has received from a Secured Party a
written notice specifying the nature of the Event of Default;
(h) the Secured Parties shall indemnify the Administrative Agent and every
attorney, agent or other person appointed by it hereunder against all
liabilities and expenses properly incurred by it or him in the
execution of the powers and trusts contained in the Security Documents
or any designating instrument or of any powers and trusts contained in
the Security Documents or of any powers, authorities or discretions
vested in it or him pursuant to the Security Documents and against all
actions, proceedings, costs, claims and demands in respect of any
matter or thing done or omitted to be done in any way relating to
the Security Documents, provided always that the liability of each
of the Secured Parties under this paragraph shall not exceed such
proportion of the liabilities and expenses as equals the proportion
which the Secured Liabilities then due and owing to it shall bear to
the aggregate of such Secured Liabilities then due and owing to the
Secured Parties; and provided further that the Administrative Agent
may, in priority to any payment to any Secured Party retain and pay out
of any moneys in its hands upon the trusts herein contained the amount
of any liabilities and expenses hereinbefore mentioned;
(i) the Administrative Agent may place all title deeds and other documents
certifying, representing or constituting the title to any of the
property hereby charged for the time being in its hand in any safe
deposit, safe or receptacle selected by the Administrative Agent or with
any bank or company whose business includes undertaking the safe custody
of documents or solicitors or firm of solicitors and may at its
discretion make any such arrangements as it thinks of for allowing the
Chargor or its solicitor and auditors access to or possession of such
title deeds and other documents when necessary or convenient and the
Administrative Agent shall not be responsible for any loss incurred in
connection with any such deposit, access or possession and the Chargor
shall pay all sums required to be paid on account of or in respect of
any such deposit;
(j) save as otherwise provided in the Security Documents, all moneys which
under the trusts herein contained are received by the Administrative
Agent may be invested in the name of or under the control of the
Administrative Agent in any investment for the time being authorised
under English law for the investment by trustees of trust moneys or in
<PAGE> 23
21
any other investments, whether similar or not, which may be selected by
the Administrative Agent or by placing the same on deposit in the name
of or under the control of the Administrative Agent at such bank or
institution (including the Administrative Agent) as the Administrative
Agent may think fit, or in such currency as the Administrative Agent
thinks fit and the Administrative Agent may at any time vary or transfer
any such investments for or into other such investments or convert any
moneys so deposited into any other currency and shall not be responsible
for any loss occasioned thereby whether by depreciation in value,
fluctuation in exchange rates or otherwise;
(k) save as otherwise expressly provided in the Security Documents but only
as between the Administrative Agent and the Chargor and if the
Administrative Agent is not a Secured Party the Administrative Agent
shall have full power to determine all questions and doubts arising in
relation to any of the provisions of the Security Documents and every
such determination whether made upon a question actually raised or
implied in the acts or proceedings of the Administrative Agent shall be
conclusive and shall bind the Chargor; and
(l) the Administrative Agent may in the conduct of the trusts hereof
instead of acting personally employ and pay an agent whether being a
solicitor or other person to transact or concur in transacting any
business and to do or concur in doing any acts required to be done by
the Administrative Agent including the receipt and payment of money and
any agent being a solicitor, broker or other person engaged in any
profession or business shall be entitled to be paid all usual
professional and other charges for business transacted and acts done by
him or any partner of his in connection with the trusts hereof.
22.4 PERFORMANCE BY CHARGOR
The Administrative Agent is hereby authorised and it shall be entitled
to assume without enquiry (in the absence of knowledge by or an express
notice to it to the contrary) that the Chargor is duly performing and
observing all the covenants, conditions, provisions, and obligations
contained in the Security Documents and/or in respect of the Secured
Liabilities and on its part to be performed and observed.
23. WAIVERS, REMEDIES CUMULATIVE
(a) The rights of the Administrative Agent and each Secured Party under
this Deed;
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under general
law; and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such rights is not a waiver
of that right.
(b) The Administrative Agent may waive any breach by the Chargor of any of
the Chargor's obligations hereunder if so instructed by the Required
Lenders and may agree minor or
<PAGE> 24
22
technical amendments to the document and the transactions contemplated
thereby without requiring the instructions of the Lenders.
24. SEVERABILITY
24.1 GENERAL
If a provision of this Deed is or becomes illegal, invalid or
unenforceable in any jurisdiction in respect of the Chargor, that shall
not affect:
(a) in respect of the Chargor the validity or enforceability in
that jurisdiction of any other provision of this Deed; or
(b) in respect of the Chargor the validity or enforceability
in that jurisdiction of any provision of this Deed; or
(c) in respect of the Chargor the validity or enforceability
in other jurisdictions of that or any other provision of
this Deed.
24.2 DEEMED SEPARATE CHARGES
This Deed shall, in relation to the Chargor, be read and construed as
if it were a separate Deed relating to the Chargor to the intent that
if any Lien created by the Chargor in this Deed shall be invalid or
liable to be set aside for any reason, this shall not affect any
Security Interest created hereunder by the Chargor.
25. COUNTERPARTS
This Deed may be executed in any number of counterparts and this will
have the same effect as if the signatures on the counterparts were on
a single copy of this Deed.
26. NOTICES
26.1 GIVING OF NOTICES
All notices under, or in connection with, this Deed shall be given in
accordance with the provisions of subsection 14.2 of the Credit
Agreement.
26.2 ADDRESSES FOR NOTICES
The address, telex number and facsimile number of the Chargor and the
Administrative Agent for all notices under, or in connection with, this
Deed are the same as provided for in the Credit Agreement.
27. COVENANT TO RELEASE
(a) The Administrative Agent shall and is hereby authorised by each Secured
Party to execute on behalf of itself and each Secured Party, without the
need for any further referral to, or authority from, any Secured Party,
all necessary releases of the Chargor from its obligations under any
Security Document (including, without limitation, a release of the
security given by the
<PAGE> 25
23
Chargor hereunder) which is sold pursuant to an asset disposal permitted
or consented to under the Credit Agreement.
(b) Upon the expiry of the Security Period, the Administrative Agent and
each Secured Party shall, at the request and cost of the Chargor,
execute and do all such deeds, acts and things as may be necessary to
release the Security Assets from the security constituted hereby.
28. JURISDICTION
28.1 SUBMISSION
For the benefit of the English Agent and each English Lender, the
Chargor agrees that the courts of England have jurisdiction to settle
any disputes in connection with this Deed and accordingly submits to the
jurisdiction of the English courts.
28.2 SERVICE OF PROCESS
Without prejudice to any other mode of service, the Chargor:
(a) irrevocably appoints Clifford Chance Secretaries Limited of 200
Aldersgate Street, London EC1A 4JJ as its agent for service of
process relating to any proceedings before the English courts in
connection with this Deed;
(b) agrees to maintain such an agent for service of process in
England for so long as any Secured Liability is outstanding
under this Deed;
(c) agrees that failure by a process agent to notify the Chargor of
the process will not invalidate the proceedings concerned; and
(d) consents to the services of process relating to any such
proceedings by prepaid posting of a copy of the process to its
address for the time being applying under Clause 26.2 (Addresses
for notices).
28.3 FORUM CONVENIENCE AND ENFORCEMENT ABROAD
The Chargor:
(a) waives objection to the English courts on grounds of
inconvenience form or otherwise as regards proceedings in
connection with this Deed; and
(b) agrees that a judgment or order of an English court in
connection with this Deed is conclusive and binding on it and
may be enforced against it in the courts of any other
jurisdiction.
28.4 NON-EXCLUSIVITY
Nothing in this Clause 28 limits the right of the Secured Parties to
bring proceedings against the Chargor in connection with this Deed:
(a) in any other court of competent jurisdiction; or
<PAGE> 26
24
(b) concurrently in more than one jurisdiction.
29. GOVERNING LAW
This Deed shall be governed by and construed in accordance with English
Law.
IN WITNESS whereof this Deed has been duly executed as a deed on the date first
above written.
<PAGE> 27
25
SIGNATORIES
THE CHARGOR
Executed as a deed by )
HEDSTROM CORPORATION )
acting by )
) /s/ ANDREW S. ROSEN Andrew Rosen
and ) --------------------------
Authorised Signatory Vice President
/s/ ALAN PLOTKIN Alan Plotkin
--------------------------
Authorised Signatory Secretary
THE ADMINISTRATIVE AGENT
SIGNED by
acting on behalf of
CREDIT SUISSE FIRST BOSTON /s/ EDWARD E. BARR
in the presence of -------------------------------
EDWARD E. BARR
ASSOCIATE
/s/ IRA LUBINSKY
-------------------------------
IRA LUBINSKY
VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.11
MORTGAGE OF SHARES
Dated 12th June, 1997
BETWEEN
AMAV INDUSTRIES, INC.
as Chargor
- and -
CREDIT SUISSE FIRST BOSTON
as Administrative Agent
ALLEN & OVERY
London
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Covenant To Pay . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Secured Liabilities . . . . . . . . . . . . . . . . . . . . . . 6
4. Charges On Shares . . . . . . . . . . . . . . . . . . . . . . . 6
5. Continuing Security . . . . . . . . . . . . . . . . . . . . . . 7
6. Representations And Warranties . . . . . . . . . . . . . . . . . 9
7. Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Special Provisions Relating To The Shares . . . . . . . . . . 11
9. When Security Becomes Enforceable . . . . . . . . . . . . . . 13
10. Enforcement Of Security . . . . . . . . . . . . . . . . . . . 13
11. Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Application Of Proceeds . . . . . . . . . . . . . . . . . . . 16
13. No Liability As Mortgagee In Possession . . . . . . . . . . . 16
14. Protection Of Third Parties . . . . . . . . . . . . . . . . . 16
15. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
16. Delegation By Administrative Agent . . . . . . . . . . . . . . 17
17. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 17
18. Redemption Of Prior Mortgages . . . . . . . . . . . . . . . . 18
19. Power Of Attorney . . . . . . . . . . . . . . . . . . . . . . 18
20. New Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 19
21. Stamp Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 19
22. Administrative Agent . . . . . . . . . . . . . . . . . . . . . 19
23. Waivers, Remedies Cumulative . . . . . . . . . . . . . . . . . 22
24. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 22
25. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 23
26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
27. Covenant To Release . . . . . . . . . . . . . . . . . . . . . 23
28. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 24
29. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 24
Signatories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 3
THIS MORTGAGE OF SHARES is dated 12th June, 1997 and is made BETWEEN:
(1) AMAV INDUSTRIES, INC., a Delaware Corporation (the "CHARGOR"); and
(2) CREDIT SUISSE FIRST BOSTON (the "ADMINISTRATIVE AGENT") as agent and
trustee for itself and each of the Secured Parties (as defined below).
WHEREAS:
(A) The Lenders have agreed to make available to the Borrower credit
facilities on and subject to the terms of the Credit Agreement.
(B) Pursuant to the Master Guarantee and Collateral Agreement the Chargor
(among others) has, inter alia, guaranteed to the Secured Parties the
payment of the Borrower Obligations.
(C) The Chargor has agreed to enter into this Deed to secure the payment of
the Secured Liabilities to the Secured Parties.
(D) It is intended by the parties hereto that this document shall take
effect as a deed notwithstanding the fact that a party may only execute
this document under hand.
NOW IT IS AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"BORROWER"
means Hedstrom Corporation.
"BORROWER OBLIGATIONS"
has the meaning given to it in the Master Guarantee and Collateral
Agreement.
"COMPANY"
means AMAV Industries Limited, an English incorporated company
(Registered no. 2465222).
"CREDIT AGREEMENT"
means the credit agreement dated as of 12th June, 1997 between Hedstrom
Holdings, Inc. as Parent, the Borrower, the Lenders, Societe Generale as
documentation agent, UBS Securities as syndication agent and Credit
Suisse First Boston as administrative agent, and any and each other
agreement or instrument supplementing or amending it.
<PAGE> 4
2
"CREDIT DOCUMENTS"
has the meaning given to it in the Credit Agreement.
"CREDIT PARTIES"
has the meaning given to it in the Credit Agreement.
"DEFAULT RATE"
at any time means the rate determined in accordance with Section 7.8(c)
of the Credit Agreement.
"DEFAULT"
has the meaning given to it in the Credit Agreement.
"EVENT OF DEFAULT"
has the meaning given to it in the Credit Agreement.
"FINANCE DOCUMENTS"
means:
(a) the Credit Agreement;
(b) the Security Documents;
(c) any Letter of Credit;
(d) the other Credit Documents;
(e) any Hedge Agreement entered into by the Borrower with any Lender
(or any Affiliate of any Lender);
(f) any document designated in writing as such by the Administrative
Agent (on the instructions of the Required Lenders) and the
Borrower; and
(g) any other document made, delivered or given in connection with
any of the foregoing.
"HEDGE AGREEMENT"
has the meaning given to it in the Master Guarantee and Collateral
Agreement.
"LENDERS"
has the meaning given to it in the Credit Agreement.
<PAGE> 5
3
"LETTER OF CREDIT"
has the meaning given to it in the Credit Agreement.
"LIEN"
has the meaning given to it in the Credit Agreement.
"MASTER GUARANTEE AND COLLATERAL AGREEMENT"
has the meaning given to it in the Credit Agreement.
"RECEIVER"
means a receiver and manager of (if the Administrative Agent so
specifies in the relevant appointment) a receiver.
"REIMBURSEMENT OBLIGATION"
has the meaning given to it in the Credit Agreement.
"RELATED RIGHTS"
means, in relation to the Shares, all dividends and other distributions
paid or payable after the date hereof on all or any of the Shares and
all stocks, shares, securities (and the dividends or interest thereon),
rights, money or property accruing or offered at any time by way of
redemption, bonus, preference, option rights or otherwise to or in
respect of any of the Shares or in substitution or exchange for any of
the Shares.
"REQUIRED LENDERS"
has the meaning given to it in the Credit Agreement.
"SECURED LIABILITIES"
has the meaning given to it in Clause 3.1 (Scope).
"SECURED PARTIES"
means the Lenders (in any capacity under any Finance Document), (in the
case of a Hedge Agreement) any Affiliate of a Lender, the Documentation
Agent (as defined in the Credit Agreement), the Syndication Agent (as
defined in the Credit Agreement) and the Administrative Agent.
"SECURITY ASSETS"
means all assets, rights and property of the Chargor the subject of any
security created by this Deed or any other Security Document.
<PAGE> 6
4
"SECURITY DOCUMENT"
means this Deed and the other Security Documents (as defined in the
Credit Agreement).
"SECURITY PERIOD"
means the period beginning on the date hereof and ending on the date (as
stated by the Administrative Agent) upon which all the Secured
Liabilities which have arisen have been unconditionally and irrevocably
paid and discharged in full and after which no further Secured
Liabilities are reasonably likely to arise or the security hereby
created has been unconditionally and irrevocably released and
discharged.
"SHARES"
means the 650 ordinary shares represented by share certificate numbered
of the Company owned by the Chargor (being 65 per cent. of
the issued ordinary share capital of Company), including all Related
Rights.
1.2 INTERPRETATION
(a) Save as expressly herein defined, capitalised terms defined in the
Credit Agreement shall have the same meaning herein.
(b) The provisions of Section 1.2 of the Credit Agreement shall also apply
hereto as if expressly set out herein (mutatis mutandis) with each
reference to the Credit Agreement being deemed to be a reference to this
Deed.
(c) The terms of the other Finance Documents and of any side letters
between the parties hereto in relation to the Finance Documents are
incorporated herein to the extent required for any purported disposition
of the Security Assets contained herein to be a valid disposition in
accordance with Section 2(1) of the Law of Property (Miscellaneous
Provisions) Act 1989.
(d) If the Administrative Agent (as appropriate, on the basis of legal
advice received by it for this purpose) considers that an amount paid by
any Credit Party to either the Administrative Agent or any of the
Secured Parties under any Finance Document is capable of being avoided
or otherwise set aside on the liquidation or administration (or
equivalent) of the Chargor or otherwise, then such amount shall not be
considered to have been irrevocably paid for the purposes hereof.
(e) For the avoidance of doubt, an obligation in this Deed (or any
part thereof) which constitutes financial assistance within the meaning
of Section 151 of the Companies Act 1985, shall not be excluded by the
proviso to the definition of "Secured Liabilities" in Clause 3.1 (Scope)
if in relation to such obligation the provisions of Sections 155-158 of
the Companies Act 1985 have been complied with.
1.3 CONSTRUCTION
(a) In this Deed, unless the contrary intention appears, a reference to:
(i) "ASSETS" means properties, revenues and rights of every
description;
<PAGE> 7
5
an "AUTHORISATION" means an authorisation, consent, approval,
resolution, license, exemption, filing, registration and
notarisation.
a "MONTH" or two or more "MONTHS" is a reference to a period
starting on one day in a calendar month and ending on the
numerically corresponding day in the next or relevant subsequent
calendar month, except that, if there is no numerically
corresponding day in the month in which that period ends, that
period shall end on the last Business Day in that calendar
month;
a "REGULATION" means any regulation, rule, official directive,
request or guideline (whether or not having the force of law,
but, if not having the force of law with which persons of the
relevant category would customarily comply) of any governmental
body, agency, department or regulatory, self-regulatory or other
authority or organisation;
(ii) a provision of a law is a reference to that provision as amended
or re-enacted;
(iii) a Clause or a Schedule is a reference to a clause of or a
schedule to this Deed;
(iv) a person includes its successors and assigns;
(v) a Finance Document or another document is a reference to that
Finance Document or that other document as amended, novated or
supplemented; and
(vi) a time of day is a reference to London time.
(b) The index to and the headings in this Deed are for convenience only and
are to be ignored.
1.4 CERTIFICATES
A certificate of the Administrative Agent setting forth the amount of
any Secured Liability due from the Chargor shall be prima facie evidence
of such amount against the Chargor in the absence of manifest error.
2. COVENANT TO PAY
2.1 COVENANT
The Chargor hereby, as primary obligor and not merely as surety,
covenants with the Administrative Agent (as agent and trustee as
aforesaid) that it will pay or discharge the Secured Liabilities on the
due date therefor in the manner provided in the relevant Finance
Document. Any amount not paid hereunder when due as set forth in the
Credit Agreement shall bear interest (as well after as before judgement
and payable on demand) at the Default Rate from time to time (or, if
higher, the default rate applicable to the Secured Liability concerned)
from the due date until the date such amount is unconditionally and
irrevocably paid and discharged in full.
2.2 RIGHT OF APPROPRIATION
Upon and after the occurrence of an Event of Default and for so long as
the same is continuing, the Administrative Agent shall be entitled to
appropriate moneys and/or assets to Secured
<PAGE> 8
6
Liabilities in such manner or order as it sees fit (subject to Clause
12 (Application of Proceeds)) and any such appropriation shall override
any appropriation by the Chargor. This Clause 2.2 shall not, however,
override the principle that the Secured Parties are to share in
recoveries on a pro rata basis.
3. SECURED LIABILITIES
3.1 SCOPE
The security constituted by the Security Documents secures the "SECURED
LIABILITIES", being the collective reference to:
(i) the Chargor's guarantee of the Borrower Obligations pursuant to
Section 2 of the Master Guarantee and Collateral Agreement; and
(ii) all obligations and liabilities of the Chargor which may arise
under or in connection with the Master Guarantee and Collateral
Agreement or any other Credit Document to which the Chargor is a
party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all reasonable fees
and disbursements of counsel to the Administrative Agent or to
the Lenders that are required to be paid by the Chargor
pursuant to the terms of the Master Guarantee and Collateral
Agreement or any other Credit Document),
provided always that any obligation which, if it were so included within
the definition of "Secured Liabilities", would result in this Deed
contravening Section 151 of the Companies Act 1985 shall not be included
within the definition of "Secured Liabilities".
3.2 COVENANT TO MAKE FACILITIES AVAILABLE
Each Secured Party, by the Administrative Agent's execution of this
Deed, hereby severally covenants with the Chargor that it will, upon and
subject to the terms of the relevant Finance Document, make advances and
further advances or other financial accommodation to the extent (if at
all) it is provided for in the relevant Finance Document.
4. CHARGES ON SHARES
(a) The Chargor hereby as continuing security for the payment, discharge
and performance of all the Secured Liabilities mortgages and charges and
agrees to mortgage and charge to the Administrative Agent (as agent and
trustee for the benefit of itself and each of the Secured Parties) all
Shares held now or in the future by it and/or any nominee on its behalf,
the same to be a security by way of a first mortgage,
PROVIDED THAT:
(i) whilst no Event of Default exists all dividends and other
distributions paid or payable with respect to the Shares may be
paid directly to the Chargor (in which case the Administrative
Agent or its nominee shall execute any necessary dividend
mandate) and, if paid directly to the Administrative Agent,
shall be paid promptly by it to the Chargor; and
<PAGE> 9
7
(ii) unless an Event of Default is continuing, the Chargor may exercise
all voting rights attaching to the relevant Shares or, where the
shares have been registered in the name of the Administrative Agent
or its nominee, as the relevant Chargor may direct in writing (and
the Administrative Agent and any nominee of the Administrative Agent
in whose name such Shares are registered shall execute any form of
proxy or other document reasonably required in order for the Chargor
to do so) provided that no vote shall be cast or exercised which in
the reasonable opinion of the Administrative Agent would be likely to
be materially prejudicial to the rights or interest of the Secured
Parties under any of the Finance Documents.
(b) The mortgages and charges on shares created by this Clause 4 are made with
full title guarantee.
5. CONTINUING SECURITY
5.1 CONTINUING SECURITY
The security constituted by this Deed shall be continuing and will extend
to the ultimate balance of the Secured Liabilities, regardless of any
intermediate payment or discharge in whole or in part.
5.2 REINSTATEMENT
Where any discharge (whether in respect of any amounts hereby secured or
otherwise) is made in whole or in part or any arrangement is made on the
faith of any payment, security or other disposition which is avoided or
must be repaid on bankruptcy, liquidation or otherwise without limitation,
the liability of the Chargor under this Deed shall continue as if there had
been no such discharge or arrangement. The Secured Parties shall be
entitled to concede or compromise any claim that any such payment, security
or other disposition is liable to avoidance or repayment.
5.3 WAIVER OF DEFENCES
The liability of the Chargor hereunder shall not be prejudiced, affected or
diminished by any act, omission, circumstance, matter or thing which but
for this provision might operate to release or otherwise exonerate the
Chargor from its obligations hereunder in whole or in part, including
without limitation and whether or not known to the Chargor or to any
Secured Party;
(a) any time or waiver granted to or composition with any Credit Party or
any other person;
(b) the taking, variation, compromise, renewal or release of or refusal or
neglect to perfect or enforce any rights, remedies or securities
against any Credit Party or any other person;
(c) any legal limitation, disability, incapacity or other circumstances
relating to the Chargor or the death, bankruptcy, liquidation or
change in the name or constitution of any Credit Party or any other
person;
(d) any variation of, or extension of the due date for performance of any
term of, any Finance Document or any other document or security so
that references to such
<PAGE> 10
8
documents in this Deed shall include each such variation or
extension or any increase, exchange, acceleration, renewal,
surrender, release or loss of or failure to perfect any security
or any non-presentment or non-observance of any formality in
respect of any instruments; and
(e) any irregularity, unenforceability, invalidity or frustration
of any obligations of any Credit Party or any other person under
the Finance Documents or any other document or security, to
the intent that the Chargor's obligations hereunder shall remain
in full force and this Deed be construed accordingly as if there
were no such irregularity, unenforceability, invalidity or
frustration.
5.4 IMMEDIATE RECOURSE
The Chargor waives any right it may have of first requiring any Secured
Party to proceed against or enforce any other rights or security of or
claim payment from any Credit Party or any other person before claiming
from the Chargor hereunder.
5.5 PRESERVATION OF RIGHTS
Until all the Secured Liabilities have been irrevocably paid and
discharged in full, each Secured Party (or any trustee or the
Administrative Agent on its behalf) may:
(a) refrain from applying or enforcing any other security, moneys
or rights held or received by that Secured Party in respect of
such amounts or apply and enforce the same in such manner and
order as it sees fit (whether against such amounts or otherwise)
and the Chargor shall not be entitled to the benefit of the
same; and
(b) hold in suspense account any moneys received from the Chargor or
on account of the Chargor's liability hereunder, on which the
Secured Party shall pay interest at the rate reasonably
determined by it to be usual for accounts of that type.
5.6 NON-COMPETITION
Until the Secured Liabilities have been irrevocably paid in full, the
Chargor shall not by virtue of any payment made, security realised or
moneys received for or on account of the Chargor's liability hereunder:
(a) be subrogated to any rights, security or moneys held, received
or receivable by any Secured Party or be entitled to any right
of contribution;
(b) be entitled and shall not claim to rank as creditor against the
estate or in the bankruptcy or liquidation of any Credit Party
in competition with any Secured Party;
(c) receive, claim or have the benefit of any payment, distribution
or security from or on account of any Credit Party or exercise
any right of set-off as against any Credit Party or any other
person liable hereunder or claim the benefit of any security or
moneys held by or for the account of the Secured Parties, and
the Secured Parties shall be entitled to apply such security and
moneys as they see fit.
The Chargor shall forthwith pay to the Administrative Agent (for the
Secured Parties) an amount equal to any such set-off in fact exercised
by it and shall hold in trust for and forthwith
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9
pay or transfer, as the case may be, to the Administrative Agent any
such payment or distribution or benefit of security in fact received by
it. If the Chargor exercises any right of set-off contrary to the
above, it will forthwith pay an amount equal to the amount set off to
the Administrative Agent.
5.7 ADDITIONAL SECURITY
The security constituted by this Deed shall be in addition to and shall
not in any way be prejudiced by any other security now or hereafter held
by the Administrative Agent as security for the Secured Liabilities.
The Secured Parties' rights hereunder are in addition to and not
exclusive of those provided by law.
5.8 CERTIFICATE
A certificate of the Administrative Agent as to the amount of the
Secured Liabilities shall be prima facie evidence of that amount as
against the Chargor, save in the case of manifest error.
5.9 SECURITY
The Chargor will not without the prior written consent of the
Administrative Agent hold any security from any Credit Party in respect
of the Secured Liabilities. The Chargor will hold any security held by
it in breach of this provision in trust for the Secured Parties.
6. REPRESENTATIONS AND WARRANTIES
6.1 TO WHOM MADE
The Chargor makes the representations and warranties set out in Clause
6.2 (Matters represented) to each Secured Party.
6.2 MATTERS REPRESENTED
(a) SHARES
(i) The Chargor is and will remain the sole beneficial owner of the
Shares and save where the Shares have been registered in the
name of the Administrative Agent or its nominee pursuant hereto,
it is and will remain the absolute legal owner thereof
(together with its nominee(s)), except to the extent permitted
by the Credit Agreement;
(ii) the Chargor has not transferred, assigned, pledged or in any way
encumbered the Shares other than pursuant to the Security
Documents or as permitted pursuant to the Credit Agreement;
(iii) the Chargor will not take any action whereby the rights
attaching to the Shares are altered in any way prejudicial to
the Secured Parties or diluted;
(iv) the Shares are fully paid and are not subject to any options to
purchase or similar rights of any person; and
(v) the Shares represent 65 per cent. of the issued share capital of
the Company;
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(b) The Chargor is the beneficial and (subject to the security created by
this Deed) legal owner of all the issued shares of the Company.
6.3 TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES
The representations and warranties set out in this Clause 6:
(a) will survive the execution of each Finance Document and the
making of each Loan or other extension of credit under the
Finance Documents; and
(b) are made on the date hereof and are deemed to be repeated on
each date during the Security Period on which any of the
representations and warranties set out in Section VIII
(Representations and warranties) of the Credit Agreement are
repeated with reference to the facts and circumstances then
existing.
7. UNDERTAKINGS
7.1 DURATION AND WITH WHOM MADE
The undertakings in this Clause 7:
(a) shall remain in force throughout the Security Period; and
(b) are given by the Chargor to each Secured Party.
7.2 GENERAL UNDERTAKINGS
The Chargor shall at all times comply with the terms of this Deed.
7.3 RESTRICTIONS ON DEALING
The Chargor will not:
(a) create or permit to subsist any Lien over all or any of the
Security Assets other than pursuant to or contemplated by the
Security Documents or the Credit Agreement; or
(b) part with, lease, sell, transfer or otherwise dispose of or
agree to part with, lease, sell, transfer or otherwise dispose
of all or any part of the Security Assets or any interest
therein, other than as permitted by the Credit Agreement.
7.4 UNDERTAKINGS RELATING SPECIFICALLY TO THE SECURITY ASSETS
The Chargor shall:
(a) deposit with the Administrative Agent or as the Administrative
Agent may direct all certificates and other documents of title
or evidence of ownership in relation to such Shares as are owned
by it and their Related Rights and to the assets specified in
Clause 4 (Charges on shares); and
(b) execute and deliver to the Administrative Agent all such share
transfers and other documents as may reasonably be requested by
the Administrative Agent in order to
<PAGE> 13
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enable the Administrative Agent or its nominees to be registered
as the owner or otherwise to obtain a legal title to the same
and, without limiting the generality of the foregoing, shall
deliver to the Administrative Agent on the date hereof or as
soon as practicable thereafter executed (and, if required to be
stamped, pre-stamped) share transfers for all Shares in favour
of the Administrative Agent's nominees as transferee and shall
procure that all such share transfers are forthwith registered
by the relevant company and that share certificates in the name
of those nominees in respect of all Shares are forthwith
delivered to the Administrative Agent.
7.5 MAINTENANCE
The Chargor will:
(a) TAXES AND OUTGOINGS pay as and when the same shall become due
all taxes, rates, duties, charges, assessments and outgoings
whatsoever (whether parliamentary, parochial, local or of any
other description) which shall be assessed, charged or imposed
upon or payable by it in respect of the Security Assets or any
part thereof (save to the extent that payment of the same is
being contested in good faith);
(b) NOTICES within 14 days after the receipt by the Chargor of any
application, requirement, order or notice served or given by any
public or local or any other authority with respect to the
Security Assets (or any part thereof) which is likely to have a
material adverse effect on the value of the Security Assets,
give written notice thereof to the Administrative Agent and also
(within seven days after demand) produce the same or a copy
thereof to the Administrative Agent and inform it of the steps
taken or proposed to be taken to comply with any requirement
thereby made or implicit therein; and
(c) STATUTES duly and punctually perform and observe all its
obligations in connection with the Security Assets under any
present or future statute or any regulation, order or notice
made or given thereunder.
8. SPECIAL PROVISIONS RELATING TO THE SHARES
8.1 REGISTRATION ON TRANSFER
The Chargor hereby authorises the Administrative Agent (at any time) to
arrange for the Shares to be delivered to any person or registered as
the Administrative Agent may feel appropriate to perfect the security
thereover and to transfer or cause the Shares to be transferred to and
registered in the name of any nominees of the Administrative Agent (as
agent and trustee, as aforesaid) and the Chargor undertakes from time to
time to execute and sign all transfers, contract notes, powers of
attorney and other documents which the Administrative Agent may require
for perfecting its title to any of the Shares or for vesting the same in
itself or its nominee or in any purchasers or transferees (under the
powers of realisation herein conferred).
8.2 POWERS
The Administrative Agent and its nominee may at any time after an Event
of Default has occurred and whilst it is continuing exercise or refrain
from exercising (in the name of the Chargor, the registered holder or
otherwise and without any further consent or authority from the Chargor
and irrespective of any direction given by the Chargor) in respect of
the Shares any
<PAGE> 14
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voting rights and any powers or rights under the terms thereof or
otherwise which may be exercised by the person or persons in whose name
or names the Shares are registered or who is the holder thereof,
including, without limitation, all the powers given to trustees by
Section 10(3) and (4) of the Trustee Act 1925 as amended by Section 9 of
the Trustee Investments Act 1961 in respect of securities or property
subject to a trust PROVIDED THAT in the absence of notice from the
Administrative Agent that such circumstances are applicable the Chargor
may and shall continue to exercise any and all voting rights with
respect to the Shares subject always to the terms hereof. The Chargor
shall not without the previous consent in writing of the Administrative
Agent (such consent not to be unreasonably withheld or delayed) exercise
the voting rights attached to any of the Shares in favour of resolutions
having the effect of or prejudicing the security hereunder or impairing
the value of the Shares. Subject to Clause 4 (Charges on shares) and
this Clause 8.2, the Chargor hereby irrevocably appoints the
Administrative Agent or its nominees its proxy so to exercise all voting
rights so long as the Shares remain registered in the names of the
Chargor.
8.3 CALLS
The Chargor during the continuance of this security will make all
payments which may become due in respect of any of the Shares and in the
case of the occurrence of an Event of Default as a result of the
Chargor's failure in making any such payments the Administrative Agent
may if it thinks fit make such payments on behalf of the Chargor. Any
sums so paid by the Administrative Agent shall be repayable by the
Chargor to the Administrative Agent on demand together with interest at
the Default Rate from the date of such payment by the Administrative
Agent, and pending such repayment shall constitute part of the Secured
Liabilities.
8.4 LIABILITY TO PERFORM
It is expressly agreed that, notwithstanding anything to the contrary
herein contained, the Chargor shall remain liable to observe and perform
all of the conditions and obligations assumed by it in respect of the
Shares and none of the Administrative Agent and the Secured Parties
shall be under any obligation or liability by reason of or arising out
of this Deed. None of the Secured Parties shall be required in any
manner to perform or fulfil any obligation of the Chargor in respect of
the Shares, or to make any payment, or to receive any enquiry as to the
nature or sufficiency of any payment received by them, or to present or
file any claim or take any other action to collect or enforce the
payment of any amount to which they may have been or to which they may
be entitled hereunder at any time or times.
8.5 ENFORCEMENT
Upon the occurrence of an Event of Default and at any time whilst any
Event of Default exists, the Administrative Agent shall be entitled to
put into force and exercise immediately as and when it may see fit any
and every power possessed by the Administrative Agent by virtue of this
Deed or available to a secured creditor (so that Sections 93 and 103 of
the Law of Property Act 1925 shall not apply to this security) and in
particular (without limitation):
(a) to sell all or any of the Shares in any manner permitted by law
upon such terms as the Administrative Agent shall in its
absolute discretion determine;
(b) to collect, recover or compromise and give a good discharge for
any moneys payable to the Chargor in respect of the Shares or in
connection therewith; and
<PAGE> 15
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(c) to act generally in relation to the Shares in such manner as the
Administrative Agent shall determine.
9. WHEN SECURITY BECOMES ENFORCEABLE
The security constituted hereby shall become immediately enforceable
upon the occurrence of an Event of Default and the power of sale and
other powers conferred by Section 101 of the Law of Property Act, 1925
as varied or amended by this Deed shall be immediately exercisable upon
this security becoming enforceable and at any time thereafter whilst any
Event of Default exists. After the security constituted hereby has
become enforceable, the Administrative Agent may in its absolute
discretion enforce all or any part of such security in such manner as it
sees fit or as the Required Lenders may direct.
10. ENFORCEMENT OF SECURITY
10.1 GENERAL
For the purposes of all powers implied by statute the Secured
Liabilities shall be deemed to have become due and payable on the date
hereof and Section 103 of the Law of Property Act 1925 (restricting the
power of sale) and Section 93 of the same Act (restricting the right of
consolidation) shall not apply to this security. The statutory powers
of leasing conferred on the Administrative Agent shall be extended so as
to authorise the Administrative Agent to lease, make agreements for
leases, accept surrenders of leases and grant options as the
Administrative Agent shall think fit and without the need to comply with
any of the provisions of sections 99 and 100 of the Law of Property Act
1925.
10.2 CONTINGENCIES
(a) If the Administrative Agent enforces the security constituted by this
Deed (whether by the appointment of a Receiver or otherwise) at a time
when no amounts are due under the Finance Documents (but at a time when
amounts may become so due), the Administrative Agent (or such Receiver)
may pay the proceeds of any recoveries effected by it into such number
of realisations accounts (bearing interest at market rates prevailing
for like amounts) as it considers appropriate.
(b) The Administrative Agent (or such Receiver) may (subject to the payment
of any claims having priority to this security) withdraw amounts
standing to the credit of such realisations accounts to:
(i) meet all costs, charges and expenses incurred and payments made
by the Administrative Agent (or such Receiver) in the course of
such enforcement;
(ii) pay remuneration to the Receiver as and when the same becomes
due and payable; and
(iii) meet amounts due and payable under the Finance Documents as and
when the same become due and payable.
in each case, together with interest thereon (as well after as before
judgment and payable on demand) at the Default Rate from the date the
same become due and payable until the date the same are unconditionally
and irrevocably paid and discharged in full.
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(c) The Chargor will not be entitled to withdraw all or any moneys
(including interest) standing to the credit of any realisations account
until the expiry of the Security Period.
11. RECEIVER
11.1 APPOINTMENT OF RECEIVER
(a) At any time after this security becomes enforceable or if the Chargor so
requests the Administrative Agent in writing at any time, the
Administrative Agent may without further notice appoint under seal or in
writing under its hand any one or more qualified persons to be a
Receiver of all or any part of the Security Assets in like manner in
every respect as if the Administrative Agent had become entitled under
the Law of Property Act 1925 to exercise the power of sale thereby
conferred.
(b) In this Clause, "QUALIFIED PERSON" means a person who, under the
Insolvency Act 1986, is qualified to act as a receiver of the property
of the Chargor with respect to which he is appointed or (as the case may
require) an administrative receiver of the Chargor.
11.2 POWERS OF RECEIVER
(a) Every Receiver appointed in accordance with Clause 11.1 (Appointment of
Receiver) shall have and be entitled to exercise all of the powers set
out in paragraph (b) below in addition to those conferred by the Law of
Property Act 1925 on any receiver appointed thereunder. A Receiver who
is an administrative receiver of the Chargor shall have all the powers
of an administrative receiver under the Insolvency Act 1986. If at any
time there is more than one Receiver of all or any part of the Security
Assets, each such Receiver may (unless otherwise stated in any document
appointing him) exercise all of the powers conferred on a Receiver under
this Deed individually and to the exclusion of each other Receiver.
(b) The powers referred to in the first sentence of paragraph (a) above are:
(i) TAKE POSSESSION to take immediate possession of, get in and
collect the Security Assets or any part thereof;
(ii) PROTECTION OF ASSETS to do all acts which the Chargor might do
in the ordinary conduct of its business as well for the
protection as for the improvement of the Security Assets;
(iii) EMPLOYEES to appoint and discharge managers, officers, agents,
accountants, servants, workmen and others for the purposes
hereof upon such terms as to remuneration or otherwise as he may
think proper and to discharge any such persons appointed by the
Chargor;
(iv) BORROW MONEY for the purpose of exercising any of the powers,
authorities and discretions conferred on him by or pursuant to
this Deed and/or of defraying any costs, charges, losses or
expenses (including his remuneration) which shall be incurred by
him in the exercise thereof or for any other purpose, to raise
and borrow money either unsecured or on the security of the
Security Assets or any part thereof either in priority to the
security constituted by this Deed or otherwise and generally on
such terms and conditions as he may think fit and no person
lending such money shall be concerned to
<PAGE> 17
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enquire as to the propriety or purpose of the exercise of such
power or to see to the application of any money so raised or
borrowed;
(v) SELL ASSETS to sell, exchange, convert into money and realise
all or any part of the Security Assets by public auction or
private contract and generally in such manner and on such terms
as he shall think proper. Without prejudice to the generality
of the foregoing he may do any of these things for a
consideration consisting of cash, debentures or other
obligations, shares, stock or other valuable consideration and
any such consideration may be payable in a lump sum or by
instalments spread over such period as he may think fit;
(vi) COMPROMISE to settle, adjust, refer to arbitration, compromise
and arrange any claims, accounts, disputes, questions and
demands with or by any person who is or claims to be a creditor
of the Chargor or relating in any way to the Security Assets or
any part thereof;
(vii) LEGAL ACTIONS to bring, prosecute, enforce, defend and abandon
all such actions, suits and proceedings in relation to the
Security Assets or any part thereof as may seem to him to be
expedient;
(viii) RECEIPTS to give valid receipts for all moneys and execute all
assurances and things which may be proper or desirable for
realising the Security Assets; and
(ix) GENERAL POWERS to do all such other acts and things as he may
consider desirable or necessary for realising the Security
Assets or any part thereof or incidental or conducive to any of
the matters, powers or authorities conferred on a Receiver under
or by virtue of this Deed, to exercise in relation to the
Security Assets or any part thereof all such powers, authorities
and things as he would be capable of exercising if he were the
absolute beneficial owner of the same and to use the name of the
Chargor for all or any of such purposes.
11.3 REMOVAL AND REMUNERATION
The Administrative Agent may from time to time for writing under its
hand (subject to any requirement for an order of the court in the case
of an administrative receiver) remove any Receiver appointed by it and
may, whenever it may deem it expedient, appoint a new Receiver in the
place of any Receiver whose appointment may for any reason have
terminated and may from time to time fix the remuneration of any
Receiver appointed by it.
11.4 ADMINISTRATIVE AGENT MAY EXERCISE
To the fullest extent permitted by law, all or any of the powers,
authorities and discretions which are conferred by this Deed (either
expressly or impliedly) upon a Receiver of the Security Assets may be
exercised after the security hereby created becomes enforceable by the
Administrative Agent in relation to the whole of such Security Assets or
any part thereof without first appointing a Receiver of such property or
any part thereof or notwithstanding the appointment of a Receiver of
such property or any part thereof.
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12. APPLICATION OF PROCEEDS
Any moneys received by the Administration Agent or by any Receiver
appointed by it pursuant to this Deed and/or under the powers hereby
conferred shall, after the security hereby constituted shall have become
enforceable but subject to the payment of any claims having priority to
this security and to the Administrative Agent's and such Receiver's
rights under Clauses 10.2 (Contingencies) and 11.2 (Powers of Receiver)
be applied by the Administrative Agent for the following purposes and,
unless otherwise determined by the Administrative Agent or such
Receiver, in the following order or priority (but without prejudice to
the right of the Administration Agent or any Secured Party to recover
any shortfall from the Chargor):
(a) in satisfaction of or provision for all costs, charges and
expenses incurred and payments made by the Administrative Agent
or any Receiver appointed hereunder and of all remuneration due
hereunder together with interest on the foregoing (as well after
as before judgment and payable on demand) at the Default Rate
from time to time from the date the same become due and payable
as set forth in the Credit Agreement until the date the same are
unconditionally and irrevocably paid and discharged in full;
(b) in or towards payment of the Secured Liabilities or such part
of them as is then due and payable, or as the case may be,
outstanding pari passu between themselves; and
(c) in payment of the surplus (if any) to the Chargor or other
person entitled thereto.
13. NO LIABILITY AS MORTGAGEE IN POSSESSION
The Administrative Agent shall not nor shall any Receiver appointed as
aforesaid by reason of it or the Receiver entering into possession of
the Security Assets or any part thereof be liable to account as
mortgagee in possession or be liable for any loss on realisation or for
any default or omission for which a mortgagee in possession might be
liable. Every Receiver duly appointed by the Administrative Agent under
the powers in that behalf herein contained shall be deemed to be the
agent of the Chargor for all purposes and shall as such agent for all
purposes be deemed to be in the same position as a Receiver duly
appointed by a mortgagee under the Law of Property Act 1925. The
Chargor alone shall be responsible for his contracts, engagements, acts,
omissions, defaults and losses and for liabilities incurred by him and
neither the Administrative Agent nor any Secured Party shall incur any
liability therefor (either to the Chargor or to any other person
whatsoever) by reason of the Administrative Agent's making his
appointment as such Receiver or for any other reason whatsoever. Every
such Receiver and the Administrative Agent shall be entitled to all the
rights, powers, privileges and immunities by the Law of Property Act
1925 and conferred on mortgagees and receivers when such receivers have
been duly appointed under the said Act but so that Section 103 of the
Law of Property Act 1925 shall not apply.
14. PROTECTION OF THIRD PARTIES
No purchaser, mortgagee or other person or company dealing with the
Administrative Agent or the Receiver or its or his agents shall be
concerned to enquire whether the Secured Liabilities have become payable
or whether any power which the Receiver is purporting to exercise has
become exercisable or whether any money remains due under the Deed or
the Financial Documents or to see to the application or any money paid
to the Administration Agent or to such Receiver.
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15. EXPENSES
15.1 UNDERTAKING TO PAY
All reasonable costs, charges and expenses incurred and all payments
made by the Administrative Agent or any Receiver appointed hereunder in
the lawful exercise of the powers hereby conferred whether or not
occasioned by any act, neglect or default of the Chargor shall carry
interest (as well after as before judgment) at the Default Rate from
time to time as set forth in the Credit Agreement. The amount of all
such costs, charges, expenses and payments and all such interest thereon
and all remuneration payable hereunder shall be payable by the Chargor
on demand. All such costs, charges, expenses and payments shall be paid
and charged as between the Administrative Agent and the Chargor on the
basis of a full indemnity and not on the basis of party and party or any
other kind of taxation. No costs, charges, expenses or payments shall
be payable by the Chargor pursuant to this Clause 15.1 to the extent
that the same are incurred or made due to the negligence or wilful
default of the Administrative Agent or any Receiver.
15.2 INDEMNITY
The Security Parties and every Receiver, attorney, manager, agent or
other person appointed by the Administrative Agent hereunder (each an
"INDEMNIFIED PARTY") shall be entitled to be indemnified out of the
Security Assets in respect of all liabilities and expenses reasonably
and properly incurred by them in the execution or purported execution
of any of the powers, authorities or discretions vested in them
pursuant hereto and against all actions, proceedings, costs, claims and
demands in respect of any matter or thing done or omitted in any way
relating to the Security Assets and the Secured Parties and any such
Receiver may retain and pay all sums in respect of the same out of any
moneys received under the powers hereby conferred. Notwithstanding the
foregoing, no indemnified party shall be entitled to be indemnified in
respect of any part of the foregoing which results from such party's
negligence or wilful misconduct.
16. DELEGATION BY ADMINISTRATIVE AGENT
The Administrative Agent or any Receiver appointed hereunder may at any
time and from time to time delegate by power of attorney or in any other
manner to any person or persons all or any of the powers, authorities
and discretions which are for the time being exercisable by the
Administrative Agent or such Receiver under this Deed in relation to the
Security Assets or any part thereof. Any such delegation may be made
upon such terms (including power to sub-delegate) and subject to such
regulations as the Administrative Agent or such Receiver may think fit.
The Administrative Agent or such Receiver shall not be in any way liable
or responsible to the Chargor for any loss or damage arising from any
act, default, omission or misconduct on the part of any such delegate or
sub-delegate unless the delegation to such person was carried out
negligently or without due investigation.
17. FURTHER ASSURANCES
17.1 GENERAL
The Chargor shall at its own expense execute and do all such assurances,
acts and things as the Administrative Agent may reasonably require for
perfecting or protecting the security intended to be created hereby over
the Security Assets or any part thereof or for facilitating (if and when
<PAGE> 20
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this security becomes enforceable) the realisation of the Security
Assets or any part thereof and in the exercise of all powers,
authorities and discretions vested in the Administrative Agent or any
Receiver of the Security Assets or any part thereof or in any such
delegate or sub-delegate as aforesaid. To that intent, the Chargor shall
in particular execute all transfers, conveyances, assignments and
assurances of such property whether to the Administrative Agent or to
its nominees, amend (when it is able by control of the relevant company)
the Memorandum and Articles of Association of the Company and to remove,
for example and without limitation, restrictions on the transfer of
those shares, the registration of the transferee and existing
pre-emption rights, as the Administrative Agent may reasonably request
and give all notices, orders and directions and make all registrations
which the administrative Agent may reasonably think expedient for
perfecting or protecting the security created hereby over the Security
Assets.
17.2 LEGAL CHARGE
Without prejudice to the generality of Clause 17.1 (General), the
Chargor will forthwith at the request of the Administrative Agent
execute a legal mortgage, charge or assignment over all or any of the
Security Assets subject to or intended to be subject to any fixed
security hereby created in favour of the Administrative Agent (as agent
and trustee as aforesaid) in such form as the Administrative Agent may
require but containing terms no more onerous than those in this Deed.
18. REDEMPTION OF PRIOR MORTGAGES
The Administrative Agent may, at any time after the security hereby
constituted has become enforceable, redeem any prior Lien against the
Security Assets or any part thereof or procure the transfer thereof to
itself and may settle and pass the accounts of the prior mortgagee,
chargee or encumbrancer. Any accounts so settled and passed shall be
conclusive and binding on the Chargor. All principal moneys, interest,
costs, charges and expenses of and incidental to such redemption and
transfer shall be paid by the Chargor to the Administrative Agent on
demand.
19. POWER OF ATTORNEY
19.1 APPOINTMENT
The Chargor hereby by way of security and in order more fully to secure
the performance of its obligations hereunder irrevocably appoints the
Administrative Agent and every Receiver of the Security Assets or any
part thereof appointed hereunder and every such delegate or subdelegate
as aforesaid to be its attorney acting severally, and on its behalf and
in its name or otherwise, after the occurrence of an Event of Default
and whilst it continues to execute and do all such assurances, acts and
things which the Chargor ought to do and fails to do under the covenants
and provisions contained in this Deed (including, without limitation, to
make any demand upon or to give any notice or receipt to any person
owing moneys to the Chargor and to execute and deliver any charges,
legal mortgages, assignments or other security and any transfers of
securities) any generally in its name and on its behalf to exercise all
or any of the powers, authorities and discretions conferred by or
pursuant to this Deed or by statute on the Administrative Agent or any
such Receiver, delegate or sub-delegate and (without prejudice to the
generality of the foregoing) to seal and deliver and otherwise perfect
any deed, assurance, agreement, instrument or act which it or he may
reasonably deem proper in or for the purpose of exercising any of such
powers, authorities and discretions.
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19.2 RATIFICATION
The Chargor hereby ratifies and confirms and agrees to ratify and
confirm whatever any such attorney as is mentioned in Clause 19.1
(Appointment) shall do or purport to do in the exercise or purported
exercise of all or any of the powers, authorities and discretions
referred to in such Clause.
20. NEW ACCOUNTS
If the Administrative Agent or any Secured Party receives or is deemed
to be affected by notice whether actual or constructive of any
subsequent charge or other interest affecting any part of the Security
Assets and/or the proceeds of sale thereof, the Administrative Agent or
such Secured Party (as the case may be) may open a new account or
accounts with the Chargor. If the Administrative Agent or such Secured
Party (as the case may be) does not open a new account it shall
nevertheless be treated as if it had done so at the time when it
received or was deemed to have received notice and as from that time all
payments made to the Administrative Agent or such Secured Party (as the
case may be) shall be credited or be treated as having been credited to
the new account and shall not operate to reduce the amount for which
this Deed is security.
21. STAMP TAXES
The Chargor shall pay and, forthwith on demand, indemnify the
Administrative Agent and each Secured Party against any liability it
incurs in respect of any stamp, registration and similar tax which is or
becomes payable in connection with the entry into, performance or
enforcement of this Deed.
22. ADMINISTRATIVE AGENT
22.1 POWERS AND DISCRETIONS
Save as expressly provided in this deed.
(a) until the security hereby constituted shall have become
enforceable the Administrative Agent shall in granting any
consent or waiver or exercising any power, trust, authority or
discretion vested in it under the Security Documents, act as it
in its reasonable discretion shall think fit, in which case it
shall be in no way responsible for any loss, costs, damages or
expenses which may result from the exercise of non-exercise
thereof save in the case of its own negligence or wilful
misconduct; and
(b) as regards all the powers, trusts, authorities and discretions
vested in it under the Security Documents, after the security
hereby constituted shall have become enforceable, the
Administrative Agent shall have absolute discretion as to the
exercise thereof and shall be in no way responsible for any
loss, costs, damages or expenses which may result from the
exercise of non-exercise thereof save in the case of its own
negligence or wilful misconduct.
<PAGE> 22
20
22.2 DIRECTIONS BY REQUIRED LENDERS
As regards all or any of the powers, trusts, authorities and discretions
vested in it under the Security Documents, the Administrative Agent
shall act, or refrain from acting, in accordance with the directions of
the Require Lenders.
22.3 PROTECTIONS
By way of supplement to the Trustee Act 1925, it is expressly declared
as follows:
(a) the Administrative Agent may in relation to any of the
provisions of the Security Documents act on the opinion or
advice of or any information obtained from any lawyer, valuers,
surveyor, broker, auctioneer, accountant or other expert whether
obtained by the Chargor or by the Administrative Agent or
otherwise and shall not be responsible for any loss occasioned
by so acting;
(b) any opinion, advice or information obtained pursuant to the
foregoing paragraph (a) may be sent or obtained by letter,
facsimile transmission, telephone or other means and the
Administrative Agent shall not be liable for acting on any
opinion, advice or information purporting to be so conveyed
although the same shall contain some error or shall not be
authentic;
(c) the Administrative Agent may call for an accept as sufficient
evidence a certificate signed by any Responsible Officer of the
Chargor to the effect that any particular dealing, transaction,
step or thing is in the opinion of the persons so certifying
suitable or expedient or as to any other fact or matter upon
which the Administrative Agent may require to be satisfied. The
Administrative Agent shall be in no way bound to call for
further evidence or be responsible for any loss that may be
occasioned by acting on any such certificate;
(d) The Administrative Agent may refrain from doing anything which
would or might in its opinion be contrary to any law of any
jurisdiction or any directive of any agency of any state or
which would or might in its opinion otherwise render it liable
to any person and may do anything which is in its opinion
necessary to comply with any such law or directive;
(e) the Administrative Agent shall not be liable for any failure,
omission or defect in perfecting the security hereby
constituted including without prejudice to the generality of
the foregoing (i) failure to obtain any licence, consent or
other authority for the execution of any Security Document,
(ii) failure to register the same in accordance with the
provisions of any of the documents of title of the Chargor to
any of the property hereby charged, (iii) failure to effect or
procure registration of or otherwise protect any floating
charge created by any Security Document by registering under
the Land Registration Act 1925 or any other registration laws
in any territory any notice, caution or other entry prescribed
by or pursuant to the provisions of the Acts or laws and (iv)
failure to take or to require the Chargor to take any steps to
render any floating charge created by any Security Document
effective as regards assets (if any) outside England or Wales
or to secure the creation of any ancillary charge under the
laws of any territory concerned:
<PAGE> 23
21
(f) the Administrative Agent shall accept without enquiry,
requisition, objection or investigation such title as the
Chargor may have to that part of the Security Assets belonging
to it or any part thereof;
(g) the Administrative Agent shall be entitled to assume that no
Event of Default has occurred unless it has received from a
Secured Party a written notice specifying the nature of the
Event of Default;
(h) the Secured Parties shall indemnify the Administrative Agent and
every attorney, agent or other person appointed by it hereunder
against all liabilities and expenses properly incurred by it or
him in the execution of the powers and trusts contained in the
Security Documents or any designating instrument or of any
powers and trusts contained the Security Documents or of any
powers, authorities or discretions vested in it or him pursuant
to the Security Documents and against all actions, proceedings,
costs, claims and demands in respect of any matter or thing done
or omitted to be done in any way relating to the Security
Documents, provided always that the liability of each of the
Secured Parties under this paragraph shall not exceed such
proportion of the liabilities and expenses as equals the
proportion which the Secured Liabilities then due and owing to
it shall bear to the aggregate of such Secured Liabilities then
due and owing to the Secured Parties; and provided further that
the Administrative Agent may, in priority to any payment to any
Secured Party retain and pay out of any moneys in its hands upon
the trusts herein contained the amount of any liabilities and
expenses hereinbefore mentioned;
(i) the Administrative Agent may place all title deeds and other
documents certifying, representing or constituting the title to
any of the property hereby charged for the time being in its
hand in any safe deposit, safe or receptacle selected by the
Administrative Agent or with any bank or company whose business
includes undertaking the safe custody of documents or solicitor
or firm of solicitors and may at its discretion make any such
arrangements as it thinks fit for allowing the Chargor or its
solicitors and auditors access to or possession of such title
deeds and other documents when necessary or convenient and the
Administrative Agent shall not be responsible for any loss
incurred in connection with any such deposit, access or
possession and the Chargor shall pay all sums required to be
paid on account of or in respect of any such deposit;
(j) save as otherwise provided in the Security Documents, all moneys
which under the trusts herein contained are received by the
Administrative Agent may be invested in the name of or under the
control of the Administrative Agent in any investment for the
time being authorised under English law for the investment by
trustees of trust moneys or in any other investments, whether
similar or not, which may be selected by the Administrative
Agent or by placing the same on deposit in the name of or under
the control of the Administrative Agent at such bank or
institution (including the Administrative Agent) as the
Administrative Agent may think fit, or in such currency as the
Administrative Agent thinks fit and the Administrative Agent may
at any time vary or transfer any such investments for or into
other such investments or convert any moneys so deposited into
any other currency and shall not be responsible for any loss
occasioned thereby whether by depreciation in value, fluctuation
in exchange rates or otherwise;
<PAGE> 24
22
(k) save as otherwise expressly provided in the Security Documents
but only as between the Administrative Agent and the Chargor and
if the Administrative Agent is not a Secured Party the
Administrative Agent shall have full power to determine all
questions and doubts arising in relation to any of the
provisions of the Security Documents and every such
determination whether made upon a question actually raised or
implied in the acts or proceedings of the Administrative Agent
shall be conclusive and shall bind the Chargor; and
(l) the Administrative Agent may in the conduct of the trusts hereof
instead of acting personally employ and pay an agent whether
being a solicitor or other person to transact or concur in
transacting any business and to do or concur in doing any acts
required to be done by the Administrative Agent including the
receipt and payment of money and any agent being a solicitor,
broker or other person engaged in any profession or business
shall be entitled to be paid all usual professional and other
charges for business transacted and acts done by him or any
partner of his in connection with the trusts hereof.
22.4 PERFORMANCE BY CHARGOR
The Administrative Agent is hereby authorised and it shall be entitled
to assume without enquiry (in the absence of knowledge by or an express
notice to it to the contrary) that the Chargor is duly performing and
observing all the covenants, conditions, provisions and obligations
contained in the Security Documents and/or in respect of the Secured
Liabilities and on its part to be performed and observed.
23. WAIVERS, REMEDIES CUMULATIVE
(a) The rights of the Administrative Agent and each Secured Party under
this Deed;
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under general
law; and
(iii) may be waived only in writing and specifically.
(b) The Administrative Agent may waive any breach by the Chargor of any of
the Chargor's obligations hereunder if so instructed by the Required
Lenders and may agree minor or technical amendments to the document and
the transactions contemplated thereby without requiring the instructions
of the Lenders.
24. SEVERABILITY
24.1 GENERAL
If a provision of this Deed is or becomes illegal, invalid or
unenforceable in any jurisdiction in respect of the Chargor, that
shall not affect:
(a) in respect of the Chargor the validity or enforceability in that
jurisdiction of any other provision of this Deed; or
<PAGE> 25
23
(b) in respect of the Chargor the validity or enforceability in that
jurisdiction of any provision of this Deed; or
(c) in respect of the Chargor the validity or enforcability in other
jurisdictions of that or any other provision of this Deed.
24.2 DEEMED SEPARATE CHARGES
This Deed shall, in relation to the Chargor, be read and construed as if
it were a separate Deed relating to the Chargor to the intent that if
any Lien created by the Chargor in this Deed shall be invalid or liable
to be set aside for any reason, this shall not affect any Security
Interest created hereunder by the Charger.
25. COUNTERPARTS
This Deed may be executed in any number of counterparts and this will
have the same effect as if the signatures on the counterparts were on a
single copy of this Deed.
26. NOTICES
26.1 GIVING OF NOTICES
All notices under, or in connection with, this Deed shall be given in
accordance with the provisions of subsection 14.2 of the Credit
Agreement and section 8.2 of the Master Guarantee and Collateral
Agreement.
26.2 ADDRESSES FOR NOTICES
The address, telex number and facsimile number of the Chargor and the
Administrative Agent for all notices under, or in connection with, this
Deed are the same as provided for in the Credit Agreement or, as the
case may be, the Master Guarantee and Collateral Agreement.
27. COVENANT TO RELEASE
(a) The Administrative Agent shall and is hereby authorised by each Secured
Party to execute on behalf of itself and each Secured Party, without the
need for any further referral to, or authority from, any Secured Party,
all necessary releases of the Chargor from its obligations under any
Security Document (including, without limitation, a release of the
security given by the Chargor hereunder) which is sold pursuant to an
asset disposal permitted or consented to under the Credit Agreement.
(b) Upon the expiry of the Security Period, the Administrative Agent and
each Secured Party shall, at the request and cost of the Chargor,
execute and do all such deeds, acts and things as may be necessary to
release the Security Assets from the security constituted hereby.
<PAGE> 26
24
28. JURISDICTION
28.1 SUBMISSION
For the benefit of the English Agent and each English Lender, the
Chargor agrees that the courts of England have jurisdiction to settle
any disputes in connection with this Deed and accordingly submits to the
jurisdiction of the English courts.
28.2 SERVICE OF PROCESS
Without prejudice to any other mode of service, the Chargor:
(a) irrevocably appoints the Company at Surrey House, 114 Tilt Road,
Cobham, Surrey KT11 3JH as its agent for service of process
relating to any proceedings before the English courts in
connection with this Deed;
(b) agrees to maintain such an agent for service of process in
England for so long as any Secured Liability is outstanding
under this Deed;
(c) agrees that failure by a process agent to notify the Chargor of
the process will not invalidate the proceedings concerned; and
(d) consents to the services of process relating to any such
proceedings by prepaid posting of a copy of the process to its
address for the time being applying under Clause 26.2 (Addresses
for notices).
28.3 FORUM CONVENIENCE AND ENFORCEMENT ABROAD
The Chargor:
(a) waives objection to the English courts on grounds of
inconvenience forum or otherwise as regards proceedings in
connection with this Deed; and
(b) agrees that a judgment or order of an English court in
connection with this Deed is conclusive and binding on it and
may be enforced against it in the courts of any other
jurisdiction.
28.4 NON-EXCLUSIVITY
Nothing in this Clause 28 limits the right of the Secured Parties to
bring proceedings against the Chargor in connection with this Deed:
(a) in any other court of competent jurisdiction; or
(b) concurrently in more than one jurisdiction.
29. GOVERNING LAW
This Deed shall be governed by and constructed in accordance with
English law.
<PAGE> 27
25
IN WITNESS whereof this Deed has been duly executed as a deed on the date first
above written.
<PAGE> 28
26
SIGNATORIES
THE CHARGOR
Executed as a deed by )
AMAV INDUSTRIES, INC. )
acting by )
) /s/ ANDREW S. ROSEN Andrew S. Rosen
) ------------------------ Vice President
) Authorized Signatory
)
and ) /s/ ALAN PLOTKIN Andrew Plotkin
) ------------------------ Secretary
) Authorized Signatory
THE ADMINISTRATIVE AGENT
SIGNED by
acting on behalf of
CREDIT SUISSEE FIRST BOSTON
in the presence of
/s/ EDWARD E. BARR
EDWARD E. BARR
ASSOCIATE
/s/ IRA LUBINSKY
IRA LUBINSKY
VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.12
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement") dated
as of October 27, 1995, is entered into by and among Hedstrom Holdings, Inc., a
Delaware corporation (the "Company"), and the securityholders listed on the
signature pages hereof (the "Holders").
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions.
"ACCREDITED INVESTOR" means an "Accredited Investor," as defined in
Regulation D, or any successor rule then in effect.
"ACCREDITED OFFEREE" shall have the meaning provided in Section 4.1
hereof.
"ADVICE" shall have the meaning provided in Section 3.5 hereof.
"AFFILIATE" means, with respect to any Person, any Person who, directly
or indirectly, controls, is controlled by or is under common control with that
Person.
"AFFILIATED SUCCESSOR" shall have the meaning provided in Section 4.1
hereof.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"COMMON STOCK" means shares of the Common Stock, $.01 par value per
share, of the Company, and any capital stock into which such Common Stock
thereafter may be changed.
"COMMON STOCK EQUIVALENTS" means, without duplication with any other
Common Stock or Common Stock Equivalents, any rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock of the Company and
<PAGE> 2
securities convertible or exchangeable into Common Stock of the Company,
whether at the time of issuance or upon the passage of time or the occurrence
of some future event.
"COMPANY" shall have the meaning set forth in the introductory paragraph
hereof.
"CO-SELLER" shall have the meaning set forth in Section 4.2 hereof.
"DEMAND REGISTRATION" means a registration effected pursuant to a demand
registration right which, by its terms, does not permit the inclusion of shares
of parties other than the holders of such demand registration rights.
"ENTITLED HOLDERS" shall have the meaning provided in Section 3.1
hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"EXCLUDED HOLDERS" mean Arnold E. Ditri and Alastair H. McKelvie.
"FULLY-DILUTED COMMON STOCK" means, at any time, the then outstanding
Common Stock of the Company plus (without duplication) all shares of Common
Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion, or exchange of all
then-outstanding Common Stock Equivalents.
"HMTF" means Hicks, Muse, Tate & Furst Equity Fund II, L.P., a Delaware
limited partnership.
"HOLDER" means (i) a securityholder listed on the signature page hereof
and (ii) any direct or indirect transferee of any such securityholder.
"LEGAL HOLIDAY" shall have the meaning provided in Section 8.4 hereof.
"NASD" shall have the meaning provided in Section 3.6 hereof.
"OFFERED SECURITIES" shall have the meaning provided in Section 4.1
hereof.
"OFFER NOTICE" shall have the meaning provided in Section 4.1 hereof.
"PARTICIPATION OFFER" shall have the meaning provided in Section 4.3
hereof.
2
<PAGE> 3
"PERSON" or "PERSON" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"PREEMPTIVE RIGHTS OFFER" shall have the meaning provided in Section 4.1
hereof.
"PREEMPTIVE RIGHTS TRANSACTION" shall have the meaning provided in
Section 4.1 hereof.
"REGISTRABLE SHARES" means at any time the Common Stock of the Company
owned by HMTF and its Affiliates or the Holders, whether owned on the date
hereof or acquired hereafter; provided, however, that Registrable Shares shall
not include any shares (i) the sale of which has been registered pursuant to
the Securities Act and which shares have been sold pursuant to such
registration, or (ii) which have been sold to the public pursuant to Rule 144
or 144A of the SEC under the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning provided in Section 3.6
hereof.
"REGULATION D" means Regulation D promulgated under the Securities Act
by the SEC.
"REQUIRED HOLDERS" means Holders who then own beneficially more than 66-
2/3% of the aggregate number of shares of Common Stock subject to this
Stockholder Agreement.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Common Stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"SELLER AFFILIATES" shall have the meaning provided in Section 3.7
hereof.
"SIGNIFICANT SALE" shall have the meaning provided in Section 4.2
hereof.
"STOCKHOLDERS AGREEMENT" means this Stockholders Agreement, as such from
time to time may be amended.
"SUBSIDIARY" of any Person means (i) a corporation a majority of whose
outstanding shares of capital stock or other equity interests with voting
power, under ordinary circumstances, to elect directors, is at the time,
directly or indirectly, owned by such Person, by one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person, and
(ii) any other Person (other than a corporation) in which such Person, a
subsidiary of such
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<PAGE> 4
Person or such Person and one or more subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of the
directors or other governing body of such Person.
"SUSPENSION NOTICE" shall have the meaning provided in Section 3.5
hereof.
"TRANSFER" means any disposition of any Security or any interest therein
that would constitute a "sale" thereof within the meaning of the Securities
Act.
"TRANSFER NOTICE" shall have the meaning provided in Section 5.3 hereof.
SECTION 1.2 Rules of Construction.
Unless the context otherwise requires
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and words
in the plural include the singular;
(4) provisions apply to successive events and
transactions; and
(5) "herein," "hereof" and other words of similar
import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE 2
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES
SECTION 2.1 Board of Directors.
2.1.1 Board Representation. Subject to Section 2.1.3, The Board of
Directors of the Company shall consist of the following individuals: (i) four
individuals (the "HMTF Nominees") designated by the HMTF and (ii) one
individual (the "Ditri Nominee", and together with the HMTF Nominees, the
"Nominees") designated by Arnold E. Ditri. Each Holder shall vote his or its
shares of Common Stock at any regular or special meeting of stockholders of the
Company or in any written consent executed in lieu of such a meeting of
stockholders and shall take all
4
<PAGE> 5
other actions necessary to give effect to the agreements contained in this
Agreement (including without limitation the election of the directors named in
the preceding sentence) and to ensure that the certificate of incorporation and
bylaws as in effect immediately following the date hereof do not, at any time
thereafter, conflict in any respect with the provisions of this Agreement. In
order to effectuate the provisions of this Section 2, each Holder hereby agrees
that when any action or vote is required to be taken by such Holder pursuant to
this Agreement, such Holder shall use his or its best efforts to call, or cause
the appropriate officers and directors of the Company to call, a special or
annual meeting of stockholders of the Company, as the case may be, or execute
or cause to be executed a consent in writing in lieu of any such meetings
pursuant to Section 228(a) of the General Corporation Law of the State of
Delaware.
2.1.2 Vacancies. If, prior to his election to the Board of Directors
of the Company pursuant to Section 2.1.1 hereof, any Nominee shall be unable or
unwilling to serve as a director of the Company, the Holder or Holders who
nominated any such Nominee shall be entitled to nominate a replacement who
shall then be a Nominee for purposes of this Section 2. If, following an
election to the Board of Directors of the Company pursuant to Section 2.1.1
hereof, any Nominee shall resign or be removed or be unable to serve for any
reason prior to the expiration of his term as a director of the Company, the
Holder or Holders who nominated such Nominee shall, within 30 days of such
event, notify the Board of Directors of the Company in writing of a replacement
Nominee, and either (i) the Holders shall vote their shares of Common Stock, at
any regular or special meeting called for the purpose of filling positions on
the Board of Directors of the Company or in any written consent executed in
lieu of such a meeting of stockholders, and shall take all such other actions
necessary to ensure the election to the Board of Directors of the Company of
such replacement Nominee to fill the unexpired term of the Nominee who such new
Nominee is replacing or (ii) the Board of Directors shall elect such
replacement Nominee to fill the unexpired term of the Nominee who such new
Nominee is replacing. If, HMTF request that any director nominated by the HMTF
pursuant to Section 2.1.1 or, Ditri requests that any director nominated by
Ditri pursuant to Section 2.1.1, be removed (with or without cause) by written
notice thereof to the Company, then in either such case each of the Company and
the Holders shall vote all its or his capital stock in favor of such removal
upon such request.
2.1.3 Termination of Rights. The right of HMTF to designate directors
under Section 2.1.1, and the obligation of the Holders to vote their shares as
provided herein, shall terminate upon the first to occur of (i) the termination
or expiration of this Stockholders Agreement or this Article 2, (ii) such time
as HMTF elects in writing to terminate its rights under this Article 2, or
(iii) such time as HMTF, its Affiliates, and employees of it and its Affiliates
cease to own any shares of Common Stock. The right of Ditri to designate
directors under Section 2.1.1, and the obligation of the Holders to vote their
shares as provided herein, shall terminate upon the first to
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<PAGE> 6
occur of (i) the termination or expiration of this Stockholders Agreement or
this Article 2, (ii) such time as Ditri elects in writing to terminate its
rights under this Article 2, or (iii) such time as Ditri, ceases to own any
shares of Common Stock.
2.1.4 Costs and Expenses. The Company will pay all reasonable out-of-
pocket expenses incurred by the designees of HMTF and Ditri in connection with
their participation in meetings of the Board of Directors (and committees
thereof) of the Company and the Boards of Directors (and committees thereof) of
the Subsidiaries of the Company.
SECTION 2.2 Voting of Capital Stock.
To the extent any Holder owns shares of any class or series of capital
stock of the Company or any Subsidiary of the Company which it may vote on any
particular matter which comes before such corporation's stockholders, as a
class or series separate from the common stock of such corporation ordinarily
entitled to vote for the election of directors, such Holder shall vote all such
shares on such matter in such separate class or series vote as holders of a
majority of the outstanding shares of common stock of such corporation vote
thereon; provided, however, that such Holder may nevertheless vote such shares
as a separate class or series without regard to the provisions of this Section
2.2 in respect of (a) amendments to the certificate of incorporation of such
corporation, or the certificate of designation which created such class or
series, which change the provisions thereof expressly applicable to such
separate class or series, and (b) any matter as to which such class or series
is expressly entitled to vote as a separate class or series pursuant to such
corporation's certificate of incorporation or the certificate of designation
which created such class or series; provided further, however, that any
statement in such certificate of incorporation or certificate of designation
that such class or series may vote as a separate class or series "as required
by law" or similar language shall not permit such class or series to be voted
without regard to the provisions of this Section 2.2.
SECTION 2.3 Other Activities of the Holders; Fiduciary Duties.
It is understood and accepted that the Holders and their Affiliates have
interests in other business ventures which may be in conflict with the
activities of the Company and its Subsidiaries and that, subject to applicable
law, nothing in this Stockholders Agreement shall limit the current or future
business activities of the Holders whether or not such activities are
competitive with those of the Company and its Subsidiaries. Nothing in this
Agreement, express or implied, shall relieve any officer or director of the
Company or any of its Subsidiaries, or any Holder, of any fiduciary or other
duties or obligations they may have to the Company's stockholders.
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<PAGE> 7
SECTION 2.4 Grant of Proxy.
Each Holder (other than HMTF) hereby constitutes and appoints HMTF with
full power of substitution, as its true and lawful proxy and attorney-in-fact
to vote any and all shares of any class or series of capital stock of the
Company or any Subsidiary of the Company held by such Holder in accordance with
the provisions of Section 2.1 and 2.2 of this Stockholders Agreement. Each
Holder acknowledges that the proxy granted hereby is irrevocable, being coupled
with an interest, and that such proxy will continue until the termination of
such Holder's obligation to vote any shares in accordance with this Article 2.
ARTICLE 3
PIGGYBACK REGISTRATIONS
SECTION 3.1 Right to Piggyback.
Each time the Company proposes to register any of its Common Stock
(other than a Demand Registration) under the Securities Act for cash sale
through an underwriter or underwriters (other than through a holder of Common
Stock who may be deemed a statutory underwriter) and the registration form to
be used may be used for the registration of Registrable Shares, the Company
shall give prompt written notice to the Holders of Registrable Shares of its
intention to effect such a registration (which notice shall be given not less
than 10 days prior to the date the registration statement is filed) and such
notice shall offer such Holders (the "Entitled Holders") the opportunity to
have any or all of the Registrable Shares included in such registration
statement, subject to the limitations contained in Section 3.2. The Entitled
Holders desiring to have their Registrable Shares registered under this Article
3 will so advise the Company in writing within 20 days after the date of
receipt of such notice from the Company. Subject to Section 3.2 below, the
Company shall include in such registration statement all such Registrable
Shares so requested to be included therein; provided, however, that the Company
may at any time withdraw or cease proceeding with any such registration if it
shall at the same time withdraw or cease proceeding with the registration of
all other shares of Common Stock originally proposed to be registered.
SECTION 3.2 Priority on Registrations.
If the managing underwriter advises the Company in writing that the
number of shares of Common Stock requested to be included in the registration
by all Persons (including the Company) exceeds the number of shares of Common
Stock which can be sold in such offering, the Company will be obligated to
include in such registration only (i) first, any and all shares of Common Stock
for sale by the Company, and (ii) second, pro rata among the Registrable Shares
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<PAGE> 8
and any other shares of Common Stock requested to be included pursuant to any
other registration rights that may have been, or may hereafter be, granted by
the Company (on the basis of the total number of shares of Common Stock that
each holder has requested to be registered). No Person may participate in any
registration hereunder unless such Person (x) agrees to sell such Person's
Registrable Shares on the basis provided in any underwriting arrangements
approved by the Company and (y) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, and other documents
required under the terms of such underwriting arrangements.
SECTION 3.3 Holdback Agreement.
Unless the managing underwriter otherwise agrees, each of HMTF and the
Entitled Holders agrees not to effect any public sale or private offer or
distribution of any Common Stock or Common Stock Equivalents during the ten
business days prior to any underwritten registration and during such time
period after any underwritten registration (not to exceed 180 days) (except, if
applicable, as part of such underwritten registration) as HMTF and the managing
underwriter may agree.
SECTION 3.4 Registration Procedures.
Whenever the Entitled Holders have requested that any Registrable Shares
be registered pursuant to this Stockholders Agreement, the Company will use its
commercially reasonable efforts to effect the registration and the sale of such
Registrable Shares in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement on
any appropriate form under the Securities Act with respect to such
Registrable Shares and use its commercially reasonable efforts to cause
such registration statement to become effective;
(b) prepare and file with the SEC such amendments, post-
effective amendments, and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period of not less than 180
days (or such lesser period as is necessary for the underwriters in an
underwritten offering to sell unsold allotments) and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies of
such registration statement, each
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amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and such
other documents as such seller or underwriters may reasonably request in
order to facilitate the disposition of the Registrable Shares owned by
such seller or the sale of such securities by such underwriters;
(d) use its commercially reasonable efforts to register or
qualify such Registrable Shares under such other securities or blue sky
laws of such jurisdictions as the managing underwriter reasonably
requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate
the disposition of the Registrable Shares owned by such seller in such
jurisdictions (provided, however, that the Company will not be required
to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph or
(B) consent to general service of process in any such jurisdiction);
(e) notify each seller of Registrable Shares promptly after it
shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming
a part of such registration statement has been filed;
(f) notify each seller of Registrable Shares promptly of any
request by the SEC for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the
opinion of counsel for the Company or the managing underwriter, is
required in connection with the distribution of the Registrable Shares;
(h) enter into such agreements (including underwriting
agreements in the managing underwriter's customary form) as are
customary in connection with an underwritten registration; and
(i) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the SEC suspending the effectiveness of
such registration statement or the initiation or threatening of any
proceeding for such purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such stop
order should be issued.
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SECTION 3.5 Suspension of Dispositions.
Each Entitled Holder agrees by acquisition of any Registrable Shares
that, upon receipt of any notice (a "Suspension Notice") from the Company of
the happening of any event of the kind which, in the opinion of the Company,
requires the amendment or supplement of any prospectus, such Entitled Holder
will forthwith discontinue disposition of Registrable Shares until such
Entitled Holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by the Company
that the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of registration statements
set forth in Section 3.4(b) hereof shall be extended by the number of days
during the period from and including the date of the giving of the Suspension
Notice to and including the date when each seller of Registrable Shares covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus or the Advice.
SECTION 3.6 Registration Expenses.
All expenses incident to the Company's performance of or compliance with
this Section 3 including, without limitation, all registration and filing fees,
all fees and expenses associated with filings required to be made with the
National Association of Securities Dealers, Inc. ("NASD") (including, if
applicable, the fees and expenses of any "qualified independent underwriter" as
such term is defined in Schedule E of the By-Laws of the NASD, and of its
counsel), as may be required by the rules and regulations of the NASD, fees and
expenses of compliance with securities or "blue sky" laws (including reasonable
fees and disbursements of counsel in connection with "blue sky" qualifications
of the Registrable Shares), rating agency fees, printing expenses (including
expenses of printing certificates for the Registrable Shares in a form eligible
for deposit with Depositary Trust Company and of printing prospectuses if the
printing of prospectuses is requested by a holder of Registrable Shares),
messenger and delivery expenses, fees and expenses of counsel for the Company
and its independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incident to such
performance), securities acts liability insurance (if the Company elects to
obtain such insurance), the fees and expenses of any special experts retained
by the Company in connection with such registration, and fees and expenses of
other persons retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company whether or not any
registration statement becomes effective; provided that in no event shall
Registration Expenses include any underwriting discounts, commissions, or fees
attributable to the sale of the
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Registrable Shares or any counsel, accountants, or other persons retained or
employed by the Entitled Holders.
SECTION 3.7 Indemnification.
(a) The Company agrees to indemnify and reimburse, to the
fullest extent permitted by law, each seller of Registrable Shares, and each of
its employees, advisors, agents, representatives, partners, officers, and
directors and each Person who controls such seller (within the meaning of the
Securities Act or the Exchange Act) (collectively, the "Seller Affiliates") (A)
against all losses, claims, damages, liabilities and expenses, joint or several
(including, without limitation, attorneys' fees except as limited by
subparagraph (c) below) arising out of or caused by any untrue or alleged
untrue statement of a material fact contained in any registration statement,
prospectus, or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, (B)
against any and all loss, liability, claim, damage, and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such untrue
statement or omission, and (C) against any and all costs and expenses
(including reasonable fees and disbursements of counsel and other agents) as
may be reasonably incurred in investigating, preparing, or defending against
any litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, to the extent that any such expense or cost is
not paid under subparagraph (A) or (B) above; except insofar as the same are
made in reliance upon and in strict conformity with information furnished in
writing to the Company by such seller or any Seller Affiliate for use therein
or by such seller or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such seller or Seller Affiliate with a
sufficient number of copies of the same. The reimbursements required by this
Section 3.7(a) will be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred.
(b) In connection with any registration statement in which a
seller of Registrable Shares is participating, each such seller will furnish to
the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the fullest extent permitted by law, each such seller
will indemnify the Company, its directors, and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, and expenses (including, without
limitation, attorneys' fees except as limited by subparagraph (c) below)
resulting from any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, or preliminary
prospectus or any
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amendment thereof or supplement thereto or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement, or omission or alleged omission, is
contained in any information or affidavit so furnished in writing by such
seller or any of its Seller Affiliates; provided that the obligation to
indemnify will be several, not joint and several, among such sellers of
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (A)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give such
notice shall not limit the rights of such Person) and (B) 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; provided, however, that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless (X)
the indemnifying party has agreed to pay such fees or expenses, or (Y) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person. 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.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 3.7(a) or Section 3.7(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, liabilities, or expenses (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
such indemnifying party or indemnified party, and the parties'
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relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 3.7(d) were
determined by pro rata allocation (even if the Entitled Holders or any
underwriters or all of them were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 3.7(d). The amount paid or payable
by an indemnified party as result of the losses, claims, damages, liabilities,
or expenses (or actions in respect thereof) referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or, except as provided in
Section 3.7(c), defending any such action or claim. Notwithstanding the
provisions of this Section 3.7(d), no Entitled Holder shall be required to
contribute an amount greater than the dollar amount of the proceeds received by
such Entitled Holder with respect to the sale of any Registrable Shares. 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. The Entitled Holders'
obligations in this Section 3.7(d) to contribute shall be several in proportion
to the amount of Registrable Shares registered by them and not joint.
(e) The indemnification and contribution provided for under
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, or controlling Person of such indemnified party and will survive the
transfer of securities. The Company also agrees to make such provisions as are
reasonably requested by any indemnified party for contribution to such party in
the event the Company's indemnification is unavailable for any reason.
ARTICLE 4
TRANSFERS OF SECURITIES
SECTION 4.1 Preemptive Rights.
4.1.1 Rights to Participate in Future Sales. In case the Company or
any Affiliated Successor (as hereinafter defined) proposes to issue or sell any
shares of Common Stock or Common Stock Equivalents (the "Offered Securities"),
the Company shall, no later than twenty days prior to the consummation of such
transaction (a "Preemptive Rights Transaction"), give notice in writing (the
"Offer Notice") to each Holder of such Preemptive Rights Transaction. The
Offer Notice shall describe the proposed Preemptive Rights Transaction,
identify the proposed purchaser, and contain an offer (the "Preemptive Rights
Offer") to sell to each Holder who certifies (to the reasonable satisfaction of
the Company) that such Holder is an Accredited Investor (an "Accredited
Offeree"), at the same price and for the same consideration to be paid
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by the proposed purchaser, all or part of such Accredited Offeree's pro rata
portion of the Offered Securities (which shall be the percentage ownership of
the Fully-Diluted Common Stock held by such Holder, excluding, for the purposes
of such calculation, any shares of Common Stock issued or issuable upon
exercise of any Common Stock Equivalents granted pursuant to any employee,
officer or director benefit plan or arrangement). As used herein, the term
"Affiliated Successor" means a successor entity to the Company (whether by
merger, consolidation, reorganization, or otherwise) in which HMTF owns at
least the same percentage of the fully-diluted common stock of such entity
(after giving effect to the merger, consolidation, reorganization, or other
transaction) as HMTF owns of the Fully-Diluted Common Stock of the Company. If
any such Holder fails to accept such offer by written notice fifteen days after
its receipt of the Offer Notice, the Company or such Affiliated Successor may
proceed with the proposed issue or sale of the Offered Securities, free of any
right on the part of any Holder under this Section 4.1.1 in respect thereof.
4.1.2 Exceptions to Preemptive Rights. This Section 4.1 shall not
apply to (i) issuances or sales of Common Stock or Common Stock Equivalents to
employees, officers, and/or directors of the Company and/or any of its
Subsidiaries pursuant to employee benefit or similar plans or arrangements of
the Company and/or its Subsidiaries, (ii) issuances or sales of Common Stock or
Common Stock Equivalents upon exercise of any Common Stock Equivalent which,
when issued, was subject to or exempt from the preemptive rights under this
Section 4.1, (iii) securities distributed or set aside ratably to all holders
of Common Stock and Common Stock Equivalents (or any class or series thereof)
on a per share equivalent basis, (iv) issuances or sales of Common Stock or
Common Stock Equivalents pursuant to a registered underwritten public offering,
a merger of the Company or a subsidiary of the Company into or with another
entity or an acquisition by the Company of a subsidiary of the Company or
another business or corporation or (v) issuances or sales of Common Stock or
Common Stock Equivalence in conjunction with the private placement or public
sale of any class or series of the preferred stock of the Company ("Preferred
Stock"), and rights, warrants, options, convertible securities or convertible
indebtedness, exchangeable securities or exchangeable indebtedness, or other
rights exercisable for or convertible or exchangeable into, directly or
indirectly, Preferred Stock, or indebtedness of the Company. In the event of
any issuances or sales of Common Stock or Common Stock Equivalents as a unit
with any other security of the Company or its Subsidiaries, the preemptive
rights under this Section shall be applicable to the entire unit rather than
only the Common Stock or Common Stock Equivalent included in the unit.
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SECTION 4.2 Drag Along Rights.
4.2.1 Applicability. In connection with any Transfer by HMTF or any of
its Affiliates of shares of Common Stock representing more than 10% of the
Fully-Diluted Common Stock (a "Significant Sale"), HMTF shall have the right to
require each non-selling Holder (each, a "Co-Seller") to Transfer a portion of
its Common Stock which represents the same percentage of such Fully-Diluted
Common Stock held by such Co-Seller as the shares being disposed of by HMTF and
its Affiliates represent of the Fully-Diluted Common Stock held by HMTF and its
Affiliates. (For example, if HMTF and its Affiliates are selling 50% of their
Fully-Diluted Common Stock position, each Co-Seller shall be required to sell
50% of its Fully-Diluted Common Stock position.) All Common Stock Transferred
by Holders pursuant to this Section 4.2 shall be sold at the same price and
otherwise treated identically with the Common Stock being sold by HMTF and its
Affiliates in all respects; provided, that the Co-Seller shall not be required
to make any representations or warranties in connection with such Transfer
other than representations and warranties as to (i) such Co-Seller's ownership
of his or Common Stock to be Transferred free and clear of all liens, claims
and encumbrances, (ii) such Co-Seller's power and authority to effect such
transfer, and (iii) such matters pertaining to compliance with securities laws
as the transferee may reasonably require except that the transferee may not
require that each Transferring Co-Seller be an Accredited Investor.
4.2.2 Notice of Significant Sale. HMTF shall give each Co-Seller at
least 30 days' prior written notice of any Significant Sale as to which HMTF
intends to exercise its rights under Section 4.2. If HMTF elects to exercise
its rights under Section 4.2, the Co-Sellers shall take such actions as may be
reasonably required and otherwise cooperate in good faith with HMTF in
connection with consummating the Significant Sale (including, without
limitation, the voting of any Common Stock or other voting capital stock of the
Company to approve such Significant Sale). At the closing of such Significant
Sale, each Co-Seller shall deliver certificates for all shares of Common Stock
to be sold by such Co-Seller, duly endorsed for transfer, with the signature
guaranteed, to the purchaser against payment of the appropriate purchase price.
SECTION 4.3 Tag Along Rights.
4.3.1 Applicability. In the event HMTF or any of its Affiliates
desires to effect a Significant Sale and it does not elect to exercise its
rights under Section 4.2 hereof, then at least 30 days prior to the closing of
such Significant Sale, HMTF shall make an offer (the "Participation Offer") to
each Co-Seller to include in the proposed Significant Sale a portion of its
Common Stock which represent the same percentage of such Co-Seller's Fully-
Diluted Common Stock as the shares being sold by HMTF and its Affiliates
represent of their Fully-Diluted Common Stock; provided that, if the
consideration to be received by HMTF and its Affiliates includes any
securities, only Co-Sellers who have certified to the reasonable satisfaction
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of HMTF that they are Accredited Investors and, in any event, the Excluded
Holders, shall be entitled to participate in such transfer, unless the
transferee consents otherwise.
4.3.2 Terms of Participation Offer. The Participation Offer shall
describe the terms and conditions of the proposed Significant Sale and shall be
conditioned upon (i) the consummation of the transactions contemplated in the
Participation Offer with the transferee named therein, and (ii) each Co-
Seller's execution and delivery of all agreements and other documents as HMTF
is required to execute and deliver in connection with such Significant Sale
(provided that the Co-Seller shall not be required to make any representations
or warranties in connection with such sale or transfer other than
representations and warranties as to (A) such Co-Seller's ownership of his
Common Stock to be sold or transferred free and clear of all liens, claims, and
encumbrances, (B) such Co-Seller's power and authority to effect such transfer
and (C) such matters pertaining to compliance with securities laws as the
transferee may reasonably require). If any Co-Seller shall accept the
Participation Offer, HMTF shall reduce, to the extent necessary, the number of
shares of Common Stock it otherwise would have sold in the proposed transfer so
as to permit those Co-Sellers who have accepted the Participation Offer to sell
the number of shares of Common Stock that they are entitled to sell under this
Section 4.3, and HMTF and such Co-Sellers shall transfer the number of shares
Common Stock specified in the Participation Offer to the proposed transferee in
accordance with the terms of such transfer as set forth in the Participation
Offer.
SECTION 4.4 Certain Events Not Deemed Transfers.
In no event shall any exchange, reclassification, or other conversion of
shares into any cash, securities, or other property pursuant to a merger or
consolidation of the Company or any Subsidiary with, or any sale or transfer by
the Company or any Subsidiary of all or substantially all its assets to, any
Person constitute a Significant Sale of shares of Common Stock by HMTF for
purposes of Section 4.2 or 4.3. In addition, Sections 4.2 and 4.3 hereof shall
not apply to any transfer, sale, or disposition of shares of Common Stock
solely among HMTF and its Affiliates.
SECTION 4.5 Transfer and Exchange.
When Securities are presented to the Company with a request to register
the transfer of such Securities or to exchange such Securities for Securities
of other authorized denominations, the Company shall register the transfer or
make the exchange as requested if the requirements of this Stockholders
Agreement for such transaction are met; provided, however, that the Securities
surrendered for transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Company, duly
executed by the Holder thereof or its attorney and duly authorized in writing.
No service charge shall be made for any
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registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
SECTION 4.6 Replacement Securities.
If a mutilated Security is surrendered to the Company or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory
to the Company, to the effect that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement Security if the
Company's requirements are met. If required by the Company, such
Securityholder must provide an indemnity bond, or other form of indemnity,
sufficient in the judgment of the Company to protect the Company against any
loss which may be suffered. The Company may charge such Securityholder for its
reasonable out-of-pocket expenses in replacing a Security which has been
mutilated, lost, destroyed or wrongfully taken.
ARTICLE 5
LIMITATION ON TRANSFERS
SECTION 5.1 Restrictions on Transfer.
The Securities shall not be Transferred or hypothecated before
satisfaction of (i) the conditions specified in this Section 5.1 and Sections
5.2 through 5.3, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Security
and (ii) if applicable, Article 4 hereof. Any purported Transfer in violation
of this Article 5 and/or, if applicable, Article 4 hereof shall be void ab
initio and of no force or effect. Other than Transfers subject to Sections 4.2
or 4.3 hereof and other than Transfers to the public pursuant to an effective
registration statement or sales to the public pursuant to Rule 144 under the
Securities Act otherwise permitted hereunder, each Holder will cause any
proposed transferee of any Security or any interest therein held by it to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in this Stockholders Agreement.
SECTION 5.2 Restrictive Legends.
5.2.1 Securities Act Legend. Except as otherwise provided in Section
5.4 hereof, each Security held by a Holder, and each Security issued to any
subsequent transferee of such Security, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii)
ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
5.2.2 Other Legends. Except as otherwise permitted by the last
sentence of Section 5.1, each Security issued to each Holder or a subsequent
transferee shall include a legend in substantially the following form:
THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING AND
OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT DATED AS OF OCTOBER 27, 1995, A COPY OF WHICH MAY BE
OBTAINED FROM HEDSTROM HOLDINGS, INC. AT ITS PRINCIPAL EXECUTIVE
OFFICES.
SECTION 5.3 Notice of Proposed Transfers.
Prior to any Transfer or attempted Transfer of any Security, the Holder
of such Security shall (i) give ten days' prior written notice (a "Transfer
Notice") to the Company of such Holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and (ii)
either (A) provide to the Company an opinion reasonably satisfactory to the
Company from counsel to such Holder who shall be reasonably satisfactory to the
Company, (or supply such other evidence reasonably satisfactory to the Company)
that the proposed Transfer of such Security may be effected without
registration under the Securities Act, or (B) certify to the Company that the
Holder reasonably believes the proposed transferee is a "qualified
institutional buyer" and that such Holder has taken reasonable steps to make
the proposed transferee aware that such Holder may rely on Rule 144A under the
Securities Act in effecting such Transfer. After receipt of the Transfer
Notice and opinion (if required), the Company shall, within five days thereof,
so notify the Holder of such Security and such Holder shall thereupon be
entitled to Transfer such Security in accordance with the terms of the Transfer
Notice. Each Security issued upon such Transfer shall bear the restrictive
legend set forth in Section 5.2, unless in the opinion of such counsel such
legend is not required in order to ensure compliance with the Securities Act.
The Holder of the Security giving the Transfer Notice shall not be entitled to
Transfer such Security until receipt of the notice from the Company under this
Section 5.3.
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SECTION 5.4 Termination of Certain Restrictions.
Notwithstanding the foregoing provisions of this Section 5, the
restrictions imposed by Section 5.2.1 upon the transferability of the
Securities and the legend requirements of Section 5.2.1 shall terminate as to
any Security (i) when and so long as such Security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it that such Security may be transferred without registration
thereof under the Securities Act and that such legend may be removed. Whenever
the restrictions imposed by Section 5.2 shall terminate as to any Security, the
Holder thereof shall be entitled to receive from the Company, at the Company's
expense, a new Security not bearing the restrictive legend set forth in Section
5.2.
ARTICLE 6
OPTION BY CERTAIN UNACCREDITED HOLDERS
SECTION 6.1 Grant of Option.
Each Holder acknowledges HMTF's desire that each holder of the
Securities of the Company qualify as an Accredited Investor so that no
disclosure document will be required in order to exempt (pursuant to Regulation
D) any future issuances of securities to the existing stockholders of the
Company. Accordingly, upon the occurrence of an Option Transaction (as defined
in Section 6.2 hereof) with respect to the Company, each Holder (other than the
Excluded Holders) shall be deemed to have granted to Hicks, Muse GP Partners,
L.P., a Texas limited partnership (the "Optionor"), an option ("Option") to
purchase, upon the terms and conditions set forth herein, all Securities held
by such Holder and all shares, notes, or other securities now or hereafter
issued or issuable in respect of any such Securities (whether issued or
issuable by the Company or any other person or entity) (collectively, the
"Option Securities").
SECTION 6.2 Option Transaction.
The Option may be exercised only if (a) the Company is engaged in or
proposes to engage in a transaction in which any shares, notes, or other
securities will be issued to such Holder in a transaction constituting a "sale"
within the meaning of Section 2(3) of the Securities Act (whether through a
merger, consolidation, exchange, or purchase), (b) the Holder is not an
Accredited Investor at the time of the respective transaction (an "Unaccredited
Holder"), (c) no security holder (except for such Unaccredited Holder or any
other person granting a similar option to Optionor) of the Company involved in
the respective transaction fails at the time of such transaction to qualify as
an Accredited Investor, and (d) the issuer of the shares, notes, or other
securities involved in such transaction (as conclusively evidenced by any
notice signed in
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good faith by an executive officer or other authorized representative of
Optionor) has not prepared and is not expected to prepare in connection with
such transaction appropriate disclosure documents that are sufficient to
register such shares, notes, or other securities under the Securities Act or to
exempt such registration in accordance with Regulation D. Each transaction for
which the Option may be exercised as provided in this Section 6.2 is herein
referred to as an "Option Transaction."
SECTION 6.3 Exercise of Option.
Optionor may exercise the Option solely with respect to all, but not
less than all, of such Unaccredited Holder's Option Securities involved in the
respective Option Transaction. The Option may be exercised with respect to
such Option Securities at any time before the consummation of the respective
Option Transaction for which the Option is then exercisable. The exercise of
the Option will be timely and effectively made if Optionor provides written
notice of such exercise to such Unaccredited Holder before such consummation of
the respective Option Transaction. The earliest date on which such notice is
so mailed or delivered will constitute the respective exercise date of the
Option to which such notice relates.
SECTION 6.4 Closing.
Unless otherwise agreed by Optionor and such Unaccredited Holder, the
closing of each exercise of the Option will take place at the offices of
Optionor in Dallas, Texas, on the fifth business day after notice of the
Option's exercise is mailed or delivered in accordance with Section 6.3. At
the closing, Optionor will pay the exercise price to such Unaccredited Holder
in cash (by certified or cashier's check) solely upon such Unaccredited
Holder's delivering to Optionor valid certificates evidencing all Option
Securities then being purchased pursuant to the exercise of the Option. Such
certificates will be duly endorsed (with signature guaranteed) for transfer to
Optionor, and upon delivery of such certificates to Optionee, such Unaccredited
Holder will be deemed to represent and warrant to Optionee that the transferred
Option Securities are owned by such Unaccredited Holder free and clear of all
liens, adverse claims, and other encumbrances other than as provided in this
Stockholders Agreement. Payment of the exercise price for the Option
Securities is not required in order to effect the timely exercise of the
Option. In order to ensure the transfer of the Option Securities purchased
upon exercise of the Option, each Unaccredited Holder hereby severally appoints
Optionee as his or her attorney in fact for the purpose of effecting any such
transfer, and each Unaccredited Holder acknowledges and agrees that such power
of attorney is coupled with an interest and is irrevocable. Moreover, Optionee
and each Unaccredited Holder will promptly perform, whether before or after any
Option closing, such additional acts (including without limitation executing
and delivering additional documents) as are reasonably required by either such
party to effect more fully the transactions contemplated hereby.
20
<PAGE> 21
SECTION 6.5 Exercise Price.
The exercise price for each Option Security will equal the price per
share (or, in the case of securities other than capital stock, other applicable
denomination) to be paid in connection with the Option Transaction as
determined in good faith by the Board of Directors or such other governing body
(or authorized committee thereof) of either (a) the issuer of such Option
Security or (b) Optionor if no such issuer determination is made, it being
understood that determinations made by the issuer or Optionor pursuant to this
Section 6.5 will be final and conclusive.
SECTION 6.6 Assignment of Option.
The Option may be assigned or transferred in whole or in part by
Optionor without any consent or other action on the part of the affected Other
Holder, and all references herein to "Optionor" will include without limitation
each assignee or transferee of all or any part of the Option.
ARTICLE 7
TERMINATION
The provisions of this Agreement shall terminate on October 27, 2005;
provided, however, that Sections 4.1, 4.2, 4.3, Article 5 (other than Sections
5.2 and 5.4) and Article 6 of this Agreement shall terminate upon the
consummation prior to the expiration of such 10-year period of a registered
underwritten public offering of Common Stock or Common Stock Equivalents.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid,
return receipt requested, addressed as follows (or at such other address as may
be substituted by notice given as herein provided):
21
<PAGE> 22
If to the Company:
Hedstrom Holdings, Inc.
300 Corporate Center Drive, Suite 100
Coraopolis, Pennsylvania 15108
Attention: Arnold E. Ditri
Copies to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Thomas O. Hicks
John R. Muse
Jack D. Furst
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas
25th Floor
New York, New York 10019
Attention: Charles W. Tate
Alan B. Menkes
Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: David J. Webster, Esq.
If to any Holder, at its address listed on the signature pages hereof.
Any notice or communication hereunder shall be deemed to have been given
or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five
calendar days after mailing if sent by registered or certified mail (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
22
<PAGE> 23
SECTION 8.2 Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions at such place are
not required to be open. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a
Legal Holiday, and no interest on the amount of such payment shall accrue for
the intervening period.
SECTION 8.3 Governing Law; Jurisdiction.
THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
SECTION 8.4 Successors and Assigns.
Whether or not an express assignment has been made pursuant to the
provisions of this Stockholders Agreement, provisions of this Stockholders
Agreement that are for the Holders' benefit as the holders of any Securities
are also for the benefit of, and enforceable by, all subsequent holders of
Securities, except as otherwise expressly provided herein. This Stockholders
Agreement shall be binding upon the Company, each Holder, and their respective
successors and assigns.
SECTION 8.5 Duplicate Originals.
All parties may sign any number of copies of this Stockholders
Agreement. Each signed copy shall be an original, but all of them together
shall represent the same agreement.
SECTION 8.6 Severability.
In case any provision in this Stockholders Agreement shall be 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
the remaining provisions shall not in any way be affected or impaired thereby
SECTION 8.7 No Waivers; Amendments.
8.7.1 No failure or delay on the part of the Company or any Holder in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are
23
<PAGE> 24
cumulative and are not exclusive of any remedies that may be available to the
Company or any Holder at law or in equity or otherwise.
8.7.2 Any provision of this Stockholders Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and the Required Holders; provided that no such amendment or waiver
shall, (i) unless signed by all of the Holders, amend the provisions of Section
2.1, (ii) unless signed by the Required Holders, amend the provisions of
Section 2.2 and (ii) unless signed by all of the Holders affected, (A) amend
the provisions of this Section 8.7.2 or (B) change the number of Holders which
shall be required for the Holders or any of them to take any action under this
Section 8.7.2 or any other provision of this Stockholders Agreement.
[Remainder of page intentionally left blank]
24
<PAGE> 25
SIGNATURES TO STOCKHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed, all as of the date first written above.
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
<PAGE> 26
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
HICKS, MUSE, TATE & FURST EQUITY FUND II,
L.P.
By: HM2/GP Partners, L.P., as General
Partner
By: Hicks, Muse GP Partners, L.P., its
General Partner
By: Hicks, Muse Fund II
Incorporated, its General
Partner
By: /s/ ALAN B. MENKES
----------------------------
Alan B. Menkes
Vice President
<PAGE> 27
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM Partners, Inc., its General
Partner
By: /s/ ALAN B. MENKES
--------------------------------
Alan B. Menkes
Vice President
Address:
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Thomas O. Hicks
John R. Muse
Charles W. Tate
Jack D. Furst
Lawrence D. Stuart, Jr.
Copy to:
Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: David J. Webster
<PAGE> 28
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ JEFFREY H. KUHR
----------------------------------------
JEFFREY H. KUHR
<PAGE> 29
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ KENNETH T. BERLINER
----------------------------------------
KENNETH T. BERLINER
<PAGE> 30
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ JEFFREY H. HORNSTEIN
----------------------------------------
JEFFREY H. HORNSTEIN
<PAGE> 31
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ DARRYL WASH
----------------------------------------
DARRYL WASH
<PAGE> 32
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
CCC/OMNI INVESTMENT PARTNERS
By: /s/ ROBERT D. BEYER
-------------------------------------
Name: Robert D. Beyer
-----------------------------------
Title: General Partner
----------------------------------
<PAGE> 33
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ WILLIAM L. FARRELL
----------------------------------------
WILLIAM L. FARRELL
<PAGE> 34
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ ROBERT H. ELMAN
----------------------------------------
ROBERT H. ELMAN
<PAGE> 35
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ ARNOLD E. DITRI
----------------------------------------
ARNOLD E. DITRI
<PAGE> 36
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ ALASTAIR H. MCKELVIE
----------------------------------------
ALASTAIR H. MCKELVIE
<PAGE> 37
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ JOHN N. DELLOS
----------------------------------------
JOHN N. DELLOS
<PAGE> 38
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ JAMES D. BRAEUNIG
----------------------------------------
JAMES D. BRAEUNIG
<PAGE> 39
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ THOMAS J. RUHMANN
----------------------------------------
THOMAS J. RUHMANN
<PAGE> 40
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ ALAN PLOTKIN
----------------------------------------
ALAN PLOTKIN
<PAGE> 41
SIGNATURES TO HMTF STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ DAVID F. CROWLEY
----------------------------------------
DAVID F. CROWLEY
<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT
TO
STOCKHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT (this "Amendment") is
made and entered into as of the 1st day of June, 1997, by and among Hedstrom
Holdings, Inc., a Delaware corporation (the "Company"), and the Holders
signatory hereto. Capitalized terms used but not otherwise defined herein
shall have the meanings assigned to them in the Stockholders Agreement (the
"Agreement"), dated as of October 27, 1995, by and among the Company and the
Holders.
WHEREAS, the Company and the Holders have entered into the Agreement;
and
WHEREAS, the Company and the requisite number of Holders desire to amend
the Agreement to provide for its immediate termination.
NOW, THEREFORE, in consideration of the premises, the Company and the
Holders signatory hereto agree as follows:
1. Section 2.4 of the Agreement is hereby amended in its entirety to
read as follows:
"Section 2.4 [Intentionally omitted]."
2. This Amendment may be executed in two or more counterparts, each
of which will be deemed an original, but all of which together will constitute
one and the same document.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the day and year first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
------------------------------------------
Name: Andrew S. Rosen
----------------------------------------
Title:
---------------------------------------
HICKS, MUSE, TATE & FURST EQUITY
FUND II, L.P.
By: HM2/GP Partners, L.P., its
General Partner
By: Hicks, Muse GP Partners, L.P., its
General Partner
By: Hicks, Muse Fund II Incorporated, its
General Partner
By: /s/ ANDREW S. ROSEN
--------------------------------
Name: Andrew S. Rosen
------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.14
THE SECURITY OR SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER
SUCH ACT, OR SUCH STATE LAW, OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AND THEN ONLY IN ACCORDANCE WITH THE RESTRICTIONS ON TRANSFER SET
FORTH HEREIN.
HEDSTROM HOLDINGS, INC.
SUBORDINATED NOTE
New York, New York
$1,370,775.00 October 27, 1995
HEDSTROM HOLDINGS, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ARNOLD E. DITRI (the "Holder"), the
principal amount of One Million Three Hundred Seventy Thousand Seven Hundred
Seventy-Five and 00/100 Dollars ($1,370,775.00), plus interest on the principal
amount due of this Note as hereinafter provided in Section 2. The principal
amount of this Note and all interest accrued and unpaid thereon shall be
payable in full on April 30, 2002. Unless defined in Section 1 of this Note,
capitalized terms used in this Note without definition shall have the
respective meanings given them in the Stock Purchase Agreement, dated as of
October 27, 1995, among the Company, Arnold E. Ditri, Alastair H. McKelvie,
John H. Hurshman and the Purchasers (as defined therein). This Note is one of
the Subordinated Notes referred to in the Stock Purchase Agreement.
1. Definitions. The following terms shall have the following
respective meanings when used in this Note:
A "Change in Control" shall be any of the following: (i) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company
and its subsidiaries to any person or group of related persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), other than to Hicks, Muse, Tate
& Furst Incorporated or any of their Affiliates, officers and directors (the
"Permitted Holders"); or (ii) a majority of the Board of Directors of the
Company shall consist of persons who are not Continuing Directors; (iii) the
acquisition by any person or Group (other than the Permitted Holders) of the
power, directly or indirectly, to vote or direct the voting of securities
having more than 50% of the ordinary voting power for the election of directors
of the Company, or (iv) Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF
LP") or its Affiliates ceases to own 100% of the number of shares of the
Company Common Stock (adjusted for stock splits, dividends, exchanges and
similar transactions) that it owned on the date hereof.
<PAGE> 2
"Continuing Director" means, as of the date of determination,
any person who (i) was a member of the Board of Directors of the Company on the
date hereof, (ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (iii) is a representative of a Permitted Holder.
"Event of Default" shall mean any of the events referred to in
Section 5.
"Senior Loan Agreement" shall mean the Credit Agreement, dated
as of October 27,1995, among the Company, Hedstrom Corporation and Bankers
Trust Company, as agent for the lenders named therein, as amended from time to
time.
2. Interest. Subject to the provisions of the next-to-last
sentence of this Section 2, interest at the rate of ten percent (10%) per
annum, computed on the basis of a 360-day year of twelve 30-day months, shall
be payable on the unpaid principal amount of the Note. The Company will pay
interest hereunder quarterly in arrears to the Holder in accordance with
Section 7(a) on the last day of each October, January, April and July of each
year, until this Note shall have been paid in full. To the extent permitted by
law, interest hereon which is not paid when due shall bear interest from the
day when due until paid in full at a rate of twelve percent (12%) per annum.
Notwithstanding any other provisions of this Note, interest paid or becoming
due hereunder shall in no event be in an amount prohibited by applicable law.
3. Subordination This Note, and the obligations of the Company
hereunder, shall be subordinate and junior in right of payment to all Senior
Indebtedness (as defined in Section 1.07 of Annex A hereto) on the terms and
conditions set forth in Annex A hereto, which Annex A is herein incorporated by
reference and made a part hereof as if set forth herein in its entirety.
4. Mandatory Prepayment. The Company shall be obligated to
prepay this Note, together with accrued and unpaid interest thereon, as
follows:
(a) In full, whenever there occurs a public offering by
the Company of any of its equity securities, but only if in such offering
shares of the Company's capital stock are sold by HMTF LP or its direct or
indirect assigns;
(b) Within 106 days after the end of each fiscal year
while this Note is outstanding, to the fullest extent possible using 100% of
the Excess Cash Flow of the Company for the immediately preceding fiscal year
(as such term is defined in the Senior Loan Agreement); and
- 2 -
<PAGE> 3
(c) In full, whenever any Event of Default shall occur and be
continuing.
5. Events of Default. It shall constitute an Event of Default
under this Note if any one or more of the following events shall occur for any
reason:
(a) The Company shall fail to perform or observe any
term, covenant or condition on its part to be performed or observed under this
Note and such failure shall continue for 30 days after written notice thereof
is given to the Company, other than the due and punctual payment of this Note
at its maturity as to which no notice shall be required to be given and the
Company shall have no right to cure any such default;
(b) The Company shall make a general assignment for the
benefit of creditors, or any procedure shall be instituted by the Company or
any of its Subsidiaries seeking to adjudicate it as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, adjustment, protection, relief
or composition of it or its debts under law relating to bankruptcy, insolvency
or reorganization or relief of debtors or seeking entry of an order for relief
or the appointment of a receiver, trustee, or other similar official or for any
substantial part of its property or the Company or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth
above in this clause (b);
(c) A court of competent jurisdiction shall enter a
judgment, decree or order for relief in respect of the Company or any of its
Subsidiaries in an involuntary case under any bankruptcy law which shall (i)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any of its Subsidiaries,
(ii) appoint a custodian of the Company or any of its Subsidiaries or for any
of their respective property or (iii) order the winding-up or liquidation of
the affairs of the Company or any, of its Subsidiaries, and such judgment,
decree or order shall remain unstayed and in effect for 60 consecutive days; or
any bankruptcy or insolvency petition, application or proceeding is commenced
against the Company or any of its Subsidiaries, and such petition, application
or proceeding is not dismissed within 60 days; or any warrant of attachment is
issued against any portion of the property of the Company or any of its
Subsidiaries which is not released within 60 days of service;
(d) The Company shall (i) default in the payment of any
debt or other financial obligation (other than the Earnout Note B) having a
principal amount of at least $7,500,000, (ii) default in the performance or
observance of any term, covenant or condition on its part to be performed or
observed under any other Subordinated Note, under any, Earnout Note A or under
any Earnout Note B, and any such default has resulted in the acceleration
thereof, and such default shall not have been cured and such acceleration
rescinded after a 20-day) grace period; and
(e) A Change in Control shall have occurred.
- 3 -
<PAGE> 4
6. Covenants of the Company
(a) Until this Note shall have been paid in full, the
Company will promptly upon learning of the same, notify the Holder of any event
which constitutes, or which with notice or lapse of time, or both, would
constitute, an Event of Default.
(b) Until this Note shall have been paid in full, the
Company will not:
(i) enter into any agreements with, on behalf
of, or granting credit support to, an Affiliate of the Company, except
on an arms' length basis; provided, that any such transaction shall be
conclusively deemed to be on terms which are on an arms' length basis
if a majority of the Company's board of directors (including a
majority of the Company's directors who are not Affiliates of HMTF LP,
if any) have approved the transaction; and, provided, further, that if
such transaction shall involve more than $5,000,000, in addition to
the approval of the board of directors, the Company shall obtain the
report of an independent investment banker stating that the
transaction has been priced at fair market value; and
(ii) incur or create any indebtedness for
borrowed money which by its terms is subordinate to the indebtedness
under the Senior Loan Agreement (or any other senior bank debt of the
Company) unless such indebtedness ranks pari passu with or is
subordinate to the indebtedness represented hereby.
7. Method of Payment.
(a) Both principal and interest hereon are payable in
legal tender of the United States by wire transfer to the following account of
the Holder maintained by the Holder Representative pursuant to the
Participants' Payment and Indemnification Agreement, dated the date hereof,
among the Company, the Existing Stockholders and the Participants named
therein: Account No. 921500696065, Chemical Bank, 488 Madison Avenue, New York,
New York, ABA No. 021000128, or at such other account as shall be designated by
the Holder Representative. If any payment on this Note becomes due and payable
on a Saturday, Sunday or other day on which commercial banks in New York, New
York are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day and, with respect to payments of
principal, interest thereon shall be payable during such extension.
(b) As used herein, the "Holder Representative" shall
mean Alan Plotkin, Esq., until such time as Mr. Plotkin shall decease or resign
and, following either such event, such other person as shall be appointed by
the Sellers acting unanimously; provided, that the rights of the Holder
Representative under this Note shall not be exercisable by any person other
than the Holder Representative validly appointed under
- 4 -
<PAGE> 5
these provisions. The Holder Representative shall have the authority to take
such actions and exercise such discretion as are required of the Holder
Representative pursuant to the terms of this Note (and any such actions shall
be binding on the Holder).
8. Waiver of Presentment. Except as otherwise expressly provided
herein, the parties hereto waive presentment for payment, notice of nonpayment,
demand, protest, notice of protest, notice of dishonor and diligence in
enforcing payment.
9. Costs of Collection. In the event of default under this Note,
the Holder Representative shall have all rights and remedies provided at law
and equity. All costs and expenses of collection, including attorneys' fees,
shall be added to and become part of the principal of this Note and shall be
collectable as part of such principal and interest shall be payable thereon as
set forth above.
10. Governing Law. This Note shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of New York,
without regard to conflict of laws principles.
11. Headings. The headings of the sections of this Note are
inserted for convenience only and shall not be deemed to constitute a part
hereof. Unless otherwise stated, all references to Sections shall be to the
Sections of this Note.
12. Amendment Without Consent of Holders. The Company and the
Holder Representative may from time to time and at any time amend the terms of
this Note to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision contained herein; or to make such other provisions in regard to
matters or questions arising under this Note as the Company may deem necessary
or desirable and which shall not adversely affect the interests of the Holders.
13. Amendments With Consent of Holders. With the consent of the
Holders of a majority in aggregate principal amount of the Subordinated Notes
at the time outstanding, the Company and the Holder Representative may, from
time to time and at any time, enter into an amendment or supplement hereto for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Note or modifying in any manner the
rights of the Holders of the Notes; provided, that no such supplements or
amendment shall extend the final maturity of any Note, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
- 5 -
<PAGE> 6
thereon, or reduce any amount payable on redemption thereof, or impair or
affect the right of any Holder to institute suit for the payment thereof.
14. Right of Setoff. Notwithstanding any other provision of this
Note to the contrary, the Company shall have the right to set off against the
principal amount hereof as permitted under, and in accordance with the terms
and conditions of, Article X of the Stock Purchase Agreement.
15. Restriction on Transfer. In addition to any other applicable
restrictions on the transfer of this Note, whether pursuant to federal or state
securities laws or otherwise, this Note and any interest herein shall not
(without the consent of the Company) be sold, transferred, assigned, pledged,
or hypothecated by the Holder (other than by the laws of descent and
distribution). Any such sale, transfer, assignment, pledge or hypothecation in
violation hereof shall be null and void.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered on its behalf by its duly authorized officers to be dated as of
the day and year first above written.
HEDSTROM HOLDINGS, INC.
By:/s/ ARNOLD E. DITRI
-----------------------------------
Name: Arnold E. Ditri
Title: President
[Corporate Seal]
ATTEST:
/s/ [ILLEGIBLE]
- ----------------------------
Assistant Secretary
- 6 -
<PAGE> 7
ANNEX A TO NOTE
Section 1.01. Subordination of Liabilities, HEDSTROM HOLDINGS,
INC. (the "Payor"), for itself, its successors and assigns, covenants and
agrees and each holder of the promissory note to which this Annex A is attached
(the "Note") by its acceptance thereof likewise covenants and agrees that the
payment of the principal of, and interest on, and all other amounts owing in
respect of, the Note is hereby expressly subordinated, to the extent and in the
manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness (as defined in Section 1.07) in cash. The provisions of this Annex
A shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are hereby made obligees hereunder the same as if their names
were written herein as such, and they and/or each of them may proceed to
enforce such provisions.
Section 1.02. Payor Not to Make Payments with Respect to Note
in Certain Circumstance. (a) Upon the maturity of any Senior Indebtedness
(including interest thereon or fees or any other amounts owing in respect
thereof), whether at stated maturity by acceleration or otherwise, all
Obligations (as defined in Section 1.07) owing in respect thereof, in each case
to the extent due and owing, shall first be paid in full, in cash, or such
payment duly provided for in cash in a manner satisfactory to the holder or
holders of such Senior Indebtedness, before any payment is made on account of
the principal of (including installments thereof), or interest on, or any
amount otherwise owing in respect of, the Note. Payor may not, directly or
indirectly, make any payment of any principal of, and interest on, or any other
amount owing in respect of, the Note and may not acquire all or any part of the
Note for cash or property until all Senior Indebtedness has been paid in full
in cash if any Event of Default (as defined below), or event which with notice
or lapse of time or both would constitute an Event of Default in respect of any
Senior Indebtedness is then in existence. Each holder of the Note hereby agrees
that, so long as an Event of Default, or event which with notice or lapse of
time or both would constitute an Event of Default, in respect of any Senior
Indebtedness exists, it will not ask, demand, sue for, or otherwise take, accept
or receive, any amounts owing in respect of the Note. As used herein, the term
"Event of Default" shall mean any Event of Default, under and as defined in,
the relevant documentation governing any Senior Indebtedness and in any event
shall include any payment default with respect to any Senior Indebtedness.
(b) In the event that notwithstanding the provisions of
the preceding subsection (a) of this Section 1.02, any payment shall be made on
account of the principal of, or interest on, or amounts otherwise owing in
respect of, the Note, at a time when payment is not permitted by the terms of
the Note or by said subsection (a), such payment shall be held by the holder of
the Note, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness or their representative or
representatives under the agreements pursuant to which the Senior Indebtedness
may
<PAGE> 8
ANNEX A TO NOTE
Page 2
have been issued, as their respective interests may appear, for application pro
rata to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in cash in accordance with the
terms of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness. Without
in any way modifying the provisions of this Annex A or affecting the
subordination effected hereby if such notice is not given, Payor shall give the
holder of the Note prompt written notice of any maturity of Senior Indebtedness
after which such Senior Indebtedness remains unsatisfied.
Section 1.03. Note Subordinated to Prior Payment of all Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Payor. Upon any
distribution of assets of Payor upon any dissolution, winding up, liquidation
or reorganization of Payor (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in cash of all Senior Indebtedness
(including, without limitation, postpetition interest) before the
holder of the Note is entitled to receive any payment on account of
the principal of or interest on or any other amount owing in respect
of the Note;
(b) any payment or distributions of assets of Payor of
any kind or character, whether in cash, property or securities to
which the holder of the Note would be entitled except for the
provisions of this Annex A, shall be paid 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 holders of Senior Indebtedness or
their representative or representatives under the agreements pursuant
to which the Senior Indebtedness may have been issued, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 1.03, any payment or distribution of assets
of Payor of any kind or character, whether in cash, property or
securities, shall be received by the holder of the Note on account of
principal of, or interest or other amounts due on, the Note before all
Senior Indebtedness is paid in full in cash, or effective provision
made for its payment in cash, such payment or distribution shall be
received and held in trust for and shall be paid over to the holders
of the Senior Indebtedness remaining unpaid or unprovided for or their
representative or representatives under the agreements
<PAGE> 9
ANNEX A TO NOTE
Page 3
pursuant to which the Senior Indebtedness may have been issued, for
application to the payment of such Senior Indebtedness until all such
Senior Indebtedness shall have been paid in full in cash, after giving
effect to any concurrent payment or distribution to the holders of
such Senior indebtedness.
Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby, if such notice is not given Payor
shall give prompt written notice to the holder of the Note of any dissolution,
winding up, liquidation or reorganization of Payor (whether in bankruptcy,
insolvency or receivership proceedings or upon assignment for the benefit of
creditors or otherwise).
Section 1.04. Subrogation. Subject to the prior payment in
full of all Senior Indebtedness in cash, the holder of the Note shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of Payor applicable to the Senior
Indebtedness until all amounts owing on the Note shall be paid in full, and for
the purpose of such subrogation no payments or distributions to the holders of
the Senior Indebtedness by or on behalf of Payor or by or on behalf of the
holder of the Note by virtue of this Annex A which otherwise would have been
made to the holder of the Note shall, as between Payor, its creditors other
than the holders of Senior Indebtedness, and the holder of the Note, be deemed
to be payment by Payor to or on account of the Senior Indebtedness, it being
understood that the provisions of this Annex A are and are intended solely for
the purpose of defining the relative rights of the holder of the Note, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
Section 1.05. Obligation of Payor Unconditional. Nothing
contained in this Annex A or in the Note is intended to or shall impair, as
between Payor and the holder of the Note, the obligation of Payor, which is
absolute and unconditional, to pay to the holder of the Note the principal of
an interest on the Note as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holder of the Note and creditors of Payor other than the holders
of the Senior Indebtedness, nor shall anything herein or therein, except as
expressly provided, prevent the holder of the Note from exercising all remedies
otherwise permitted by applicable law, subject to the rights, if any, under
this Annex A of the holders of Senior Indebtedness in respect of cash,
property, or securities of Payor received upon the exercise of any such remedy.
Upon any distribution of assets of Payor referred to in this Annex A, the
holder of the Note shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
holder of the Note, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness
<PAGE> 10
ANNEX A TO NOTE
Page 4
and other indebtedness of Payor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Annex A.
Section 1.06. Subordination Rights not Impaired by Acts or
Omissions of Payor or Holders of Senior Indebtedness. No right of any present
or future holders of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of Payor or by any act or failure to act in good
faith by any such holder, or by any noncompliance by Payor with the terms and
provisions of the Note, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of the Senior
Indebtedness may, without in any way affecting the obligations of the holder of
the Note with respect thereto, at any time or from time to time and in their
absolute discretion, change the manner, place or terms of payment of, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend, modify or supplement any agreement or instrument governing or evidencing
such Senior Indebtedness or any other document referred to therein, or exercise
or refrain from exercising any other of their rights under the Senior
Indebtedness including, without limitation, the waiver of default thereunder
and the release of any collateral securing such Senior Indebtedness, all
without notice to or assent from the holder of the Note.
Section 1.07. Definitions. As used in this Annex, the terms
set forth below shall have the respective meanings provided below:
"Borrower" shall mean Hedstrom Corporation, and its successors
and permitted assigns.
"Credit Agreement" shall mean the Credit Agreement, dated as
of October 27, 1995, among Holdings, the Borrower, the lending institutions
from time to time party thereto (the "Banks"), and Bankers Trust Company, as
Agent (the "Agent"); as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time, and
including any agreement extending the maturity of, refinancing or restructuring
(including but not limited to the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the indebtedness under such agreement or any successor agreements;
provided that with respect to any agreement providing for the refinancing of
indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full
at the time of such refinancing, and all commitments and
<PAGE> 11
ANNEX A TO NOTE
Page 5
letters of credit issued pursuant to the refinanced Credit Agreement shall have
terminated in accordance with their terms or (B) the Required Banks shall have
consented in writing to the refinancing indebtedness being treated, along with
their indebtedness, as indebtedness pursuant to the Credit Agreement, (ii) the
refinancing indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding)
and (iii) a notice to the effect that the refinancing indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the Borrower
to the Agent.
"Credit Documents" shall have the meaning provided in the
Credit Agreement.
"Holdings" shall mean Hedstrom Holdings, Inc., and its
successors and permitted assigns.
"Interest Rate Protection Agreement" shall have the meaning
provided in the Credit Agreement.
"Obligation" shall mean any principal, interest, premium,
penalties, fees, indemnities and other liabilities and obligations payable
under the documentation governing any Senior Indebtedness (including, without
limitation, all interest after the commencement of any bankruptcy, insolvency,
receivership or similar proceeding at the rate provided in the governing
documentation, whether or not such interest is an allowed claim in such
proceeding).
"Other Creditors" shall mean each of Bankers Trust Company, in
its individual capacity, the Banks party from time to time to the Credit
Agreement, and their affiliates and their respective subsequent assigns, if
any, and any other institution which participates with Bankers Trust Company,
such Banks or affiliates in the extension of Interest Rate Protection
Agreements or Other Hedging Agreements and their subsequent assigns, if any, in
all such cases in their capacity as creditors with respect to Interest Rate
Protection Agreements or other Hedging Agreements.
"Other Hedging Agreements" shall have the meaning provided in
the Credit Agreement.
"Required Banks" shall have the meaning provided in the Credit
Agreement.
"Senior Indebtedness" shall mean all Obligations of (i)
Holdings, the Borrower and/or any of their Subsidiaries under the Credit
Agreement and the other Credit Documents and any renewal, extension,
restatement, refinancing or refunding thereof; and
<PAGE> 12
ANNEX A TO NOTE
Page 6
(ii) Holdings, the Borrower and/or any of their Subsidiaries in respect of
all Interest Rate Protection Agreements or Other Hedging Agreements with Other
Creditors.
"Subsidiaries" shall have the meaning provided in the Credit
Agreement.
Section 1.08. Miscellaneous. If, at any time, all or part of
any payment with respect to Senior Indebtedness theretofore made by Payor or
any other Person is rescinded or must otherwise be returned by the holders of
Senior Indebtedness for any reason whatsoever (including, without limitation,
the Insolvency, bankruptcy or reorganization of Payor or such other Persons),
the subordination provisions set forth herein shall continue to be effective or
be reinstated, as the case may be, all as though such payment had not been
made.
<PAGE> 1
EXHIBIT 10.15
AMENDMENT AND WAIVER
THIS AMENDMENT AND WAIVER is entered into as of June 12, 1997 by and
between Hedstrom Holdings, Inc. (the "Company") and Alan Plotkin (in his
capacity as the Holder Representative under the Notes (as hereinafter defined),
the "Holder Representative").
WHEREAS, the Company desires to amend certain provisions and to obtain
waivers with respect to certain other provisions of the Company's Subordinated
Notes, dated as of October 27, 1995, issued in the aggregate principal amount
of $2,500,000 (the "Notes");
WHEREAS, the terms of the Notes permit the Company and the Holder
Representative to enter into an amendment or supplement to the Notes with the
consent of a majority in aggregate principal amount of the Notes at the time
outstanding;
WHEREAS, Arnold E. Ditri is the holder of a majority in aggregate
principal amount of the Notes as of the date hereof (the "Majority Holder");
and
WHEREAS, the Majority Holder desires to consent to the amendments to the
Notes set forth herein and to the waivers of the application of certain
provisions of the Notes as set forth herein.
NOW THEREFORE, in consideration of the respective agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:
1. Definitions. All capitalized terms used but not defined herein
shall have the meanings given such terms in the Notes.
2. Amendments. The Notes are hereby amended as follows:
a. The definition of "Senior Loan Agreement" in Section 1 of
the Notes is hereby deleted in its entirety.
b. The definition of "Senior Indebtedness" in Section 1.07 of
Annex A to the Notes is hereby amended and restated in its entirety to read as
follows:
<PAGE> 2
"Senior Indebtedness" shall mean all obligations and liabilities
of the Company and its Subsidiaries under or in respect of (i)
the Credit Agreement and the other Credit Documents, (ii) the
Senior Discount Notes and the Senior Discount Notes Indenture,
(iii) the Senior Subordinated Notes Due 2007 and the Senior
Subordinated Notes Indenture and (iv) any interest rate or
currency hedging agreements entered into in connection any of the
foregoing.
c. The definition of "Credit Agreement" in Section 1.07 of
Annex A to the Notes is hereby and restated in its entirety to read as follows:
""Credit Agreement" shall mean the Credit Agreement, dated as of June
12, 1997, among the Company, Hedstrom Corporation, Credit Suisse First
Boston Corporation, as agent, and the lenders party thereto, as the same
may be amended, modified, extended, renewed, restated, supplemented,
restructured or refinanced from time to time."
d. The definitions of "Borrower," "Interest Rate Protection
Agreement," "Other Creditors," "Other Hedging Agreements" and "Required Banks"
in Section 1.07 of Annex A to the Notes are hereby deleted in their entirety.
e. The following definitions are hereby added in the
appropriate places in Section 1.07 of Annex A to the Notes:
""Senior Discount Notes" shall mean the 10% Senior Discount Notes Due
2009 issued by the Company pursuant to the Senior Discount Notes
Indenture.
"Senior Discount Notes Indenture" shall mean the Indenture, dated as of
June 1, 1997, between the Company and the United States Trust Company of
New York, as trustee, as the same may be amended, modified, extended,
renewed, restated, supplemented, restructured or refinanced from time to
time.
"Senior Subordinated Notes" shall mean the 12% Senior Subordinated Notes
Due 2007 issued by Hedstrom Corporation pursuant to the Senior
Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" shall mean the Indenture, dated as
of June 1, 1997, among Hedstrom Corporation, the Company, as guarantor,
the other guarantors party thereto and IBJ Schroder Bank & Trust
Company, as
2
<PAGE> 3
trustee, as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time."
f. Section 4(b) of the Notes is amended and restated in its
entirety to read as follows:
"(b) Within 106 days after the end of each fiscal year while
this Note is outstanding, to the fullest extent permitted under the
Credit Agreement, the Senior Subordinated Notes Indenture, and the
Senior Discount Notes Indenture."
3. Waivers. The application of Sections 6(b)(i) and (ii) of the
Notes is hereby waived with respect to each of the transactions contemplated by
the Credit Agreement, the other Credit Documents, the Senior Discount Notes,
the Senior Discount Notes Indenture, the Senior Subordinated Notes and the
Senior Subordinated Notes Indenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment and Waiver
as of the date first set forth above.
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
-------------------------
Name: Andrew S. Rosen
Title:
HOLDER REPRESENTATIVE
By: /s/ ALAN PLOTKIN
-------------------------
Alan Plotkin
CONSENT OF MAJORITY HOLDER:
The undersigned, as the holder of a majority in aggregate principal
amount of the Notes, hereby consents to each of the foregoing amendments and
waivers and to the execution hereof by the Holder Representative on behalf of
the holders of the Notes.
MAJORITY HOLDER
By: /s/ ARNOLD E. DITRI
------------------------
Arnold E. Ditri
4
<PAGE> 1
EXHIBIT 10.16
THE SECURITY OR SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER
SUCH ACT, OR SUCH STATE LAW, OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AND THEN ONLY IN ACCORDANCE WITH THE RESTRICTIONS ON TRANSFER SET
FORTH HEREIN.
HEDSTROM HOLDINGS, INC.
PROMISSORY NOTE (SERIES A)
New York, New York
October 27, 1995
HEDSTROM HOLDINGS, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to ARNOLD E. DITRI (the "Holder"), the amount,
if any, which is the product of the Aggregate Earned Amount multiplied by the
Holder's Percentage Interest, plus interest on the principal amount due of this
Note as hereinafter provided in Section 2. The principal amount of this Note
and all interest accrued and unpaid thereon shall be payable in full on April
30, 2002. Unless defined in Section 1 of this Note, capitalized terms used in
this Note without definition shall have the respective meanings given them in
the Stock Purchase Agreement, dated as of October 27, 1995, among the Company,
Arnold E. Ditri, Alastair H. McKelvie, John H. Hurshman and the Purchasers
named therein. This Note is one of the Earnout Notes A referred to in the Stock
Purchase Agreement.
1. Definitions. The following terms shall have the following respective
meanings when used in this Note:
The "Accelerated Value" shall mean (i) in the case of Section 4(a),
the product of (A) the amount, if any, by which the Enterprise Value of the
Company exceeds $78,500,000, subject to a maximum amount of $6,000,000,
(reduced by any principal payments actually made pursuant to any Earnout Note A
prior to the date upon which the Accelerated Value is calculated) multiplied by
(B) the Holder's Percentage Interest, and (ii) in the case of a
Change-in-Control transaction of the type described in Section 4(c), the
product of (a) the amount, if any, by which the Company's Equity Value (as
defined in Section 4(c)) exceeds $32,500,000 (adjusted for any additional
equity contributions made to, or equity securities sold by, the Company),
subject to a maximum amount of $6,000,000 (reduced by any principal payments
actually made pursuant to any Earnout Note A prior to the date upon which the
Accelerated Value is calculated), and (b) the Holder's Percentage Interest.
<PAGE> 2
The "Aggregate Earned Amount" shall be the sum of the 1996 Earned
Amount and the 1997 Earned Amount.
The "1996 Earned Amount" shall be the lesser of: (i) the amount of
$1.00 (One Dollar) for each $1.00 (One Dollar) by which Sales for Fiscal 1996
exceed $140,000,000, and (ii) the amount of $2.00 (Two Dollars) for each $1.00
(One Dollar) by which EBITDA for Fiscal 1996 exceeds $15,000,000; provided,
that in no event shall the 1996 Earned Amount exceed $6,000,000.
The "1997 Earned Amount" shall be the excess, if any, of (i) the
lesser of: (A) the amount of $0.60 (60/100ths of Dollar) for each $1.00 (One
Dollar) by which cumulative Sales for Fiscal 1996 and 1997 exceed $300,000,000,
and (B) the amount of $1.20 (One and 20/100ths Dollars) for each $1.00 (One
Dollar) by which cumulative EBITDA for Fiscal 1996 and 1997 exceeds
$40,000,000, over (ii) the 1996 Earned Amount; provided, that in no event shall
such amount, when added to the 1996 Earned Amount, exceed $6,000,000.
A "Change in Control" shall be any of the following: (i) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company and its
subsidiaries to any person or group of related persons for purposes of Section
13(d) of the Exchange Act (a "Group"), other than to Hicks, Muse, Tate & Furst
Incorporated or any of their Affiliates, officers and directors (the "Permitted
Holders"); or (ii) a majority of the Board of Directors of the Company shall
consist of persons who are not Continuing Directors; (iii) the acquisition by
any person or Group (other than the Permitted Holders) of the power, directly
or indirectly, to vote or direct the voting of securities having more than 50%
of the ordinary voting power for the election of directors of the Company, or
(iv) Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF LP") or its
Affiliates ceases to own 100% of the number of shares of the Company Common
Stock (adjusted for stock splits, dividends, exchanges and similar
transactions) that HMTF LP owned on the date hereof.
"Continuing Director" means, as of the date of determination, any
person who (i) was a member of the Board of Directors of the Company on the
date hereof, (ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (iii) is a representative of a Permitted Holder.
"Determined" shall have the meaning given it in Section 8(b).
"Earned Amount" means that amount of the 1996 Earned Amount (if any)
and that amount of the 1997 Earned Amount (if any) that has been Determined,
or is subject to being Determined, under this Note.
-2-
<PAGE> 3
"EBITDA" shall mean the Company's consolidated earnings before
interest expense (net of interest income), income taxes, depreciation and
amortization, determined for the fiscal year in question computed according to
Section 8.
"Enterprise Value" shall be value of the Company and its Subsidiaries
determined according to Section 5(b).
"Event of Default" shall mean any of the events referred to in Section
6.
"Fiscal" shall refer to the Company's fiscal year ending July 31.
The "Holder's Percentage Interest" shall be 54.83%.
"Refinancing" shall mean the modification, extension, renewal or
replacement of the indebtedness incurred by the Company to finance the Merger.
"Qualified CPA" shall mean the Pittsburgh office of Ernst & Young,
LLP, or any successor firm.
"Senior Loan Agreement" shall mean the Credit Agreement, dated as of
October 27, 1995, among the Company, Hedstrom Corporation and Bankers Trust
Company, as agent for the lenders named therein, as amended from time to time.
"Sales" shall mean the Company's consolidated net sales, computed
according to Section 8, determined for the fiscal year in question.
2. Interest. Subject to the provisions of the next-to-last sentence
of this Section 2, interest at the rate of ten percent (10%) per annum,
computed on the basis of a 360-day year of twelve 30-day months, (a) shall be
payable on the 1996 Earned Amount commencing August 1, 1996; and (b) shall be
payable on the 1997 Earned Amount commencing August 1, 1997. The Company will
pay interest hereunder quarterly in arrears to the Holder in accordance with
Section 11 on the last day of each October, January, April and July occurring
thereafter until the Earned Amount shall have been paid in full. To the extent
permitted by law, interest hereon which is not paid when due shall bear
interest from the day when due until paid in full at a rate of twelve percent
(12%) per annum. Notwithstanding any other provisions of this Note, interest
paid or becoming due hereunder shall in no event be in an amount prohibited by
applicable law.
3. Subordination. This Note, and the obligations of the Company
hereunder, shall be subordinate and junior in right of payment to all Senior
Indebtedness (as defined in Section 1.07 of Annex A hereto) on the terms and
conditions set forth in Annex A hereto, which Annex A is herein incorporated
by reference and made a part hereof as if set forth herein in its entirety.
- 3 -
<PAGE> 4
4. Mandatory Prepayment After Determination. After the date on which
any Earned Amount has been Determined, the Company shall be obligated to prepay
this Note, together with accrued and unpaid interest thereon, as follows:
(a) Whenever and to the extent that the provisions of the Senior
Loan Agreement permit the payment of interest and principal hereon;
(b) In full, whenever (i) the Company becomes a party to a
Refinancing in which the holders of any equity securities of the Company
directly or indirectly receive any proceeds of such Refinancing, or (ii)
whenever the Company (A) declares or pays any dividend or makes any
distribution on or in respect of its capital stock except (I) dividends or
distributions payable in its capital stock or in options, warrants or other
rights to purchase such capital stock, and (II) dividends or distributions
payable to the Company or any of its Subsidiaries or (B) purchases, redeems,
retires or otherwise acquires for value any of its capital stock (other than
in exchange for its capital stock); provided, that the foregoing shall not
include (x) payments by the Company to repurchase, capital stock or other
securities of the Company from members of management or the board of directors
of the Company or Hedstrom Corporation in an aggregate amount not to exceed
$5,000,000; (v) payments to enable Company to redeem or repurchase stock
purchase or similar rights granted by Company with respect to its capital stock
in an aggregate amount not to exceed $500,000; and (z) payments, not to
exceed $100,000 in the aggregate, to enable Company to make cash payments to
holders of its capital stock in lieu of the issuance of fractional shares of
its capital stock; or
(c) In full, whenever any Event of Default shall occur and be
continuing;
provided, that notwithstanding the above, the Company shall not be obligated to
prepay this Note under the provisions of this Section until such time as the
Subordinated Debt is no longer outstanding.
5. Mandatory Prepayments Prior to Determination.
(a) Prior to the date on which the full Earned Amount has been
Determined, the Company shall be obligated to pay the greater of any Earned
Amount and the Accelerated Value of this Note, if any of the following occur:
(i) Whenever the Company becomes a party to a Refinancing
in which the holders of any equity securities of the Company directly
or indirectly, receive any proceeds of such Refinancing;
(ii) Whenever the Company (A) declares or pays, any
dividend or makes any distribution on or in respect of its capital
stock except (I) dividends or distributions payable in its capital
stock or in options, warrants or other rights to purchase such capital
stock, and (II) dividends or distributions payable to the
- 4 -
<PAGE> 5
Company or a Subsidiary or (B) purchases, redeems retires or otherwise
acquires for value any of its capital stock (other than in exchange
for its capital stock); provided, that the foregoing shall not include
(x) payments by the Company to repurchase, capital stock or other
securities of the Company from members of management of the Company in
an aggregate amount not to exceed $5,000,000; (y) payments to enable
the Company to redeem or repurchase stock purchase or similar rights
granted by the Company with respect to its capital stock in an
aggregate amount not to exceed $500,000; and (z) payments, not to
exceed $100,000 in the aggregate, to enable the Company to make cash
payments to holders of its capital stock in lieu of the issuance of
fractional shares of its capital stock; or
(iii) Whenever any Event of Default shall occur and be
continuing;
provided, that notwithstanding the above, the Company shall not be obligated to
prepay this Note under the provisions of this Section until such time as the
Subordinated Debt is no longer outstanding.
(b) Except as set forth in Section 5(c), the Accelerated Value of
their Note shall be calculated based upon the Enterprise Value of the Company
determined as follows:
(i) The Enterprise Value of the Company shall be determined as
of the last day of the month of the event referred to in Section 5(a) (the
"Valuation Date"). The Enterprise Value of the Company shall be the amount
which is five times EBITDA for the twelve-month period ending on the
Valuation Date; and
(ii) The EBITDA used to calculate the Enterprise Value of the
Company shall be determined by mutual agreement of the Company and the
Holder Representative (as defined below) within 20 days of the Valuation
Date, failing which the EBITDA used to calculate the Enterprise Value shall
be determined by the Qualified CPA. All expenses incurred with respect to
the determination of the EBITDA used to calculate the Enterprise Value
shall be paid by the Company.
(c) Notwithstanding the foregoing clause (b), if a Change in Control
occurs Prior to Determination and HMTF LP owns less than 50% of the Company
Common Stock in connection therewith, the valuation procedure set forth in
clause (b)(ii) above based on EBITDA shall not apply, and in lieu thereof the
Company's Equity Value shall equal the Purchase price paid per share for each
share of the Company Common Stock multiplied by the number of shares of the
Company Common Stock issued and outstanding on a fully diluted basis on the
date of such Change in Control. If the consideration paid in such
- 5 -
<PAGE> 6
Change in Control transaction is other than cash, then such consideration shall
be valued at its fair market value by an investment banker retained by the
Company for such purpose at the Company's expense.
(d) As used herein, the "Holder Representative" shall mean Alan
Plotkin, Esq., until such time as Mr. Plotkin shall decease or resign and,
following either such event, such other person as shall be appointed by the
Sellers acting unanimously, provided that the rights of the Holder
Representative under this Note shall not be exercisable by any person other
than the Holder Representative validly appointed under these provisions. The
Holder Representative shall have the authority to take such actions and
exercise such discretion as are required of the Holder Representative pursuant
to the terms of this Note (and any such actions shall be binding on the
Holder).
6. Events of Default. It shall constitute an Event of Default under
this Note if any one or more of the following events shall occur for any
reason:
(a) The Company or any of its Subsidiaries shall fail to perform
or observe any term, covenant or condition on its part to be performed
or observed under this Note and such failure shall continue for 30
days after written notice thereof is given to the Company, other than
the due and punctual payment of this Note at its maturity, as to which
no notice shall be required to be given and the Company shall have no
right to cure any such default;
(b) The Company or any of its Subsidiaries shall make a general
assignment for the benefit of creditors, or any procedure shall be
instituted by the Company or any of its Subsidiaries seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, adjustment, protection, relief or
composition of it or its debts under law relating to bankruptcy,
insolvency or reorganization or relief of debtors or seeking entry of
an order for relief or the appointment of a receiver, trustee, or
other similar official or for any substantial part of its property or
the Company or any of its Subsidiaries shall take any corporate action
to authorize any of the actions set forth above in this clause (b);
(c) A court of competent jurisdiction shall enter a judgment,
decree or order for relief in respect of the Company or any of its
Subsidiaries in an involuntary case under any bankruptcy law which
shall (i) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company, (ii)
appoint a custodian of the Company or any of its Subsidiaries or for
any of their respective property or (iii) order the winding-up or
liquidation of the affairs of the Company or any of its Subsidiaries,
and such judgment, decree or order shall remain unstayed and in effect
for 60 consecutive days; or any bankruptcy or insolvency, petition,
application or proceeding is commenced against the Company or any of
its Subsidiaries, and such petition,
- 6 -
<PAGE> 7
application or proceeding is not dismissed within 60 days; or any
warrant of attachment is issued against any portion of the property of
the Company or any of its Subsidiaries which is not released within 60
days of service;
(d) The Company or any of its Subsidiaries shall (i) default in
the payment of any debt or other financial obligation (other than the
Earnout Notes B) having a principal amount of at least $7,500,000 (ii)
default in the performance or observance of any term, covenant or
condition on its part to be performed or observed under any other
Earnout Note A, under any Earnout Note B or under any Subordinated
Note, and any such default has resulted in the acceleration thereof,
and such default shall not have been cured and such acceleration
rescinded after a 20-day grace period; and
(e) A Change in Control shall have occurred.
7. Covenants of the Company.
(a) Until this Note shall have been paid in full the Company
shall:
(i) deliver to the Holder Representative (i) within 105
days of the end of each fiscal year, a copy of the Company's
consolidated and consolidating balance sheet, statements of
operations, stockholders' equity and cash flows, certified to by the
Company's independent firm of public accountants, (ii) within 30 days
after the end of each month an unaudited consolidated and
consolidating balance sheet of the Company at the end of such month
and unaudited consolidated and consolidating statements of operations
and cash flows of the Company for the month then ended, together with
a comparison to such information for the prior year's month then ended
and (iii) such other information or reports as the Holder
Representative may reasonably request from time to time; and
(ii) promptly upon learning of the same, notify the Holder
Representative of any event which constitutes, or which with notice or
lapse of time, or both, would constitute, an Event of Default.
(b) Until this Note shall have been paid in full the Company will
not enter into any agreements with, on behalf of, or granting credit support
to, an Affiliate of the Company, except on an arms' length basis; provided,
that any such transaction shall be conclusively deemed to be on terms which are
on an arms' length basis if a majority of the Company's board of directors
(including a majority of the Company's directors who are not Affiliates of HMTF
LP, if any) have approved the transaction; and, provided, further, that if such
transaction shall involve more than $5,000,000, in addition to the approval of
the board of directors, the Company shall obtain the report of an independent
investment banker stating that the transaction has been priced at fair market
value.
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<PAGE> 8
8. Determination of the Earned Amounts.
(a) Not later than November 15 of fiscal years 1996 and 1997, the
Company shall furnish the Holder Representative a statement (the "Post-Closing
Statements") setting forth the Company's computation of Sales and EBITDA for
each of such years (and in the case of 1997, cumulative amounts for 1996 and
1997), as determined in accordance with GAAP applied in a manner consistent
with the Financial Statements.
(b) Within 30 days after the delivery of each Post-Closing
Statement to the Holder Representative, the Holder Representative shall on
behalf of the Holder either accept the amount of Sales and EBITDA as reflected
on the Post-Closing Statement as correct or object to the Sales and EBITDA
specifying in reasonable detail in writing the nature of its objection(s). If
the Holder Representative does not object to the Sales or EBITDA within said
30-day period, the Holder Representative shall be deemed to have accepted on
behalf of the Holder the Sales or EBITDA. In the event the Holder
Representative objects to Sales or EBITDA, then, during a 15-day period
subsequent to the receipt by the Company of notice of the Holder
Representative's objections, the Company and the Holder Representative shall
attempt in good faith to resolve the differences respecting such disputed
amounts. If the Company and the Holder are unable to resolve their differences
within said 15-day period, the parties agree that the matter shall be submitted
to the Qualified CPA to determine the Sales and EBITDA pursuant to this Section
and whose determination shall be final and binding upon the parties. The costs
and expenses of the Qualified CPA shall be borne equally by the Company and all
holders of Earnout Notes A. During the period from the date of delivery of the
Post-Closing Statement to the Holder Representative through the date of
resolution of any dispute regarding the Sales and EBITDA as contemplated by
this Section, the Company shall provide the Holder Representative and its
agents and representatives reasonable access to the books, records, facilities
and employees of the Company for purposes relevant to the review of such Post-
Closing Statement and the resolution of any related dispute. For all purposes
of the Agreements, any Earned Amount shall have been "Determined" if (i) the
Post-Closing Statement setting forth the Computation of the Sales and EBITDA
have not been objected to by the Holder Representative within the 30-day period
as aforesaid, (ii) the Holder Representative and the Company shall have
resolved their differences with respect to such amounts, or (iii) the Qualified
CPA has, if necessary, issued its determination of the dispute.
(c) In determining the Earned Amount, the Company shall compute
EBITDA in accordance with GAAP and, in addition, in compliance with the
following (to the extent deducted in calculating the net earnings):
(A) by adding back all management or similar fees paid or
payable to any Affiliate of Hicks, Muse, Tate & Furst Incorporated
which have been paid or accrued by the Company;
- 8 -
<PAGE> 9
(B) without deduction of any acquisition expenses (including
without limitation legal, accounting and valuation fees), as well
as commitment fees or other fees and expenses paid to any lender
who finances the transactions contemplated by the Stock Purchase
Agreement, and by adding back or subtracting, as the case shall
be, all noncash expenses or credits arising solely from purchase
accounting adjustments made as a result of the transactions
referred to in the recitals to this Agreement and the financing of
such transactions;
(C) by adding back any accruals in respect of the requirements
of any defined benefit plan which the Company may adopt pursuant
to statutory requirements applicable to members of a controlled
group; and
(D) without deduction for any amounts due or paid to the
Participants of the EA Plan in connection with the transactions
contemplated by the Stock Purchase Agreement.
9. Termination. The terms and provisions of this Note shall terminate
upon the earliest to occur of (a) if no Earned Amount shall have been
Determined pursuant to the procedures set forth in Section 8, at such time; (b)
if an Earned Amount is Determined pursuant to such procedures, upon full
payment of such Earned Amount together with accrued interest thereon; and (c)
if the Accelerated Value is determined pursuant to Section 5, upon full payment
of such Accelerated Value together with accrued interest thereon.
10. Acquisitions, Dispositions, etc. In the event that the Company
makes any investment (by way of contributions to capital, acquisitions of
assets, stock, securities or otherwise) in any other person or disposes of any
assets, the Company's Board of Directors shall, in good faith, make appropriate
adjustments to the provisions of this Note, including the definitions of 1996
Earned Amount and 1997 Earned Amount so as to fairly and equitably preserve, as
far as practicable, the original rights and obligations of the parties hereto.
11. Method of Payment. Both principal and interest hereon are payable
in legal tender of the United States by wire transfer to the following account
maintained by the Holder Representative pursuant to the Participants' Payment
and Indemnification Agreement, dated the date hereof, among the Company, the
Existing Stockholders and the Participants named therein: Account No.
921500696065 at Chemical Bank, 488 Madison Avenue, New York, New York, ABA
No.021000128, or at such other account as shall be designated by the Holder
Representative. If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day and, with respect to payments of
principal, interest thereon shall be payable during such extension.
- 9 -
<PAGE> 10
12. Waiver of Presentment. Except as otherwise expressly provided
herein, the parties hereto waive presentment for payment, notice of nonpayment,
demand, protest, notice of protest, notice of dishonor and diligence in
enforcing payment.
13. Costs of Collection. In the event of default under this Note, the
Holder Representative shall have all rights and remedies provided at law and
equity. All costs and expenses of collection, including attorneys' fees, shall
be added to and become part of the principal of this Note and shall be
collectable as part of such principal and interest shall be payable thereon as
set forth above.
14. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York,
without regard to conflict of laws principles.
15. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
Unless otherwise stated, all references to Sections shall be to the Sections of
this Note.
16. Amendment Without Consent of Holders. The Company and the Holder
Representative may from time to time and at any time amend the terms of this
Note to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision
contained herein; or to make such other provisions in regard to matters or
questions arising under this Note as the Company may deem necessary or
desirable and which shall not adversely affect the interests of the Holders.
17. Amendments with Consent of Holders. With the consent of the
Holders of a majority in aggregate principal amount of the Earnout Notes A at
the time outstanding, the Company and the Holder Representative may, from time
to time and at any time, enter into an amendment or supplement hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Note or modifying in any manner the rights of the
Holders of the Notes; provided, that no such supplement or amendment shall
extend the final maturity of any Note, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any amount payable on redemption thereof, or impair or affect the right of any
Holder to institute suit for the payment thereof.
18. Right of Setoff. Notwithstanding any other provision of this Note
to the contrary, the Company shall have the right to set off against the
Aggregate Earned Amount as permitted under, and in accordance with the terms
and conditions of, Article X of the Stock Purchase Agreement.
- 10 -
<PAGE> 11
19. Restriction on Transfer. In addition to any other applicable
restrictions on the transfer of this Note, whether pursuant to federal or state
securities laws or otherwise, this Note and any interest herein shall not
(without the consent of the Company) be sold, transferred, assigned, pledged,
or hypothecated by the Holder (other than by the laws of descent and
distribution). Any such sale, transfer, assignment, pledge or hypothecation in
violation hereof shall be null and void.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered on its behalf by its duly authorized officers to be dated as of
the day and year first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
---------------------------------
Name: Arnold E. Ditri
Title: President
[Corporate Seal]
ATTEST:
/s/ [ILLEGIBLE]
- -------------------
Secretary
- 11 -
<PAGE> 12
ANNEX A TO NOTE
Section 1.01. Subordination of Liabilities. HEDSTROM HOLDINGS, Inc.
(the "Payor"), for itself, its successors and assigns, covenants and agrees and
each holder of the promissory note to which this Annex A is attached (the
"Note") by its acceptance thereof likewise covenants and agrees that the payment
of the principal of, and interest on, and an other amounts owing in respect of,
the Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Senior Indebtedness
(as defined in Section 1.07) in cash. The provisions of this Annex A shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtness,
and such holders are hereby made obligees hereunder the same as if their names
were written herein as such, and they and/or each of them may proceed to enforce
such provisions.
Section 1.02. Payor Not to Make Payments with Respect to Note in
Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness
(including interest thereon or fees or any other amounts owing in respect
thereof), whether at stated maturity, by acceleration or otherwise, all
Obligations (as deemed in Section 1.07) owing in respect thereof, in each case
to the extent due and owing, shall first be paid in full, in cash, or such
payment duly provided for in cash in a manner satisfactory to the holder or
holders of such Senior Indebtedness, before any payment is made on account of
the principal of (including installments thereof), or interest on, or any amount
otherwise owing in respect of, the Note. Payor may not, directly or indirectly,
make any payment of any principal of, and interest on, or any other amount owing
in respect of, the Note and may not acquire all or any part of the Note for cash
or property until all Senior Indebtedness has been paid in full in cash if any
Event of Default (as defined below), or event which with notice or lapse of time
or both would constitute an Event of Default in respect of any Senior
Indebtedness is then in existence. Each holder of the Note hereby agrees that,
so long as an Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, in respect of any Senior Indebtedness
exists, it will not ask, demand, sue for, or otherwise take, accept or receive,
any amounts owing in respect of the Note. As used herein, the term "Event of
Default" shall mean any Event of Default, under and as defined in, the relevant
documentation governing any Senior Indebtedness and in any event shall include
any payment default with to any Senior Indebtedness.
(b) In the event that notwithstanding the provisions of the preceding
subsection (a) of this Section 1.02, any payment shall be made on account of
the principal of, or interest on, or amounts otherwise owing in respect of, the
Note, at a time when payment is not permitted by the terms of the Note or by
said subsection (a), such payment shall be held by the holder of the Note, in
trust for the benefit of, and shall be paid forthwith over and delivered to,
the holders of Senior Indebtedness or their representative or representatives
under the agreements pursuant to which the Senior Indebtedness may
<PAGE> 13
ANNEX A TO NOTE
Page 2
have been issued, as their interests may appear, for application pro rata to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in cash in accordance with the terms of such
Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Senior indebtness. Without in any way
modifying the provisions of this Annex A or affecting the subordination effected
hereby if such notice is not given, Payor shall give the holder of the Note
prompt written notice of any maturity of Senior Indebtedness after which such
Senior Indebtedness remains unsatisfied.
Section 1.03. Note Subordinated to Prior Payment of all Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Payor. Upon any
distribution of assets of Payor upon any dissolution, winding up, liquidation or
reorganization of Payor (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full in cash of all Senior Indebtedness (including,
without limitation, postpetition interest) before the holder of the Note is
entitled to receive any payment on account of the principal of or interest
on or any other amount owing in respect of the Note;
(b) any payment or distributions of assets of Payor of any kind or
character, whether in cash, property or securities to which the holder of
the Note would be entitled except for the provisions of this Annex A, shall
be paid 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 holders of
Senior Indebtedness or their representative or representatives under the
agreements pursuant to which the Senior Indebtedness may have been issued,
to the extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 1.03, any payment or distribution of assets of Payor of any
kind or character, whether in cash, property or securities, shall be
received by the holder of the Note on account of principal of, or interest
or other amounts due on, the Note before all Senior Indebtedness is paid in
full in cash, or effective provision made for its payment in cash, such
payment or distribution shall be received and held in trust for and shall
be paid over to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative or representatives under the
agreements
<PAGE> 14
ANNEX A TO NOTE
Page 3
pursuant to which the Senior Indebtedness may have been issued, for
application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby, if such notice is not given, Payor
shall give prompt written notice to the holder of the Note of any dissolution,
winding up, liquidation or reorganization of Payor (whether in bankruptcy,
insolvency or receivership proceedings or upon assignment for the benefit of
creditors or otherwise).
Section 1.04. Subrogation, Subject to the prior payment in full of all
Senior Indebtedness in cash, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of Payor applicable to the Senior Indebtedness until
all amounts owing on the Note shall be paid in full, and for the purpose of
such subrogation no payments or distributions to the holders of the Senior
Indebtedness by or on behalf of Payor or by or on behalf of the holder of the
Note by virtue of this Annex A which otherwise would have been made to the
holder of the Note shall, as between Payor, its creditors other than the
holders of Senior Indebtedness, and the holder of the Note, be deemed to be
payment by Payor to or on account of the Senior Indebtedness, it being
understood that the provisions of this Annex A are and are intended solely for
the purpose of defining the relative rights of the holder of the Note, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
Section 1.05. Obligation of Payor Unconditional, Nothing contained in
this Annex A or in the Note is intended to or shall impair, as between Payor
and the holder of the Note, the obligation of Payor, which is absolute and
unconditional, to pay to the holder of the Note the principal of an interest on
the Note as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
holder of the Note and creditors of Payor other than the holders of the Senior
Indebtedness, nor shall anything herein or therein, except as expressly
provided, prevent the holder of the Note from exercising all remedies otherwise
permitted by applicable law, subject to the rights, if any, under this Annex A
of the holders of Senior Indebtedness in respect of cash, property, or
securities of Payor received upon the exercise of any such remedy. Upon any
distribution of assets of Payor referred to in this Annex A, the holder of the
Note shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of the
Note, for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness
<PAGE> 15
ANNEX A TO NOTE
Page 4
and other indebtedness of Payor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Annex A.
Section 1.06. Subordination Rights not Impaired by Acts or Omissions
of Payor or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of Payor or by any act or failure to act in good faith by any such
holder, or by any noncompliance by Payor with the terms and provisions of the
Note, regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the obligations of the holder of the Note with respect
thereto, at any time or from time to time and in their absolute discretion,
change the manner, place or terms of payment of, change or extend the time of
payment of, or renew or alter, any Senior Indebtedness, or amend, modify or
supplement any agreement or instrument governing or evidencing such Senior
Indebtedness or any other document referred to therein, or exercise or refrain
from exercising any other of their rights under the Senior Indebtedness
including, without limitation, the waiver of default thereunder and the release
of any collateral securing such Senior Indebtedness, all without notice to or
assent from the holder of the Note.
Section 1.07. Definitions. As used in this Annex, the terms set forth
below shall have the respective meanings provided below:
"Borrower" shall mean Hedstrom Corporation, and its successors and
permitted assigns.
"Credit Agreement" shall mean the Credit Agreement, dated as of
October 27, 1995, among Holdings, the Borrower, the lending institutions from
time to time party thereto (the "Banks"), and Bankers Trust Company, as Agent
(the "Agent"); as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time, and
including any agreement extending the maturity of, refinancing or restructuring
(including but not limited to the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the indebtedness under such agreement or any successor agreements;
provided that with respect to any agreement providing for the refinancing of
indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full at
the time of such refinancing, and all commitments and
<PAGE> 16
ANNEX A TO NOTE
Page 5
letters of credit issued pursuant to the refinanced Credit Agreement shall have
terminated in accordance with their terms or (B) the Required Banks shall have
consented in writing to the refinancing indebtedness being treated, along with
their indebtedness, as indebtedness pursuant to the Credit Agreement, (ii) the
refinancing indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding)
and (iii) a notice to the effect that the refinancing indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the
Borrower to the Agent.
"Credit Documents" shall have the meaning provided in the Credit
Agreement.
"Holdings" shall mean Hedstrom Holdings, Inc., and its successors and
permitted assigns.
"Interest Rate Protection Agreement" shall have the meaning provided
in the Credit Agreement.
"Obligation" shall mean any principal, interest, premium, penalties,
fees, indemnities and other liabilities and obligations payable under the
documentation governing any Senior Indebtedness (including, without limitation,
all interest after the commencement of any bankruptcy, insolvency, receivership
or similar proceeding at the rate provided in the governing documentation,
whether or not such interest is an allowed claim in such proceeding).
"Other Creditors" shall mean each of Bankers Trust Company, in its
individual capacity, the Banks party from time to time to the Credit Agreement,
and their affiliates and their respective subsequent assigns, if any, and any
other institution which participates with Bankers Trust Company, such Banks or
affiliates in the extension of Interest Rate Protection Agreements or Other
Hedging Agreements and their subsequent assigns, if any, in all such cases in
their capacity as creditors with respect to Interest Rate Protection Agreements
or other Hedging Agreements.
"Other Hedging Agreements" shall have the meaning provided in the
Credit Agreement.
"Required Banks" shall have the meaning provided in the Credit
Agreement,
"Senior Indebtedness" shall mean all Obligations of (i) Holdings, the
Borrower and/or any of their Subsidiaries under the Credit Agreement and the
other Credit Documents and any renewal, extension, restatement, refinancing or
refunding thereof; and
<PAGE> 17
ANNEX A TO NOTE
Page 6
(ii) Holdings, the Borrower and/or any of their Subsidiaries in respect of all
Interest Rate Protection Agreements or Other Hedging Agreements with Other
Creditors.
"Subsidiaries" shall have the meaning provided in the Credit Agreement.
Section 1.08. Miscellaneous. If, at any time, all or part of any
payment with respect to Senior Indebtedness theretofore made by Payor or any
other Person is rescinded or must otherwise be returned by the holders of Senior
Indebtedness for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of Payor or such other Persons), the
subordination provisions set forth herein shall continue to be effective or be
reinstated, as the case may be, all as though such payment had not been made.
<PAGE> 1
EXHIBIT 10.17
AMENDMENT AND WAIVER
THIS AMENDMENT AND WAIVER is entered into as of June 12, 1997 by and
between Hedstrom Holdings, Inc. (the "Company") and Alan Plotkin (in his
capacity as the Holder Representative under the Notes (as hereinafter defined),
the "Holder Representative").
WHEREAS, the Company desires to amend certain provisions and to obtain
waivers with respect to certain other provisions of the Company's Promissory
Notes (Series A), dated as of October 27, 1995, (the "Notes");
WHEREAS, the terms of the Notes permit the Company and the Holder
Representative to enter into an amendment or supplement to the Notes with the
consent of a majority in aggregate principal amount of the Notes at the time
outstanding;
WHEREAS, Arnold E. Ditri is the holder of a majority in aggregate
principal amount of the Notes as of the date hereof (the "Majority Holder");
and
WHEREAS, the Majority Holder desires to consent to the amendments to
the Notes set forth herein and to the waivers of the application of certain
provisions of the Notes as set forth herein.
NOW THEREFORE, in consideration of the respective agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:
1. Definitions. All capitalized terms used but not defined
herein shall have the meanings given such terms in the Notes.
2. Amendments. The Notes are hereby amended as follows:
a. The definition of "Senior Loan Agreement" in Section
1 of the Notes is hereby deleted in its entirety.
b. The definition of "Senior Indebtedness" in Section
1.07 of Annex A to the Notes is hereby amended and restated in its entirety to
read as follows:
<PAGE> 2
"Senior Indebtedness" shall mean all obligations and liabilities of
the Company and its Subsidiaries under or in respect of (i) the Credit
Agreement and the other Credit Documents, (ii) the Senior Discount
Notes and the Senior Discount Notes Indenture, (iii) the Senior
Subordinated Notes Due 2007 and the Senior Subordinated Notes
Indenture and (iv) any interest rate or currency hedging agreements
entered into in connection any of the foregoing.
c. The definition of "Credit Agreement" in Section 1.07
of Annex A to the Notes is hereby and restated in its entirety to read as
follows:
""Credit Agreement" shall mean the Credit Agreement, dated as of June
12, 1997, among the Company, Hedstrom Corporation, Credit Suisse First
Boston Corporation, as agent, and the lenders party thereto, as the
same may be amended, modified, extended, renewed, restated,
supplemented, restructured or refinanced from time to time."
d. The definitions of "Borrower," "Interest Rate
Protection Agreement," "Other Creditors," "Other Hedging Agreements" and
"Required Banks" in Section 1.07 of Annex A to the Notes are hereby deleted in
their entirety.
e. The following definitions are hereby added in the
appropriate places in Section 1.07 of Annex A to the Notes:
""Senior Discount Notes" shall mean the 10% Senior Discount Notes Due
2009 issued by the Company pursuant to the Senior Discount Notes
Indenture.
"Senior Discount Notes Indenture" shall mean the Indenture, dated as
of June 1, 1997, between the Company and the United States Trust
Company of New York, as trustee, as the same may be amended, modified,
extended, renewed, restated, supplemented, restructured or refinanced
from time to time.
"Senior Subordinated Notes" shall mean the 12% Senior Subordinated
Notes Due 2007 issued by Hedstrom Corporation pursuant to the Senior
Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" shall mean the Indenture, dated
as of June 1, 1997, among Hedstrom Corporation, the Company, as
guarantor, the other guarantors party thereto and IBJ Schroder Bank &
Trust Company, as
2
<PAGE> 3
trustee, as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time."
f. Section 4(a) of the Notes is amended and restated in its
entirety to read as follows:
"(a) Whenever and to the fullest extent permitted under
the Credit Agreement, the Senior Subordinated Notes Indenture, and the
Senior Discount Notes Indenture;"
3. Waivers. The application of Section 7(b) of the Notes is
hereby waived with respect to each of the transactions contemplated by the
Credit Agreement, the other Credit Documents, the Senior Discount Notes, the
Senior Discount Notes Indenture, the Senior Subordinated Notes and the Senior
Subordinated Notes Indenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment and
Waiver as of the date first set forth above.
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
---------------------------
Name: Andrew S. Rosen
Title:
HOLDER REPRESENTATIVE
By: /s/ ALAN PLOTKIN
---------------------------
Alan Plotkin
CONSENT OF MAJORITY HOLDER:
The undersigned, as the holder of a majority in aggregate principal
amount of the Notes, hereby consents to each of the foregoing amendments and
waivers and to the execution hereof by the Holder Representative on behalf of
the holders of the Notes.
MAJORITY HOLDER
By: /s/ ARNOLD E. DITRI
---------------------------
Arnold E. Ditri
4
<PAGE> 1
EXHIBIT 10.18
THE SECURITY OR SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER
SUCH ACT, OR SUCH STATE LAW, OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AND THEN ONLY IN ACCORDANCE WITH THE RESTRICTIONS ON TRANSFER SET
FORTH HEREIN.
HEDSTROM HOLDINGS, INC.
PROMISSORY NOTE (SERIES B)
New York, New York
October 27, 1995
HEDSTROM HOLDINGS, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to ARNOLD E. DITRI (the "Holder"), the amount,
if any, which is the product of the Aggregate Earned Amount multiplied by the
Holder's Percentage Interest, plus interest on the principal amount due of this
Note as hereinafter provided in Section 2. The principal amount of this Note
and all interest accrued and unpaid thereon shall be payable in full on April
30, 2002. Unless defined in Section 1 of this Note, capitalized terms used in
this Note without definition shall have the respective meanings given them in
the Stock Purchase Agreement, dated as of October 27, 1995, among the Company,
Arnold E. Ditri, Alastair H. McKelvie, John H. Hurshman and the Purchasers
named therein. This Note is one of the Earnout Notes B referred to in the Stock
Purchase Agreement.
1. Definitions. The following terms shall have the following respective
meanings when used in this Note:
The "Accelerated Value" shall mean (i) in the case of Section 4(a),
the product of (A) the amount, if any, by which the Enterprise Value of the
Company exceeds $84,500,000, subject to a maximum amount of $9,000,000,
(reduced by any principal payments actually made pursuant to any Earnout Note B
prior to the date upon which the Accelerated Value is calculated) multiplied by
(B) the Holder's Percentage Interest, and (ii) in the case of a
Change-in-Control transaction of the type described in Section 4(c), the
product of (a) the amount, if any, by which the Company's Equity Value (as
defined in Section 4(c)) exceeds $38,500,000 (adjusted for any additional
equity contributions made to, or equity securities sold by, the Company),
subject to a maximum amount of $9,000,000 (reduced by any principal payments
actually made pursuant to any Earnout Note B prior to the date upon which the
Accelerated Value is calculated), the Holder's Percentage Interest.
<PAGE> 2
The "Aggregate Earned Amount" shall be the sum of the 1996 Earned
Amount and the 1997 Earned Amount.
The "1996 Earned Amount" shall be the lesser of: (i) the amount of
$1.50 (One and 50/100ths Dollar) for each $1.00 (One Dollar) by which Sales for
Fiscal 1996 exceed $146,000,000, and (ii) the amount of $3.00 (Three Dollars)
for each $1.00 (One Dollar) by which EBITDA for Fiscal 1996 exceeds
$18,000,000; provided, that in no event shall the 1996 Earned Amount exceed
$9,000,000.
The "1997 Earned Amount" shall be the excess, if any, of (i) the
lesser of: (A) the amount of $0.90 (90/100ths of Dollar) for each $1.00 (One
Dollar) by which cumulative Sales for Fiscal 1996 and 1997 exceed $310,000,000,
and (B) the amount of $1.80 (One and 80/100ths Dollars) for each $1.00 (One
Dollar) by which cumulative EBITDA for Fiscal 1996 and 1997 exceeds
$45,000,000, over (ii) the 1996 Earned Amount; provided, that in no event shall
such amount, when added to the 1996 Earned Amount, exceed $9,000,000.
A "Change in Control" shall be any of the following: (i) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company and its
subsidiaries to any person or group of related persons for purposes of Section
13(d) of the Exchange Act (a "Group"), other than to Hicks, Muse, Tate & Furst
Incorporated or any of their Affiliates, officers and directors (the "Permitted
Holders"); or (ii) a majority of the Board of Directors of the Company shall
consist of persons who are not Continuing Directors; (iii) the acquisition by
any person or Group (other than the Permitted Holders) of the power, directly
or indirectly, to vote or direct the voting of securities having more than 50%
of the ordinary voting power for the election of directors of the Company, or
(iv) Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF LP") or its
Affiliates ceases to own 100% of the number of shares of the Company Common
Stock (adjusted for stock splits, dividends, exchanges and similar
transactions) that HMTF LP owned on the date hereof.
"Continuing Director" means, as of the date of determination, any
person who (i) was a member of the Board of Directors of the Company on the
date hereof, (ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (iii) is a representative of a Permitted Holder.
"Determined" shall have the meaning given it in Section 8(b).
"Earned Amount" means that amount of the 1996 Earned Amount (if any)
and that amount of the 1997 Earned Amount (if any) that has been Determined,
or is subject to being Determined, under this Note.
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<PAGE> 3
"EBITDA" shall mean the Company's consolidated earnings before
interest expense (net of interest income), income taxes, depreciation and
amortization, determined for the fiscal year in question computed according to
Section 8.
"Enterprise Value" shall be value of the Company and its Subsidiaries
determined according to Section 5(b).
"Event of Default" shall mean any of the events referred to in Section
6.
"Fiscal" shall refer to the Company's fiscal year ending July 31.
The "Holder's Percentage Interest" shall be 54.83%.
"Refinancing" shall mean the modification, extension, renewal or
replacement of the indebtedness incurred by the Company to finance the Merger.
"Qualified CPA" shall mean the Pittsburgh office of Ernst & Young,
LLP, or any successor firm.
"Senior Loan Agreement" shall mean the Credit Agreement, dated as of
October 27, 1995, among the Company, Hedstrom Corporation and Bankers Trust
Company, as agent for the lenders named therein, as amended from time to time.
"Sales" shall mean the Company's consolidated net sales, computed
according to Section 8, determined for the fiscal year in question.
2. Interest. Subject to the provisions of the next-to-last sentence
of this Section 2, interest at the rate of ten percent (10%) per annum,
computed on the basis of a 360-day year of twelve 30-day months, (a) shall be
payable on the 1996 Earned Amount commencing August 1, 1996; and (b) shall be
payable on the 1997 Earned Amount commencing August 1, 1997. The Company will
pay interest hereunder quarterly in arrears to the Holder in accordance with
Section 11 on the last day of each October, January, April and July occurring
thereafter until the Earned Amount shall have been paid in full. To the extent
permitted by law, interest hereon which is not paid when due shall bear
interest from the day when due until paid in full at a rate of twelve percent
(12%) per annum. Notwithstanding any other provisions of this Note, interest
paid or becoming due hereunder shall in no event be in an amount prohibited by
applicable law.
3. Subordination. This Note, and the obligations of the Company
hereunder, shall be subordinate and junior in right of payment to all Senior
Indebtedness (as defined in Section 1.07 of Annex A hereto) on the terms and
conditions set forth in Annex A hereto, which Annex A is herein incorporated
by reference and made a part hereof as if set forth herein in its entirety.
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<PAGE> 4
4. Mandatory Prepayment After Determination. After the date on which
any Earned Amount has been Determined, the Company shall be obligated to prepay
this Note, together with accrued and unpaid interest thereon, as follows:
(a) Whenever and to the extent that the provisions of the Senior
Loan Agreement permit the payment of interest and principal hereon;
(b) In full, whenever (i) the Company becomes a party to a
Refinancing in which the holders of any equity securities of the Company
directly or indirectly receive any proceeds of such Refinancing, or (ii)
whenever the Company (A) declares or pays any dividend or makes any
distribution on or in respect of its capital stock except (I) dividends or
distributions payable in its capital stock or in options, warrants or other
rights to purchase such capital stock, and (II) dividends or distributions
payable to the Company or any of its Subsidiaries or (B) purchases, redeems,
retires or otherwise acquires for value any of its capital stock (other than
in exchange for its capital stock); provided, that the foregoing shall not
include (x) payments by the Company to repurchase, capital stock or other
securities of the Company from members of management or the board of directors
of the Company or Hedstrom Corporation in an aggregate amount not to exceed
$5,000,000; (y) payments to enable Company to redeem or repurchase stock
purchase or similar rights granted by Company with respect to its capital stock
in an aggregate amount not to exceed $500,000; and (z) payments, not to
exceed $100,000 in the aggregate, to enable Company to make cash payments to
holders of its capital stock in lieu of the issuance of fractional shares of
its capital stock; or
(c) In full, whenever any Event of Default shall occur and be
continuing;
provided, that notwithstanding the above, the Company shall not be obligated to
prepay this Note under the provisions of this Section until such time as the
Subordinated Debt is no longer outstanding.
5. Mandatory Prepayments Prior to Determination.
(a) Prior to the date on which the full Earned Amount has been
Determined, the Company shall be obligated to pay the greater of any Earned
Amount and the Accelerated Value of this Note, if any of the following occur:
(i) Whenever the Company becomes a party to a Refinancing
in which the holders of any equity securities of the Company directly
or indirectly receive any proceeds of such Refinancing;
(ii) Whenever the Company (A) declares or pays any
dividend or makes any distribution on or in respect of its capital
stock except (I) dividends or distributions payable in its capital
stock or in options, warrants or other rights to purchase such capital
stock, and (II) dividends or distributions payable to the
- 4 -
<PAGE> 5
Company or a Subsidiary or (B) purchases, redeems retires or otherwise
acquires for value any of its capital stock (other than in exchange
for its capital stock); provided, that the foregoing shall not include
(x) payments by the Company to repurchase, capital stock or other
securities of the Company from members of management of the Company in
an aggregate amount not to exceed $5,000,000; (y) payments to enable
the Company to redeem or repurchase stock purchase or similar rights
granted by the Company with respect to its capital stock in an
aggregate amount not to exceed $500,000; and (z) payments, not to
exceed $100,000 in the aggregate, to enable the Company to make cash
payments to holders of its capital stock in lieu of the issuance of
fractional shares of its capital stock; or
(iii) Whenever any Event of Default shall occur and be
continuing;
provided, that notwithstanding the above, the Company shall not be obligated to
prepay this Note under the provisions of this Section until such time as the
Subordinated Debt is no longer outstanding.
(b) Except as set forth in Section 5(c), the Accelerated Value of
their Note shall be calculated based upon the Enterprise Value of the Company
determined as follows:
(i) The Enterprise Value of the Company shall be determined as
of the last day of the month of the event referred to in Section 5(a) (the
"Valuation Date"). The Enterprise Value of the Company shall be the amount
which is five times EBITDA for the twelve-month period ending on the
Valuation Date; and
(ii) The EBITDA used to calculate the Enterprise Value of the
Company shall be determined by mutual agreement of the Company and the
Holder Representative (as defined below) within 20 days of the Valuation
Date, failing which the EBITDA used to calculate the Enterprise Value shall
be determined by the Qualified CPA. All expenses incurred with respect to
the determination of the EBITDA used to calculate the Enterprise Value
shall be paid by the Company.
(c) Notwithstanding the foregoing clause (b), if a Change in Control
occurs prior to Determination and HMTF LP owns less than 50% of the Company
Common Stock in connection therewith, the valuation procedure set forth in
clause (b)(ii) above based on EBITDA shall not apply, and in lieu thereof the
Company's Equity Value shall equal the purchase price paid per share for each
share of the Company Common Stock multiplied by the number of shares of the
Company Common Stock issued and outstanding on a fully diluted basis on the
date of such Change in Control. If the consideration paid in such
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<PAGE> 6
Change in Control transaction is other than cash, then such consideration shall
be valued at its fair market value by an investment banker retained by the
Company for such purpose at the Company's expense.
(d) As used herein, the "Holder Representative" shall mean Alan
Plotkin, Esq., until such time as Mr. Plotkin shall decease or resign and,
following either such event, such other person as shall be appointed by the
Sellers acting unanimously; provided, that the rights of the Holder
Representative under this Note shall not be exercisable by any person other
than the Holder Representative validly appointed under these provisions. The
Holder Representative shall have the authority to take such actions and
exercise such discretion as are required of the Holder Representative pursuant
to the terms of this Note (and any such actions shall be binding on the
Holder).
6. Events of Default. It shall constitute an Event of Default under
this Note if any one or more of the following events shall occur for any
reason:
(a) The Company or any of its Subsidiaries shall fail to perform
or observe any term, covenant or condition on its part to be performed
or observed under this Note and such failure shall continue for 30
days after written notice thereof is given to the Company, other than
the due and punctual payment of this Note at its maturity, as to which
no notice shall be required to be given and the Company shall have no
right to cure any such default;
(b) The Company or any of its Subsidiaries shall make a general
assignment for the benefit of creditors, or any procedure shall be
instituted by the Company or any of its Subsidiaries seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, adjustment, protection, relief or
composition of it or its debts under law relating to bankruptcy,
insolvency or reorganization or relief of debtors or seeking entry of
an order for relief or the appointment of a receiver, trustee, or
other similar official or for any substantial part of its property or
the Company or any of its Subsidiaries shall take any corporate action
to authorize any of the actions set forth above in this clause (b);
(c) A court of competent jurisdiction shall enter a judgment,
decree or order for relief in respect of the Company or any of its
Subsidiaries in an involuntary case under any bankruptcy law which
shall (i) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company, (ii)
appoint a custodian of the Company or any of its Subsidiaries or for
any of their respective property or (iii) order the winding-up or
liquidation of the affairs of the Company or any of its Subsidiaries,
and such judgment, decree or order shall remain unstayed and in effect
for 60 consecutive days; or any bankruptcy or insolvency petition,
application or proceeding is commenced against the Company or any of
its Subsidiaries, and such petition,
- 6 -
<PAGE> 7
application or proceeding is not dismissed within 60 days; or any
warrant of attachment is issued against any portion of the property of
the Company or any of its Subsidiaries which is not released within 60
days of service;
(d) The Company or any of its Subsidiaries shall (i) default in
the payment of any debt or other financial obligation (other than the
Earnout Notes B) having a principal amount of at least $7,500,000 (ii)
default in the performance or observance of any term, covenant or
condition on its part to be performed or observed under any other
Earnout Note B, under any Earnout Note A or under any Subordinated
Note, and any such default has resulted in the acceleration thereof,
and such default shall not have been cured and such acceleration
rescinded after a 20-day grace period; and
(e) A Change in Control shall have occurred.
7. Covenants of the Company.
(a) Until this Note shall have been paid in full the Company
shall:
(i) deliver to the Holder Representative (i) within 105
days of the end of each fiscal year, a copy of the Company's
consolidated and consolidating balance sheet, statements of
operations, stockholders' equity and cash flows, certified to by the
Company's independent firm of public accountants, (ii) within 30 days
after the end of each month an unaudited consolidated and
consolidating balance sheet of the Company at the end of such month
and unaudited consolidated and consolidating statements of operations
and cash flows of the Company for the month then ended, together with
a comparison to such information for the prior year's month then ended
and (iii) such other information or reports as the Holder
Representative may reasonably request from time to time; and
(ii) promptly upon learning of the same, notify the Holder
Representative of any event which constitutes, or which with notice or
lapse of time, or both, would constitute, an Event of Default.
(b) Until this Note shall have been paid in full the Company will
not enter into any agreements with, on behalf of, or granting credit support
to, an Affiliate of the Company, except on an arms' length basis; provided,
that any such transaction shall be conclusively deemed to be on terms which are
on an arms' length basis if a majority of the Company's board of directors
(including a majority of the Company's directors who are not Affiliates of HMTF
LP, if any) have approved the transaction; and, provided, further, that if such
transaction shall involve more than $5,000,000, in addition to the approval of
the board of directors, the Company shall obtain the report of an independent
investment banker stating that the transaction has been priced at fair market
value.
- 7 -
<PAGE> 8
8. Determination of the Earned Amounts.
(a) Not later than November 15 of fiscal years 1996 and 1997, the
Company shall furnish the Holder Representative a statement (the "Post-Closing
Statements") setting forth the Company's computation of Sales and EBITDA for
each of such years (and in the case of 1997, cumulative amounts for 1996 and
1997), as determined in accordance with GAAP applied in a manner consistent
with the Financial Statements.
(b) Within 30 days after the delivery of each Post-Closing
Statement to the Holder Representative, the Holder Representative shall on
behalf of the Holder either accept the amount of Sales and EBITDA as reflected
on the Post-Closing Statement as correct or object to the Sales and EBITDA
specifying in reasonable detail in writing the nature of its objection(s). If
the Holder Representative does not object to the Sales or EBITDA within said
30-day period, the Holder Representative shall be deemed to have accepted on
behalf of the Holder the Sales or EBITDA. In the event the Holder
Representative objects to Sales or EBITDA, then, during a 15-day period
subsequent to the receipt by the Company of notice of the Holder
Representative's objections, the Company and the Holder Representative shall
attempt in good faith to resolve the differences respecting such disputed
amounts. If the Company and the Holder are unable to resolve their differences
within said 15-day period, the parties agree that the matter shall be submitted
to the Qualified CPA to determine the Sales and EBITDA pursuant to this Section
and whose determination shall be final and binding upon the parties. The costs
and expenses of the Qualified CPA shall be borne equally by the Company and all
holders of Earnout Notes B. During the period from the date of delivery of the
Post-Closing Statement to the Holder Representative through the date of
resolution of any dispute regarding the Sales and EBITDA as contemplated by
this Section, the Company shall provide the Holder Representative and its
agents and representatives reasonable access to the books, records, facilities
and employees of the Company for purposes relevant to the review of such Post-
Closing Statement and the resolution of any related dispute. For all purposes
of the Agreements, any Earned Amount shall have been "Determined" if (i) the
Post-Closing Statement setting forth the Computation of the Sales and EBITDA
have not been objected to by the Holder Representative within the 30-day period
as aforesaid, (ii) the Holder Representative and the Company shall have
resolved their differences with respect to such amounts, or (iii) the Qualified
CPA has, if necessary, issued its determination of the dispute.
(c) In determining the Earned Amount, the Company shall compute
EBITDA in accordance with GAAP and, in addition, in compliance with the
following (to the extent deducted in calculating the net earnings):
(A) by adding back all management or similar fees paid or
payable to any Affiliate of Hicks, Muse, Tate & Furst Incorporated
which have been paid or accrued by the Company;
- 8 -
<PAGE> 9
(B) without deduction of any start up fees or acquisition
expenses (including without limitation legal, accounting and
valuation fees), as well as commitment fees or other fees and
expenses paid to any lender who finances the transactions
contemplated by the Stock Purchase Agreement, and by adding back
or subtracting, as the case shall be, all noncash expenses or
credits arising solely from purchase accounting adjustments made
as a result of the transactions referred to in the recitals to
this Agreement and the financing of such transactions;
(C) by adding back any accruals in respect of the requirements
of any defined benefit plan which the Company may adopt pursuant
to statutory requirements applicable to members of a controlled
group; and
(D) without deduction for any amounts due or paid to the
Participants of the EA Plan in connection with the transactions
contemplated by the Stock Purchase Agreement.
9. Termination: The terms and provisions of this Note shall terminate
upon the earliest to occur of (a) if no Earned Amount shall have been
Determined pursuant to the procedures set forth in Section 8, at such time; (b)
if an Earned Amount is Determined pursuant to such procedures, upon full
payment of such Earned Amount together with accrued interest thereon; and (c)
if the Accelerated Value is determined pursuant to Section 5, upon full payment
of such amount together with accrued interest thereon.
10. Acquisitions, Dispositions, etc. In the event that the Company
makes any investment (by way of contributions to capital, acquisitions of
assets, stock, securities or otherwise) in any other person or disposes of any
assets, the Company's Board of Directors shall, in good faith, make appropriate
adjustments to the provisions of this Note, including the definitions of 1996
Earned Amount and 1997 Earned Amount so as to fairly and equitably preserve, as
far as practicable, the original rights and obligations of the parties hereto.
11. Method of Payment. Both principal and interest hereon are payable
in legal tender of the United States by wire transfer to the following account
maintained by the Holder Representative pursuant to the Participants' Payment
and Indemnification Agreement, dated the date hereof, among the Company, the
Existing Stockholders and the Participants named therein: Account No.
925500696065, Chemical Bank, 488 Madison Avenue, New York, New York, ABA
No.021000128, or at such other account as shall be designated by the Holder
Representative. If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day and, with respect to payments of
principal, interest thereon shall be payable during such extension.
- 9 -
<PAGE> 10
12. Waiver of Presentment. Except as otherwise expressly provided
herein, the parties hereto waive presentment for payment, notice of nonpayment,
demand, protest, notice of protest, notice of dishonor and diligence in
enforcing payment.
13. Costs of Collection. In the event of default under this Note, the
Holder Representative shall have all rights and remedies provided at law and
equity. All costs and expenses of collection, including attorneys' fees, shall
be added to and become part of the principal of this Note and shall be
collectable as part of such principal and interest shall be payable thereon as
set forth above.
14. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York,
without regard to conflict of laws principles.
15. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
Unless otherwise stated, all references to Sections shall be to the Sections of
this Note.
16. Amendment Without Consent of Holders. The Company and the Holder
Representative may from time to time and at any time amend the terms of this
Note to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision
contained herein; or to make such other provisions in regard to matters or
questions arising under this Note as the Company may deem necessary or
desirable and which shall not adversely affect the interests of the Holders.
17. Amendments with Consent of Holders. With the consent of the
Holders of a majority in aggregate principal amount of the Earnout Notes B at
the time outstanding, the Company and the Holder Representative may, from time
to time and at any time, enter into an amendment or supplement hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Note or modifying in any manner the rights of the
Holders of the Notes; provided, that no such supplement or amendment shall
extend the final maturity of any Note, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any amount payable on redemption thereof, or impair or affect the right of any
Holder to institute suit for the payment thereof.
18. Right of Setoff. Notwithstanding any other provision of this Note
to the contrary, the Company shall have the right to set off against the
Aggregate Earned Amount as permitted under, and in accordance with the terms
and conditions of, Article 10 Of the Stock Purchase Agreement.
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<PAGE> 11
19. Restriction on Transfer. In addition to any other applicable
restrictions on the transfer of this Note, whether pursuant to federal or state
securities laws or otherwise, this Note and any interest herein shall not
(without the consent of the Company) be sold, transferred, assigned, pledged,
or hypothecated by the Holder (other than by the laws of descent and
distribution). Any such sale, transfer, assignment, pledge or hypothecation in
violation hereof shall be null and void.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered on its behalf by its duly authorized officers to be dated as of
the day and year first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
---------------------------------
Name: Arnold E. Ditri
Title: President
[Corporate Seal]
ATTEST:
/s/ [ILLEGIBLE]
- -------------------
Secretary
- 11 -
<PAGE> 12
ANNEX A TO NOTE
Section 1.01. Subordination of Liabilities. HEDSTROM HOLDINGS, INC.
(the "Payor"), for itself, its successors and assigns, covenants and agrees and
each holder of the promissory note to which this Annex A is attached (the
"Note") by its acceptance thereof likewise covenants and agrees that the
payment of the principal of, and interest on, and an other amounts owing in
respect of, the Note is hereby expressly subordinated, to the extent and in the
manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness (as defined in Section 1.07) in cash. The provisions of this Annex
A shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness
and such holders are hereby made obligees hereunder the same as if their names
were herein as such, and they and/or each of them may proceed to enforce such
provisions.
Section 1.02. Payor Not to Make Payments with Respect to Note in
Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness
(including interest thereon or fees or any other amounts owing in respect
thereof), whether at stated maturity, by acceleration or otherwise, all
Obligations (as defined in Section 1.07) owing in respect thereof, in each case
to the extent due and owing, shall first be paid in full, in cash, or such
payment duly provided for in cash in a manner satisfactory to the holder or
holders of such Senior Indebtedness, before any payment is made on account of
the principal of (including installments thereof), or interest on, or any
amount otherwise owing in respect of, the Note. Payor may not, directly or
indirectly, make any payment of any principal of, and interest on, or any other
amount owing in respect of, the Note and may not acquire all or any part of the
Note for cash or property until all Senior Indebtedness has been paid in full
in cash if any Event of Default (as defined below), or event which with notice
or lapse of time or both would constitute an Event of Default in respect of any
Senior Indebtedness is then in existence. Each holder of the Note hereby agrees
that, so long as an Event of Default, or event which with notice or lapse of
time or both would constitute an Event of Default, in respect of any Senior
Indebtedness it will not ask, demand, sue for, or otherwise take, accept or
receive, any amounts owing in respect of the Note. As used herein, the term
"Event of Default" shall mean any Event of Default, under and as defined in,
the relevant documentation governing any Senior Indebtedness and in any event
shall include any payment default with to any Senior Indebtedness.
(b) In the event that notwithstanding the provisions of the preceding
subsection (a) of this Section 1.02, any payment shall be made on account of
the principal of, or interest on, or amounts otherwise owing in respect of, the
Note, at a time when payment is not permitted by the terms of the Note or by
said subsection (a), such payment shall be held by the holder of the Note, in
trust for the benefit of, and shall be paid forthwith over and delivered to,
the holders of Senior Indebtedness or their representative or representatives
under the agreements pursuant to which the Senior Indebtedness may
<PAGE> 13
ANNEX A TO NOTE
Page 2
have been issued, as their interests may appear, for application pro rata to
the payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in cash in accordance with the terms of
such Senior Indebtedness, after giving effect to any concurrent Payment or
distribution to or for the holders of Senior indebtness. Without in any way
modifying the provisions of this Annex A or affecting the subordination
effected hereby if such notice is not given, Payor shall give the holder of
the Note prompt written notice of any maturity of Senior Indebtedness after
which such Senior Indebtedness remains unsatisified.
Section 1.03. Note Subordinated to Prior Payment of all Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Payor. Upon any
distribution on of assets of Payor upon any dissolution, winding up,
liquidation or reorganization of Payor (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full in cash of all Senior Indebtedness (including,
without limitation, postpetition interest) before the holder of the Note is
entitled to receive any payment on account of the principal of or interest
on or any other amount owing in respect of the Note;
(b) any payment or distributions of assets of payor of any kind or
character, whether in cash, property or securities to which the holder of
the Note would be entitled except for the provisions of this Annex A, shall
be paid 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 holders of
Senior Indebtedness or their representative or representatives under the
agreements pursuant to which the Senior Indebtedness may have been issued,
to the extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 1.03, any payment or distribution of assets of Payor of any
kind or character, whether in cash, property or securities, shall be
received by the holder of the Note on account of principal of, or interest
or other amounts due on, the Note before all Senior Indebtedness is paid in
full in cash, or effective provision made for its payment in cash, such
payment or distribution shall be received and held in trust for and shall
be paid over to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative or representatives under the
agreements
<PAGE> 14
ANNEX A TO NOTE
Page 3
pursuant to which the Senior Indebtedness may have been issued, for
application to the payment of such Senior Indebtedness until all such
Senior Indebtedness shall have been paid in full in cash, after giving
effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby, if such notice is not given, Payor
shall give prompt written notice to the holder of the Note of any dissolution,
winding up, liquidation or reorganization of Payor (whether in bankruptcy,
insolvency or receivership proceedings or upon assignment for the benefit of
creditors or otherwise).
Section 1.04. Subrogation. Subject to the prior payment in full of all
Senior Indebtedness in cash, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of Payor applicable to the Senior Indebtedness until
all amounts owing on the Note shall be paid in full, and for the purpose of
such subrogation no payments or distributions to the holders of the Senior
Indebtedness by or on behalf of Payor or by or on behalf of the holder of the
Note by virtue of this Annex A which otherwise would have been made to the
holder of the Note shall, as between Payor, its creditors other than the
holders of Senior Indebtedness, and the holder of the Note, be deemed to be
payment by Payor to or on account of the Senior Indebtedness, it being
understood that the provisions of this Annex A are and are intended solely for
the purpose of defining the relative rights of the holder of the Note, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
Section 1.05. Obligation of Payor Unconditional. Nothing contained in
this Annex A or in the Note is intended to or shall impair, as between Payor
and the holder Of the Note, the obligation of Payor, which is absolute and
unconditional, to pay to the holder of the Note the principal of an interest on
the Note as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
holder of the Note and creditors of Payor other than the holders of the Senior
Indebtedness, nor shall anything herein or therein, except as expressly
provided, prevent the holder of the Note from exercising all remedies otherwise
permitted by applicable law, subject to the rights, if any, under this Annex A
of the holders of Senior Indebtedness in respect of cash, property, or
securities of Payor received upon the exercise of any such remedy. Upon any
distribution of assets of Payor referred to in this Annex A, the holder of the
Note shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of the
Note, for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness
<PAGE> 15
ANNEX A TO NOTE
Page 4
and other indebtedness of Payor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Annex A.
Section 1.06. Subordination Rights not Impaired by Acts or Ommissions
of Payor or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of Payor or by any act or failure to act in good faith by any
such holder, or by any noncompliance by Payor with the terms and provisions of
the Note, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with. The holders of the Senior Indebtedness may, without
in any way affecting the obligations of the holder of the Note with respect
thereto, at any time or from time to time and in their absolute discretion,
change the manner, place or terms of payment of, change or extend the time of
payment of, or renew or alter, any Senior Indebtedness, or amend, modify or
supplement any agreement or instrument governing or evidencing such Senior
Indebtedness or any other document referred to therein, or exercise or refrain
from exercising any other of their rights under the Senior Indebtedness
including, without limitation, the waiver of default thereunder and the release
of any collateral securing such Senior Indebtedness, all without notice to or
assent from the holder of the Note.
Section 1.07. Definitions. As used in this Annex, the terms set forth
below shall have the respective meanings provided below:
"Borrower" shall mean Hedstrom Corporation, and its successors and
permitted assigns.
"Credit Agreement" shall mean the Credit Agreement, dated as of
October 27, 1995, among Holdings, the Borrower, the lending institutions from
time to time party thereto (the "Banks"), and Bankers Trust Company, as Agent
(the "Agent"); as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time, and
including any agreement extending the maturity of, refinancing or restructuring
(including but not limited to the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the indebtedness under such agreement or any successor agreements;
provided that with respect to any agreement providing for the refinancing of
indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full
at the time of such refinancing, and all commitments and
<PAGE> 16
ANNEX A TO NOTE
Page 5
letters of credit issued pursuant to the refinanced Credit Agreement shall have
terminated in accordance with their terms or (B) the Required Banks shall have
consented in writing to the refinancing indebtedness being treated, along with
their indebtedness, as indebtedness pursuant to the Credit Agreement, (ii) the
refinancing indebtedness shall be permitted to be incurred under the Credit
Agreement being (if such Agreement is to remain outstanding) and (iii) a
notice to the effect that the refinancing indebtedness shall be treated as
issued under the Credit Agreement shall be delivered by the Borrower to
the Agent.
"Credit Documents" shall have the meaning provided in the Credit
Agreement.
"Holdings" shall mean Hedstrom Holdings, Inc, and its successors and
permitted assigns.
"Interest Rate Protection Agreement" shall have the meaning provided
in the Credit Agreement.
"Obligation" shall mean any principal, interest, premium, penalties,
fees, indemnities and other liabilities and obligations payable under the
documentation governing any Senior Indebtedness (including, without limitation,
all interest after the commencement of any bankruptcy, insolvency, receivership
or similar proceeding at the rate provided in the governing documentation,
whether or not such interest is an allowed claim in such proceeding).
"Other Creditors" shall mean each of Bankers Trust Company, in its
individual capacity, the Banks party from time to time to the Credit Agreement,
and their affiliates and their respective subsequent assigns, if any, and any
other institution which participates with Bankers Trust Company, such Banks or
affiliates in the extension of Interest Rate Protection Agreements or Other
Hedging Agreements and their subsequent assigns, if any, in all such cases in
their capacity as creditors with respect to Interest Rate Protection Agreements
or other Hedging Agreements.
"Other Hedging Agreements" shall have the meaning provided in the
Credit Agreement.
"Required Banks" shall have the meaning provided in the Credit
Agreement.
"Senior Indebtedness" shall mean all Obligations of (i) Holdings, the
Borrower and/or any of their Subsidiaries under the Credit Agreement and the
other Credit Documents and any renewal, extension, restatement, refinancing or
refunding thereof; and
<PAGE> 17
ANNEX A TO NOTE
Page 6
(ii) Holdings, the Borrower and/or any of their Subsidiaries in respect of all
Interest Rate Protection Agreements or Other Hedging Agreements with Other
Creditors.
"Subsidiaries shall have the meaning provided in the Credit Agreement
Section 1.08. Miscellaneous. If, at any time, all or part of any
payment with to Senior Indebtedness theretofore made by Payor or any other
Person is rescinded or must otherwise be returned by the holders of Senior
Indebtedness for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of Payor or such other Persons), the
subordination provisions set forth herein shall continue to be effective or be
reinstated, as the case may be, all as though such payment had not been made.
<PAGE> 1
EXHIBIT 10.19
AMENDMENT AND WAIVER
THIS AMENDMENT AND WAIVER is entered into as of June 12, 1997 by and
between Hedstrom Holdings, Inc. (the "Company") and Alan Plotkin (in his
capacity as the Holder Representative under the Notes (as hereinafter defined),
the "Holder Representative").
WHEREAS, the Company desires to amend certain provisions and to obtain
waivers with respect to certain other provisions of the Company's Promissory
Notes (Series B), dated as of October 27, 1995, (the "Notes");
WHEREAS, the terms of the Notes permit the Company and the Holder
Representative to enter into an amendment or supplement to the Notes with the
consent of a majority in aggregate principal amount of the Notes at the time
outstanding;
WHEREAS, Arnold E. Ditri is the holder of a majority in aggregate
principal amount of the Notes as of the date hereof (the "Majority Holder");
and
WHEREAS, the Majority Holder desires to consent to the amendments to the
Notes set forth herein and to the waivers of the application of certain
provisions of the Notes as set forth herein.
NOW THEREFORE, in consideration of the respective agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:
1. Definitions. All capitalized terms used but not defined herein
shall have the meanings given such terms in the Notes.
2. Amendments. The Notes are hereby amended as follows:
a. The definition of "Senior Loan Agreement" in Section 1 of
the Notes is hereby deleted in its entirety.
b. The definition of "Senior Indebtedness" in Section 1.07 of
Annex A to the Notes is hereby amended and restated in its entirety to read as
follows:
<PAGE> 2
"Senior Indebtedness" shall mean all obligations and liabilities of the
Company and its Subsidiaries under or in respect of (i) the Credit
Agreement and the other Credit Documents, (ii) the Senior Discount Notes
and the Senior Discount Notes Indenture, (iii) the Senior Subordinated
Notes Due 2007 and the Senior Subordinated Notes Indenture and (iv) any
interest rate or currency hedging agreements entered into in connection
any of the foregoing.
c. The definition of "Credit Agreement" in Section 1.07 of
Annex A to the Notes is hereby and restated in its entirety to read as follows:
""Credit Agreement" shall mean the Credit Agreement, dated as of June
12, 1997, among the Company, Hedstrom Corporation, Credit Suisse First
Boston Corporation, as agent, and the lenders party thereto, as the same
may be amended, modified, extended, renewed, restated, supplemented,
restructured or refinanced from time to time."
d. The definitions of "Borrower," "Interest Rate Protection
Agreement," "Other Creditors," "Other Hedging Agreements" and "Required Banks"
in Section 1.07 of Annex A to the Notes are hereby deleted in their entirety.
e. The following definitions are hereby added in the
appropriate places in Section 1.07 of Annex A to the Notes:
""Senior Discount Notes" shall mean the 10% Senior Discount Notes Due
2009 issued by the Company pursuant to the Senior Discount Notes
Indenture.
"Senior Discount Notes Indenture" shall mean the Indenture, dated as of
June 1, 1997, between the Company and the United States Trust Company of
New York, as trustee, as the same may be amended, modified, extended,
renewed, restated, supplemented, restructured or refinanced from time to
time.
"Senior Subordinated Notes" shall mean the 12% Senior Subordinated Notes
Due 2007 issued by Hedstrom Corporation pursuant to the Senior
Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" shall mean the Indenture, dated as
of June 1, 1997, among Hedstrom Corporation, the Company, as guarantor,
the other guarantors party thereto and IBJ Schroder Bank & Trust
Company, as
2
<PAGE> 3
trustee, as the same may be amended, modified, extended, renewed,
restated, supplemented, restructured or refinanced from time to time."
f. Section 4(a) of the Notes is amended and restated in its
entirety to read as follows:
"(a) Whenever and to the fullest extent permitted under the
Credit Agreement, the Senior Subordinated Notes Indenture, and the
Senior Discount Notes Indenture;"
3. Waivers. The application of Section 7(b) of the Notes is hereby
waived with respect to each of the transactions contemplated by the Credit
Agreement, the other Credit Documents, the Senior Discount Notes, the Senior
Discount Notes Indenture, the Senior Subordinated Notes and the Senior
Subordinated Notes Indenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment and Waiver
as of the date first set forth above.
HEDSTROM HOLDINGS, INC.
By: /s/ ANDREW S. ROSEN
---------------------------
Name: Andrew S. Rosen
Title:
HOLDER REPRESENTATIVE
By: /s/ ALAN PLOTKIN
---------------------------
Alan Plotkin
CONSENT OF MAJORITY HOLDER:
The undersigned, as the holder of a majority in aggregate principal
amount of the Notes, hereby consents to each of the foregoing amendments and
waivers and to the execution hereof by the Holder Representative on behalf of
the holders of the Notes.
MAJORITY HOLDER
By: /s/ ARNOLD E. DITRI
---------------------------
Arnold E. Ditri
4
<PAGE> 1
EXHIBIT 10.20
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement") dated October
27, 1995 by and among HEDSTROM HOLDINGS, INC., a Delaware corporation ("HHI"),
HEDSTROM CORPORATION, a Delaware corporation ("HC") (HHI and HC being
collectively referred to herein as the "Corporation"), and ARNOLD E. DITRI (the
Executive").
WHEREAS, the Executive has heretofore served as the Chairman and Chief
Executive Officer of HHI and its subsidiary, HC;
WHEREAS, pursuant to the Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated as of October 27, 1995, among the Corporation, the
Executive, the other Existing Stockholders (as defined therein) and the
Purchasers named therein, the Purchasers have acquired control of the
Corporation;
WHEREAS, it is a condition to the consummation of the transactions
referred to in the stock Purchase Agreement that the Executive and the
Corporation enter into this Agreement; and
WHEREAS, the parties wish to set forth the terms of the employment of
the Executive;
NOW, THEREFORE, it is agreed as follows:
1. Employment. Subject to the terms and conditions of this
Agreement, during the Term (as defined below) the Corporation will employ the
Executive, and the Executive will be employed exclusively by the Corporation
and its Subsidiaries. The Executive will hold the offices of President and
Chief Executive Officer of HHI and HC and such additional offices as the Board
of Directors of HHI (the "Board") may from time to time determine. The
Executive will devote substantially all of his business efforts to the
Corporation and the Subsidiaries. The Executive shall be the senior executive
officer of HHI and HC and shall report directly to the Board. All employees,
consultants and all other persons working for the Corporation and the
Subsidiaries shall report directly or indirectly to the Executive. The
Executive shall, subject to the control of the Board, have full authority to
conduct and operate the business of the Corporation and the Subsidiaries as
enterprises independent of the corporate affiliates of the Corporation. The
Executive agrees to travel from time to time and to render his services in
other locations in which the Corporation does business consistent with its
reasonable business needs.
<PAGE> 2
2. Term. Unless sooner terminated pursuant to this Agreement, the
initial term of the Executive's employment shall be from the date of this
Agreement and shall end on October 31, 1998. Such initial term shall be
extended for successive terms of one year each unless either party advises the
other, at least 90 days prior to the end of the initial term or annual
extension, as the case may be, that it will not agree to extend this Agreement.
The initial term, as so extended, is referred to in this Agreement as the
"Term."
3. Compensation.
(a) During the Term, the Corporation will pay the
Executive a salary (the "Base Salary") at the annual rate (pro-rated for
portions of any year) of $340,000.
(b) With respect to each fiscal year during the Term
commencing with the 1996 fiscal year of the Corporation, the Executive shall be
entitled to a cash bonus equal to not less than 50% of the Base Salary if the
Company achieves the targets set forth in the Hedstrom Corporation Incentive
Plan, as adopted and approved by the Board.
4. Employee Benefits.
(a) During the Term, the Executive shall be entitled to
participate in such retirement, profit sharing and pension plans and life and
other insurance programs, as well as other benefits programs, which are
available to senior executive employees of the Corporation who are similarly
situated, subject to Corporation's policies with respect to all of such
benefits or insurance programs or plans; provided, however, that except as
expressly set forth herein, the Corporation shall not be obligated to institute
or maintain any particular benefit or insurance program or plan or aspect
thereof.
(b) The Executive shall be entitled to four weeks
vacation per annum during the Term, to be scheduled at mutually agreeable times
and to be taken in accordance with the Corporation's policies.
(c) The Executive shall be granted options to purchase
22% of the shares of the Common Stock, par value $.01 ("Common Stock"), covered
by the Company's 1995 Stock Option Plan, which options shall vest, and all
other rights of the Executive shall be, pursuant to a stock option agreement
substantially in the form attached as Exhibit A (the "Stock Option Agreement").
(d) The Corporation shall reimburse the Executive or pay
all reasonable travel and entertainment expenses undertaken on behalf of the
Corporation, which shall include an allowance for business automobile usage of
$500 per month and club dues of $250 per month.
- 2 -
<PAGE> 3
5. Death: Disability.
(a) Death. The Term shall immediately terminate upon the
Executive's death; provided, that the obligations of the Company upon the
Executive's death shall be as set forth in Section 6(c)(i)(x).
(b) Disability. If during the Term of this Agreement the
Executive becomes unable (as reasonably determined by the Board) to
substantially perform his services as a result of his permanent or temporary,
total or partial physical or mental disability ("Disability"): (i) the Base
Salary otherwise payable during the Disability Period (as herein defined) shall
nevertheless be payable on the terms set forth herein to the Executive as a
disability benefit ("Disability Benefit") but shall be reduced by disability
insurance proceeds pursuant to any benefit plan of the Corporation and as
provided in Section 4(a) or pursuant to any individual disability policy and
which are actually received by the Executive during the Disability Period with
respect to such Disability; and (ii) the Corporation shall not have the right
(notwithstanding any other provision of this Agreement to the contrary) to
terminate this Agreement due to such Disability prior to the expiration of the
Disability Period. As used herein, the term "Disability Period" shall mean the
period commencing on the first day of the calendar month following the month
during which such Disability occurs and ending on the first to occur of the
following: (i) the expiration of this Agreement; (ii) if the Disability is
continuous throughout the six consecutive months following the month during
which the Disability occurs, then the last day of such sixth consecutive
calendar month; and (iii) if the Disability is intermittent and shall exist
throughout any 12 calendar months following the month during which the
Disability occurs, then the last day of such 12th calendar month. The
Corporation shall have the right to terminate the Term at the expiration of the
Disability Period if and only if the disability of the Executive is then
continuing. Upon such termination, the obligation of the Company shall be as
set forth in Section 6(c)(i)(y).
6. Other Termination.
(a) Termination by the Corporation. The Corporation shall
have the right, at its election, to terminate the Executive's employment under
this Agreement by written notice to the Executive for "Cause" (as defined
below). As used herein, Cause shall be deemed to exist as where (i) the Board
shall have notified the Executive in writing of its reasonable determination
that he is not substantially performing the primary duties of his office; (ii)
the Executive shall have been convicted of a felony under state or federal
criminal law involving theft, fraud or moral turpitude; (iii) the Executive
shall have engaged in gross negligence or willful misconduct injurious to the
Corporation; or (iv) the Executive shall have materially breached any of his
covenants under this Agreement or any other agreement with the Corporation. The
Corporation may terminate this Agreement only if the Corporation shall have
given written notice to the Executive specifying the claimed Cause, and in the
case of (i) and (iv) above, in case the Executive fails to correct (if
correctable) the claimed breach within 30 days after the receipt of the
applicable notice or such longer time as may be reasonably required by the
nature of the claimed breach.
- 3 -
<PAGE> 4
(b) Termination by the Executive. The Executive shall have the
right, at his election, to terminate this Agreement for "Good Reason" by
written notice to the Corporation to that effect. Good Reason shall mean any of
the following (without the Executive's consent): (i) the taking of any action
by the Board or its designees (unless the Board has determined that the
Executive is not substantially performing the primary duties of his then
current office, after 30 days' notice and failure to correct by the Executive
as provided in Section 6(a)) in a manner that has the effect of significantly
divesting the Executive's authority with respect to his subordinates or
materially interferes with the exercise of the Executive's authority to manage
and supervise the business and operations of the Corporation; (ii) any
relocation of the Corporation's executive offices to a location outside of the
Cleveland, Ohio, Pittsburgh, Pennsylvania or New York, New York metropolitan
areas, except for required travel in connection with the Corporation's
business; and (iii) any failure to pay the Executive his compensation under
Section 3 when due pursuant to the terms of this Agreement. The Executive may
terminate this Agreement only if the Executive shall have given written notice
to the Corporation specifying the claimed Good Reason, and the Corporation
fails to correct (if correctable) the claimed breach within 30 days after the
receipt of the applicable notice or such longer time as may be reasonably
required by the nature of the claimed breach (or, if the failure to perform is
a failure to pay monies when due under the terms of this Agreement) within 10
days with respect to the Corporation.
(c) Effect of Termination.
(i) Upon termination of the Executive's employment under
this Agreement by reason of the causes described below, the following shall be
applicable to sums otherwise due to the Executive, notwithstanding anything to
the contrary herein:
(w) should this Agreement be terminated by the
Corporation for Cause or by the Executive for any reason, other than for Good
Reason, the Executive shall have no right to any further compensation beyond
the date of termination of the Agreement;
(x) should this Agreement be terminated by
reason of the Executive's Death, the Executive's Base Salary shall accrue and
be paid through the date of Death and for the six months immediately
thereafter; and any bonus payment due for the calendar year in which Death
occurred shall be prorated to reflect only that portion of the year during
which the Executive performed services;
(y) should this Agreement be terminated by
reason of Disability pursuant to Section 5(b), any bonus payment for the
calendar year in which Disability occurred shall be prorated to reflect only
that portion of the year prior to the end of the Disability Period; and
(z) should this Agreement be terminated by the
Corporation without Cause, or by the Executive for Good Reason, the Executive
shall be entitled to receive his Base Salary after such termination for one
year or for the remainder of the term of this Agreement, whichever is greater.
Notwithstanding the foregoing, if the Executive
- 4 -
<PAGE> 5
becomes employed after such termination, (A) if the Executive is employed by an
entity other than a Competitive Business (as defined in Section 9), all
compensation actually earned by the Executive during the period referred to in
the foregoing sentence shall reduce the amounts which the Corporation would be
required to pay under the preceding sentence, and (B) if the Executive is
employed by an entity which is a Competitive Business, then the Corporation
shall have no obligation to pay any amounts due under the preceding sentence
in respect of the period from and after the date on which he commences such
employment.
(ii) In the event of termination of the
Executive's employment under this Agreement, whether by the Corporation or the
Executive, or pursuant to the expiration of this Agreement in accordance with
Section 2, the Executive shall resign all offices and directorships held with
the Corporation and its subsidiaries and affiliates.
(iii) In all cases of termination, whether by the
Corporation or the Executive, or pursuant to the expiration of this Agreement,
the Corporation will reimburse the Executive for all out-of-pocket expenses
with respect to which employees of the Corporation are generally entitled to
reimbursement through the date of termination. All payments shall be made for
purposes of this Section 6(c) at the time they would have been made if this
Agreement has not been terminated.
(d) Change in Control. If the Corporation sells all or
substantially all of its assets to a third party (other than to an Affiliate
(as defined in the Agreement of Merger)), or if the Corporation merges or
consolidates with any entity (other than an Affiliate) and as a result thereof
is not the surviving entity, the Executive may, by notice to the Corporation,
terminate the term of this Agreement, whereupon the Term shall terminate and
the Executive shall be relieved of his obligations (other than his obligations
under Section 7, 8 and 10) and the Executive shall forfeit all rights to
receive any amounts of his Base Salary that become payable after the date
thereof and any bonus accrued after the date thereof.
7. Mitigation. The Company acknowledges that upon any termination
of the Executive's employment, the Executive shall not have any obligation to
seek or obtain other employment in any position to mitigate any damages to
which the Executive may be entitled by reason of any termination of this
Agreement (whether by the Corporation without Cause or otherwise). If, however,
the Executive does obtain other employment of any nature and in any location,
the total compensation actually earned by the Executive during the remaining
Term for his performance of such engagements or employment shall reduce any
amounts which the Corporation would otherwise be required to pay to the
Executive under this Agreement.
8. Return of Property and Nondisclosure. Upon termination or
expiration of his employment, the Executive will promptly deliver to the
Corporation all data, lists, information, memoranda, documents and all other
property belonging to the Corporation or containing "Confidential Information"
or "Trade Secrets" of the Corporation (both as defined below), including, among
other things, that which relates to services performed by the Executive for the
Corporation, or was created or obtained by the Executive while performing
services for the Corporation or by virtue of the Executive's relationship with
the
- 5 -
<PAGE> 6
Corporation. Except as required in order to perform his obligations under this
Agreement, the Executive shall not, without the express prior written consent
of the Corporation, disclose or divulge to any other person or entity, or use
or modify for use, directly or indirectly, in any way, for any person or entity
any of the Corporation's Confidential Information or Trade Secrets at any time
(during or after the Executive's employment) during which data or information
continues to constitute Confidential Information or a Trade Secret. For
purposes of this Agreement, "Confidential Information" of the Corporation shall
mean any valuable, competitively sensitive data and information related to the
Corporation's business other than Trade Secrets that are not generally known by
or readily available to the Corporation's competitors. "Trade Secrets" shall
mean information or data of the Corporation including, but not limited to,
technical or non-technical data, financial information, programs, devices,
methods, techniques, drawings, processes, financial plans, product plans, or
lists of actual or potential customers or suppliers that: (a) derive economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from their disclosure or use; and (b) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of "trade
secret" mandated under applicable law, the latter definition shall govern for
purposes of interpreting the Executive's obligations under this Agreement.
Except for disclosure required by law or to permit enforcement of this
Agreement, the terms of this Agreement shall be deemed Confidential Information
of the Corporation and shall not be discussed or disclosed by Executive with
any person other than Executive's spouse, attorney or accountant, provided that
such discussions or disclosures shall be conditioned upon the agreement of the
person to whom the terms are disclosed to maintain the confidentiality of such
terms.
9. Noncompetition. The Executive acknowledges that he has
substantial experience and expertise in children's residential outdoor play
products and the playball business and that, as such, the services to be
performed by him are of a special, unique, unusual, extraordinary and
intellectual character. The Executive further acknowledges that the nature of
the services, position and expertise of the Executive are such that he is
capable of competing with the Corporation. In consideration of this Employment
Agreement and the Stock Option Agreement, the Executive shall not, without the
prior written consent Of the nonmanagement members of the Board of Directors of
the Corporation, during the "Restricted Period" (as defined below) (a) directly
or indirectly enter into the employ of or render any advice or services,
whether or not for compensation, to any "Person" (as defined below) engaged in
any "Competitive Business" (as defined below), (b) directly or indirectly
engage in any Competitive Business, (c) directly or indirectly become
interested, whether or not for compensation, in any Competitive Business as an
individual,, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity or, in the case of any such company whose securities are traded on a
national securities exchange in the United States or otherwise or in the over-
the-counter market, acquire, directly or indirectly, an interest in excess of
one percent (1%) of the outstanding capital stock of such company. For purposes
of this Section, "Restricted Period" shall mean while the Executive is employed
by the Corporation and for a period of one year thereafter; provided, that if
the Corporation terminates the employment of the Executive without Cause or if
the Executive terminates his employment for Good Reason,
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<PAGE> 7
the Restricted Period shall extend only so long as the Corporation is required
to pay the Executive pursuant to Section 6(c)(i)(z). For purposes of this
Section, any "Competitive Business" shall mean any business entity which is
engaged in the businesses in which the Company engages during the Restricted
Period, sells or markets its products in the United States, and derives or
plans to derive a material portion of its revenues from such products. For
purposes of the preceding sentence, sales of 50% of its total revenues or in
excess of $5,000,000 in dollar volume shall be deemed to be material. For
purposes of this Section, "Person" shall mean any corporation, partnership,
trust, individual or any other entity. In the event that any provision of this
Section is considered by a court of competent jurisdiction to be excessive in
its duration, in the area to which it applies or in any other respect, it shall
be considered modified and valid for such duration, for such area and in such
other respects as such court may determine reasonable under the circumstances.
10. Nonsolicitation. While he is employed by the Corporation, and
for a period of two years thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Corporation, solicit or
attempt to solicit any employee, consultant, contractor or other personnel of
the Corporation to terminate, alter or lessen that party's affiliation with the
Corporation or to violate the terms of any agreement or understanding with the
Corporation.
11. Specific Remedies. In the event of the violation or threatened
violation by the Executive of any of the covenants or provisions of Sections 9
or 10 hereof, the Corporation shall have (i) the right and remedy of specific
enforcement and performance of Sections 9 and 10, including injunctive relief,
it being acknowledged and agreed that any such violation or threatened
violation will cause irreparable injury to the Corporation and that monetary
damages will not provide an adequate remedy to the Corporation, and (ii) rights
to any and all damages available as a matter of law.
12. Notices. Any notices required to be given hereunder shall be
in writing and shall be deemed given when personally delivered, telexed or sent
certified mail, return receipt requested, or sent via express air delivery
service, to the parties at the addresses set forth below, or at such other
address as a party shall have given notice thereof to the other party:
Executive:
Arnold Ditri
73 St. James Terrace
Palm Beach Gardens, FL 33418
Corporation:
Hedstrom Holdings, Inc.
300 Corporate Center Drive, Suite 100
Coraopolis, PA 15108
Attention: Secretary
with a copy to:
<PAGE> 8
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas
New York, New York 10019
Attention: Alan Menkes
13. General.
(a) This Agreement shall be governed by and construed
under the laws and decisions of the State of New York with respect to contracts
and agreements which are entirely made and entered into therein.
(b) This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
previous written and oral agreements between the parties with respect to the
subject matter set forth herein.
(c) This Agreement may not be modified or amended except
by a writing signed by both of the parties hereto.
(d) Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. If the covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
(e) The following provisions of this Agreement shall
survive its expiration or termination for any reason: Sections 7, 8, 9, 10, 11,
12 and 13.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
(g) The headings and titles to the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed a part of
or affect the construction or interpretation of any provisions hereof.
(h) All references to Sections shall, unless otherwise
specified, be to Sections of this Agreement.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEDSTROM HOLDINGS, INC.
By: /s/ ALAN PLOTKIN
------------------------------
Name: Alan Plotkin
Title: Vice President
HEDSTROM CORPORATION
By: /s/ ALAN PLOTKIN
------------------------------
Name: Alan Plotkin
Title: Vice President
/s/ ARNOLD E. DITRI
---------------------------------
Arnold E. Ditri
<PAGE> 1
EXHIBIT 10.21
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement") dated October
27,1995 by and between HEDSTROM CORPORATION, a Delaware corporation
(the Corporation"), and ALASTAIR H. McKELVIE (the "Executive").
WHEREAS, the Executive has heretofore served as an executive officer
of the Corporation and its subsidiaries;
WHEREAS, all of the issued and outstanding stock of the Corporation is
owned by Hedstrom Holdings, Inc., a Delaware corporation ("HHI");
WHEREAS, pursuant to the Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated as of October 27, 1995, among HHI, the Executive, the other
Existing Stockholders (as defined therein) and the Purchasers named therein,
the Purchasers have acquired control of HHI;
WHEREAS, it is a condition to the consummation of the transactions
referred to in the Stock Purchase Agreement that the Executive and the
Corporation enter into this Agreement; and
WHEREAS, the parties wish to set forth the terms of the employment of
the Executive;
NOW, THEREFORE, it is agreed as follows:
1. Employment. Subject to the terms and conditions of this
Agreement, during the Term (as defined below) the Corporation will employ the
Executive, and the Executive will be employed by the Corporation. The Executive
will hold the office of Executive Vice President-Operations of the Corporation
and such additional offices as the Board of Directors of the Corporation (the
"Board") may from time to time determine. The Executive will devote
substantially all of his business efforts to the Corporation limited to 40% of
the business days of each month during the Term. The Executive shall report
directly to the Chief Executive Officer. The Executive agrees to travel from
time to time and to render his services in other locations in which the
Corporation does business consistent with its reasonable business needs.
2. Term. Unless sooner terminated pursuant to this Agreement, the
initial term Of the Executive's employment shall be from the date of this
Agreement and shall end on
<PAGE> 2
October 31, 1998. Such initial term shall be extended for successive terms of
one year each unless either party advises the other, at least 90 days prior to
the end of the initial term or annual extension, as the case may be, that it
will not agree to extend this Agreement. The initial term, as so extended, is
referred to in this Agreement as the "Term."
3. Compensation
(a) During the Term, the Corporation will pay the
Executive a salary (the "Base Salary") at the annual rate (pro-rated for
portions of any year) of $90,000.
(b) With respect to each fiscal year during the Term
commencing with the 1996 fiscal year of the Corporation, the Executive shall be
entitled to a cash bonus equal to not less than 50% of the Base Salary if the
Company achieves the targets set forth in the Hedstrom Corporation Incentive
Plan, as adopted and approved by the Board.
4. Employee Benefits.
(a) During the Term, the Executive shall be entitled to
participate in such retirement, profit sharing and pension plans and life and
other insurance programs, as well as other benefits programs, which are
available to senior executive employees of the Corporation who are similarly
situated, subject to Corporation's policies with respect to all of such
benefits or insurance programs or plans; provided, however, that except as
expressly set forth herein, the Corporation shall not be obligated to institute
or maintain any particular benefit or insurance program or plan or aspect
thereof.
(b) The Executive shall be entitled to 10 days vacation
per annum during the Term, to be scheduled at mutually agreeable times and to
be taken in accordance with the Corporation's policies.
(c) The Executive shall be granted options to purchase
11% of the shares of the Common Stock, par value $.01 ("Common Stock"), covered
by the Company's 1995 Stock Option Plan, which options shall vest, and all
other rights of the Executive shall be, pursuant to a stock option agreement
substantially in the form attached as Exhibit A (the "Stock Option Agreement").
(d) The Corporation shall reimburse the Executive or pay
all reasonable travel expenses undertaken on behalf of the Corporation, which
shall include an allowance for business automobile usage of $500 per month.
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<PAGE> 3
5. Death: Disability.
(a) Death. The Term shall immediately terminate upon the
Executive's death; provided, that the obligations of the Company upon the
Executive's death shall be as set forth in Section 6(c)(i)(x).
(b) Disability. If during the Term of this Agreement the
Executive becomes unable (as reasonably determined by the Board) to
substantially perform his services as a result of his permanent or temporary,
total or partial physical or mental disability ("Disability"): (i) the Base
Salary otherwise payable during the Disability Period (as herein defined) shall
nevertheless be payable on the terms set forth herein to the Executive as a
disability benefit ("Disability Benefit") but shall be reduced by disability
insurance proceeds pursuant to any benefit plan of the Corporation and as
provided in Section 4(a) or pursuant to any individual disability policy and
which are actually received by the Executive during the Disability Period with
respect to such Disability; and (ii) the Corporation shall not have the right
(notwithstanding any other provision of this Agreement to the contrary) to
terminate this Agreement due to such Disability prior to the expiration of the
Disability Period. As used herein, the term "Disability Period" shall mean the
period commencing on the first day of the calendar month following the month
during which such Disability occurs and ending on the first to occur of the
following: (i) the expiration of this Agreement; (ii) if the Disability is
continuous throughout the six consecutive months following the month during
which the Disability occurs, then the last day of such sixth consecutive
calendar month; and (iii) if the Disability is intermittent and shall exist
throughout any 12 calendar months following the month during which the
Disability occurs, then the last day of such 12th calendar month. The
Corporation shall have the right to terminate the Term at the expiration of the
Disability Period if and only if the disability of the Executive is then
continuing. Upon such termination, the obligation of the Company shall be as
set forth in Section 6(c)(i)(y).
6. Other Termination.
(a) Termination by the Corporation. The Corporation shall
have the right, at its election, to terminate the Executive's employment under
this Agreement by written notice to the Executive for "Cause" (as defined
below). As used herein, Cause shall be deemed to exist as where (i) the Board
shall have notified the Executive in writing of its reasonable determination
that he is not substantially performing the primary duties of his office; (ii)
the Executive shall have been convicted of a felony under state or federal
criminal law involving theft, fraud or moral turpitude; (iii) the Executive
shall have engaged in gross negligence or willful misconduct injurious to the
Corporation; or (iv) the Executive shall have materially breached any of his
covenants under this Agreement or any other agreement with the Corporation. The
Corporation may terminate this Agreement only if the Corporation shall have
given written notice to the Executive specifying the claimed Cause, and in the
case of (i) and (iv) above, in case the Executive fails to correct (if
correctable) the claimed breach within 30 days after the receipt of the
applicable notice or such longer time as may be reasonably required by the
nature of the claimed breach.
- 3 -
<PAGE> 4
(b) Termination by the Executive. The Executive shall
have the right, at his election, to terminate this Agreement for "Good Reason"
by written notice to the Corporation to that effect. Good Reason shall mean any
of the following (without the Executive's consent): (i) the taking of any
action by the Board or its designees (unless the Board has determined that the
Executive is not substantially performing the primary duties of his then
current office, after 30 days' notice and failure to correct by the Executive
as provided in Section 6(a)) in a manner that has the effect of significantly
divesting the Executive's authority with respect to his subordinates; (ii) any
relocation of the Corporation's executive offices to a location outside of the
Cleveland, Ohio, Pittsburgh, Pennsylvania or New York, New York metropolitan
areas, except for required travel in connection with the Corporation's
business; and (iii) any failure to pay the Executive his compensation under
Section 3 when due pursuant to the terms of this Agreement. The Executive may
terminate this Agreement only if the Executive shall have given written notice
to the Corporation specifying the claimed Good Reason, and the Corporation
fails to correct (if correctable) the claimed breach within 30 days after the
receipt of the applicable notice or such longer time as may be reasonably
required by the nature of the claimed breach (or, if the failure to perform is
a failure to pay monies when due under the terms of this Agreement) within 10
days with respect to the Corporation.
(c) Effect of Termination.
(i) Upon termination of the Executive's
employment under this Agreement by reason of the causes described below, the
following shall be applicable to sums otherwise due to the Executive,
notwithstanding anything to the contrary herein:
(w) should this Agreement be terminated
by the Corporation for Cause or by the Executive for any reason, other than for
Good Reason, the Executive shall have no right to any further compensation
beyond the date of termination of the Agreement;
(x) should this Agreement be terminated
by reason of the Executive's Death, the Executive's Base Salary shall accrue
and be paid through the date of Death and for the six months immediately
thereafter; and any bonus payment due for the calendar year in which Death
occurred shall be prorated to reflect only that portion of the year during
which the Executive performed services;
(y) should this Agreement be terminated
by reason of Disability pursuant to Section 5(b), any bonus payment for the
calendar year in which Disability occurred shall be prorated to reflect only
that portion of the year prior to the end of the Disability Period; and
(z) should this Agreement be terminated
by the Corporation without Cause, or by the Executive for Good Reason, the
Executive shall be entitled to receive his Base Salary after such termination
for one year or for the remainder of the Term of this Agreement, whichever is
greater. Notwithstanding the foregoing, if the Executive becomes employed after
such termination, (A) if the Executive is employed by an entity other than a
Competitive Business (as defined in Section 9), all compensation actually
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<PAGE> 5
earned by the Executive during the period referred to in the foregoing sentence
shall reduce the amounts which the Corporation would be required to pay under
the preceding sentence, and (B) if the Executive is employed by an entity which
is a Competitive Business, then the Corporation shall have no obligation to pay
any amounts due under the preceding sentence in respect of the period from and
after the date on which he commences such employment.
(ii) In the event of termination of the
Executive's employment under this Agreement, whether by the Corporation or the
Executive, or pursuant to the expiration of this Agreement in accordance with
Section 2, the Executive shall resign all offices and directorships held with
the Corporation and its subsidiaries and affiliates.
(iii) In all cases of termination, whether by the
Corporation or the Executive, or pursuant to the expiration of this Agreement,
the Corporation will reimburse the Executive for all out-of-pocket expenses
with respect to which employees of the Corporation are generally entitled to
reimbursement through the date of termination. All payments shall be made for
purposes of this Section 6(c) at the time they would have been made if this
Agreement has not been terminated.
(d) Change in Control. If the Corporation sells all or
substantially all of its assets to a third party (other than to an Affiliate
(as defined in the Stock Purchase Agreement)), or if the Corporation merges or
consolidates with any entity (other than an Affiliate) and as a result thereof
is not the surviving entity, the Executive may, by notice to the Corporation,
terminate the term of this Agreement, whereupon the Term shall terminate and
the Executive shall be relieved of his obligations (other than his obligations
under Section 7, 8 and 10) and that the Executive shall forfeit all rights to
receive any amounts of his Base Salary that become payable after the date
thereof, and any bonus accrued after the date thereof.
7. Mitigation. The Company acknowledges that upon any termination
of the Executive's employment, the Executive shall not have any obligation to
seek or obtain other employment in any position to mitigate any damages to
which the Executive may be entitled by reason of any termination of this
Agreement (whether by the Corporation without Cause or otherwise). If, however,
the Executive does obtain other employment of any nature and in any location,
the total compensation actually earned by the Executive during the remaining
Term for his performance of such engagements or employment shall reduce any
amounts which the Corporation would otherwise be required to pay to the
Executive under this Agreement.
8. Return of Property and Nondisclosure. Upon termination or
expiration of his employment, the Executive will promptly deliver to the
Corporation all data, lists, information, memoranda, documents and all other
property belonging to the Corporation or containing "Confidential Information"
or "Trade Secrets" of the Corporation (both as defined below), including, among
other things, that which relates to services performed by the Executive for the
Corporation, or was created or obtained by the Executive while performing
services for the Corporation or by virtue of the Executive's relationship with
the Corporation. Except as required in order to perform his obligations under
this Agreement, the Executive shall not, without the express prior written
consent of the Corporation,
-5-
<PAGE> 6
disclose or divulge to any other person or entity, or use or modify for use,
directly or indirectly, in any way, for any person or entity any of the
Corporation's Confidential Information or Trade Secrets at any time (during or
after the Executive's employment) during which data or information continues to
constitute Confidential Information or a Trade Secret. For purposes of this
Agreement, "Confidential Information" of the Corporation shall mean any
valuable, competitively sensitive data and information related to the
Corporation's business other than Trade Secrets that are not generally known by
or readily available to the Corporation's competitors. "Trade Secrets" shall
mean information or data of the Corporation including, but not limited to,
technical or non-technical data, financial information, programs, devices,
methods, techniques, drawings, processes, financial plans, product plans, or
lists of actual or potential customers or suppliers, that: (a) derive economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from their disclosure or use; and (b) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of "trade
secret" mandated under applicable law, the latter definition shall govern for
purposes of interpreting the Executive's obligations under this Agreement.
Except for disclosure required by law or to permit enforcement of this
Agreement, the terms of this Agreement shall be deemed Confidential Information
of the Corporation and shall not be discussed or disclosed by Executive with
any person other than Executive's spouse, attorney or accountant, provided that
such discussions or disclosures shall be conditioned upon the agreement of the
person to whom the terms are disclosed to maintain the confidentiality of such
terms.
9. Noncompetition. The Executive acknowledges that he
has substantial experience and expertise in children's residential outdoor play
products and the playball business and that, as such, the services to be
performed by him are of a special, unique, unusual, extraordinary and
intellectual character. The Executive further acknowledges that the nature of
the services, position and expertise of the Executive are such that he is
capable of competing with the Corporation. In consideration of this Employment
Agreement and the Stock Option Agreement, the Executive shall not, without the
prior written consent of the nonmanagement members of the Board of Directors of
the Corporation, during the "Restricted Period" (as defined below) (a) directly
or indirectly enter into the employ of or render any advice or services,
whether or not for compensation, to any "Person" (as defined below) engaged in
any "Competitive Business" (as defined below), (b) directly or indirectly
engage in any Competitive Business, (c) directly or indirectly become
interested, whether or not for compensation, in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity or, in the case of any such company whose securities are traded on a
national securities exchange in the United States or otherwise or in the
over-the-counter market, acquire, directly or indirectly, an interest in excess
of one percent (1%) of the outstanding capital stock of such company. For
purposes of this Section, "Restricted Period" shall mean while the Executive is
employed by the Corporation and for a period of one year thereafter; provided,
that if the Corporation terminates the employment of the Executive without
Cause or if the Executive terminates his employment for Good Reason, the
Restricted Period shall extend only so long as the Corporation is required to
pay the Executive pursuant to Section 6(c)(i)(z). For purposes of this Section,
any "Competitive
- 6 -
<PAGE> 7
Business" shall mean any business entity which is engaged in the businesses in
which the Company engages during the Restricted Period, sells or markets its
products in the United States, and derives or plans to derive a material
portion of its revenues from such products. For purposes of the preceding
sentence, sales of 50% of its total revenues or in excess of $5,000,000 in
dollar volume shall be deemed to be material. For purposes of this
Section, Person" shall mean any corporation, partnership, trust, individual or
any other entity. In the event that any provision of this Section is considered
by a court of competent jurisdiction to be excessive in its duration, in the
area to which it applies or in any other respect, it shall be considered
modified and valid for such duration, for such area and in such other respects
as such court may determine reasonable under the circumstances.
10. Nonsolicitation. While he is employed by the Corporation, and
for a period of two years thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Corporation, solicit or
attempt to solicit any employee, consultant, contractor or other personnel of
the Corporation to terminate, alter or lessen that party's affiliation with the
Corporation or to violate the terms of any agreement or understanding with the
Corporation.
11. Specific Remedies. In the event of the violation or threatened
violation by the Executive of any of the covenants or provisions of Sections 9
or 10 hereof, the Corporation shall have (i) the right and remedy of specific
enforcement and performance of Sections 9 and 10, including injunctive relief,
it being acknowledged and agreed that any such violation or threatened
violation will cause irreparable injury to the Corporation and that monetary
damages will not provide an adequate remedy to the Corporation, and (ii) rights
to any and all damages available as a matter of law.
12. Notices. Any notices required to be given hereunder shall be
in writing and shall be deemed given when personally delivered, telexed or sent
certified mail, return receipt requested, or sent via express air delivery
service, to the parties at the addresses set forth below, or at such other
address as a party shall have given notice thereof to the other party:
Executive:
Alastair H. McKelvie
16 Frost Pond
Jaffrey, New Hampshire 03452
Corporation:
Hedstrom Corporation
300 Corporate Center Drive, Suite 100
Coraopolis, PA 15108
Attention:
- 7 -
<PAGE> 8
with a copy to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas
New York, New York 10019
Attention: Allan Menkes
13. General.
(a) This Agreement shall be governed by and construed
under the laws and decisions of the State of New York with respect to contracts
and agreements which are entirely made and entered into therein.
(b) This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
previous written and oral agreements between the parties with respect to the
subject matter set forth herein.
(c) This Agreement may not be modified or amended except
by a writing signed by both of the parties hereto.
(d) Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. If the covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
(e) The following provisions of this Agreement shall
survive its expiration or termination for any reason: Sections 7, 8, 9, 10, 11,
12 and 13.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
(g) The headings and titles to the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed a part of
or affect the construction or interpretation of any provisions hereof.
(h) All references to Sections shall, unless otherwise
specified, be to Sections of this Agreement.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
HEDSTROM CORPORATION
By:/s/ A. E. DITRI
------------------------------
Name: Arnold E. Ditri
Title: President
/s/ ALASTAIR H. MCKELVIE
------------------------------
Alastair H. McKelvie
- 9 -
<PAGE> 1
EXHIBIT 10.22
MONITORING AND OVERSIGHT AGREEMENT
THIS MONITORING AND OVERSIGHT AGREEMENT (this "Agreement") is made and
entered into as of October 27, 1995, among Hedstrom Holdings, Inc.
("Holdings"), a Delaware corporation, Hedstrom Corporation (the "Company"), a
Delaware corporation, and Hicks, Muse & Co. Partners, L.P., a Texas limited
partnership (together with its successors, "HMCo").
WHEREAS, the Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF")
has acquired substantially all of the common stock of Holdings pursuant to a
Stock Purchase Agreement dated October 27, 1995, among HMTF, Holdings and the
other parties thereto (the "Acquisition"); and
WHEREAS, Holdings and the Company have requested that HMCo render
financial advisory and monitoring services to them;
NOW, THEREFORE, in consideration of the services to be rendered by
HMCo to Holdings and the Company, and to evidence the obligations of Holdings
and the Company to HMCo and the mutual covenants herein contained, Holdings and
the Company hereby jointly and severally agree as follows:
1. Retention. Holdings and the Company hereby acknowledge that
they have retained HMCo, and HMCo acknowledges that, subject to reasonable
advance notice in order to accommodate scheduling, HMCo will provide financial
oversight and monitoring services to Holdings and the Company as requested by
the board of directors of each of Holdings and the Company during the term of
this Agreement.
2. Term. The term of this Agreement shall continue until the
earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the
date on which HMTF is dissolved, liquidated, and wound up (the "Primary Term"),
and shall continue on a year to year basis thereafter unless terminated by
Holdings and the Company or HMCo by written notice delivered to the other
parties on or before the 30th day prior to the expiration of the Primary Term
or prior to the expiration of any subsequent yearly term.
3. Compensation.
(a) Subject to the next succeeding paragraph hereof, as
compensation for HMCo's financial oversight and monitoring services pursuant to
Section 1, the Company shall pay HMCo an aggregate fee of $175,000 per year
(the "Oversight and Monitoring
<PAGE> 2
Fee"), payable in equal quarterly installments in the initial amount of $43,750
each. The first installment shall be paid on January 31, 1996 (including a
prorated amount attributable to the period from the date of this Agreement
through January 31, 1996), and the succeeding installments shall be paid each
three months thereafter.
(b) On July 31 of each calendar year during the term of
this Agreement (beginning with July 31, 1996), the Oversight and Monitoring Fee
shall automatically be increased or decreased, as applicable, to an amount per
year equal to .1% of the net sales of Holdings and the Company (on a
consolidated basis) during the fiscal year ending on such date, or, in the
event the fiscal year of the Company does not end on July 31, to an amount per
year equal to .1% of the net sales of Holdings and the Company (on a
consolidated basis) during the twelve month period ending on such July 31;
provided that in no event shall the Oversight and Monitoring Fee be less than
$175,000 per year. Any such increase or decrease shall take effect as of
August 1 of the calendar year immediately following such adjustment and shall
be reflected in the quarterly payment due on October 30 of such calendar year.
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, Holdings and the Company agree to
reimburse HMCo, promptly following demand therefor, together with invoices or
reasonably detailed descriptions thereof, for all reasonable disbursements and
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by HMCo in connection with the performance by it of the services contemplated
by Section 1 hereof.
5. Indemnification. Holdings and the Company hereby jointly and
severally agree to indemnify HMCo, its affiliates, and certain other
indemnitees as provided in that certain letter agreement dated of even date
herewith by and among Holdings, the Company, and HMCo (a copy of which is
attached hereto as Exhibit A). The indemnity provisions contained in such
letter agreement shall remain operative and in full force and effect
notwithstanding termination of this Agreement.
6. Confidential Information. In connection with the performance
of the services hereunder, HMCo agrees not to divulge any confidential
information, secret processes or trade secrets disclosed by Holdings or the
Company to it solely in its capacity as a financial advisor, unless Holdings
and the Company consents to the divulging thereof or such information, secret
processes, or trade secrets are publicly available or otherwise available to
HMCo without restriction or breach of any confidentiality
2
<PAGE> 3
agreement or unless required by any governmental authority or in response to
any valid legal process.
7. Governing Law. This Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Texas,
excluding any choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned (other than with respect to the rights and obligations of HMCo to
Thomas O. Hicks, John R. Muse, Charles W. Tate and/or Jack D. Furst or to any
entity controlled by any one or more of Thomas O. Hicks, John R. Muse, Charles
W. Tate and/or Jack D. Furst) by any of the parties without the prior written
consent of the other parties.
9. Counterparts. 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, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
10. Other Understandings. All discussions, understandings, and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the Agreement of the parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By: /s/ ALAN B. MENKES
----------------------------
Alan B. Menkes
Vice President
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
<PAGE> 5
Exhibit A
October 27, 1995
Hicks, Muse & Co. Partners, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
In connection with the engagement (herein so called) of Hicks,
Muse & Co. Partners, L.P. ("HMC") pursuant to the Monitoring and Oversight
Agreement, dated as of October 27, 1995, by and among HMC, Hedstrom Holdings,
Inc. ("Holdings") and Hedstrom Corporation (the "Company"), Holdings and the
Company jointly and severally will indemnify and hold harmless each of HMC, its
affiliates, and their respective directors, officers, controlling persons
(within the meaning of Section 15 of the Securities Act of 1933 or Section
20(a) of the Securities Exchange Act of 1934), if any, agents and employees of
HMC or any of its affiliates (HMC, its affiliates, and such other specified
persons being collectively referred to as "Indemnified Persons" and
individually as an "Indemnified Person") from and against any and all claims,
liabilities, losses, damages and expenses incurred by any Indemnified Person
(including fees and disbursements of the respective Indemnified Person's
counsel) which (A) are related to or arise out of (i) actions taken or omitted
to be taken (including any untrue statements made or any statements omitted to
be made) by Holdings and/or the Company or (ii) actions taken or omitted to be
taken by an Indemnified Person with Holdings' or the Company's consent or in
conformity with Holdings' or the Company's instructions or Holdings' or the
Company's actions or omissions or (B) are otherwise related to or arise out of
HMC's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees of any Indemnified Person's counsel, as they are
incurred, in connection with investigating, preparing for, defending, or
appealing any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with HMC's acting pursuant to the
engagement, whether or not any Indemnified Person is named as a party thereto
and whether or not any liability results therefrom. Neither Holdings nor the
Company will, however, be responsible for any claims, liabilities, losses,
damages, or expenses pursuant to clause (B) of the preceding sentence that have
resulted primarily from HMC's bad faith, gross negligence or willful
misconduct. Holdings and the Company also agree that neither HMC nor any other
<PAGE> 6
Hicks, Muse & Co. Partners, L.P.
October 27, 1995
Page 2
Indemnified Person shall have any liability to Holdings or the Company for or
in connection with such engagement except for any such liability for claims,
liabilities, losses, damages, or expenses incurred by Holdings and/or the
Company that have resulted primarily from HMC's bad faith, gross negligence or
willful misconduct. Holdings and the Company further agree that neither of
them will, without the prior written consent of HMC, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnifications may be sought
hereunder (whether or not any Indemnified Person is an actual or potential
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of HMC and each other
Indemnified Person hereunder from all liability arising out of such claim,
action, suit or proceeding.
The foregoing right to indemnity shall be in addition to any
rights that HMC and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Holdings and the Company hereby consent to
personal jurisdiction and to service and venue in any court in which any claim
which is subject to this agreement is brought against HMC or any other
Indemnified Person.
It is understood that, in connection with HMC's engagement,
HMC may also be engaged to act for Holdings and/or the Company in one or more
additional capacities, and that the terms of this engagement or any such
additional engagement may be embodied in one or more separate written
agreements. This indemnification shall apply to the engagement specified in
the first paragraph hereof as well as to any such additional engagement(s)
(whether written or oral) and any modification of said engagement or such
additional engagement(s) and shall remain in full force and effect following
the completion or termination of said engagement or such additional
engagements.
Holdings and the Company further understand that if HMC is
asked to furnish Holdings and/or the Company a financial opinion letter or act
for Holdings and/or the Company in any other formal capacity, such further
action may be subject to a separate agreement containing provisions and terms
to be mutually agreed upon.
<PAGE> 7
Hicks, Muse & Co. Partners, L.P.
October 27, 1995
Page 3
This letter agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof. This letter agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
Very truly yours,
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
AGREED AND ACCEPTED:
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC., its
General Partner
By: /s/ ALAN B. MENKES
---------------------------
Alan B. Menkes
Vice President
<PAGE> 1
EXHIBIT 10.23
FINANCIAL ADVISORY AGREEMENT
THIS FINANCIAL ADVISORY AGREEMENT (this "Agreement") is made and
entered into as of October 27, 1995, among Hedstrom Holdings, Inc.
("Holdings"), a Delaware corporation, Hedstrom Corporation (the "Company"), a
Delaware corporation, and HM2/Management Partners, L.P., a Delaware limited
partnership (together with its successors, "HM2").
WHEREAS, Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF") has
acquired substantially all of the common stock of Holdings pursuant to a Stock
Purchase Agreement dated October __, 1995, among HMTF, Holdings and the other
parties thereto (the "Acquisition");
WHEREAS, Holdings and the Company have requested that HM2 render, and
HM2 has rendered, financial advisory services to them in connection with the
negotiation of the Acquisition and the debt and equity financing transactions
related thereto (collectively with the Acquisition, the "Transaction"); and
WHEREAS, Holdings and the Company have requested that HM2 render
financial advisory, investment banking, and other similar services to them with
respect to any future proposals for a tender offer, acquisition, sale, merger,
exchange offer, recapitalization, restructuring, or other similar transaction
directly or indirectly involving Holdings, the Company, or any of their
respective subsidiaries, and any other person or entity (collectively, "Add-on
Transactions");
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by HM2 to Holdings and the Company, and to evidence the obligations of
Holdings and the Company to HM2 and the mutual covenants herein contained,
Holdings and the Company hereby jointly and severally agree as follows:
1. Retention.
(a) Holdings and the Company hereby acknowledge that they
have retained HM2, and HM2 acknowledges that it has acted, as financial advisor
to Holdings and the Company in connection with the Transaction.
(b) Each of Holdings and the Company acknowledges that it
has retained HM2 as its exclusive financial advisor in connection with any
Add-on Transactions that may be consummated during the term of this Agreement,
and that Holdings and the
<PAGE> 2
Company will not retain any other person or entity to provide such services in
connection with any such Add-on Transaction without the prior written consent
of HM2. HM2 agrees that it shall provide such financial advisory, investment
banking, and other similar services in connection with any such Add-on
Transaction as may be requested from time to time by the board of directors of
Holdings.
2. Term. The term of this Agreement shall continue until the
earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the
date on which HMTF is dissolved, liquidated, and wound up (the "Primary Term"),
and shall continue on a year to year basis thereafter unless terminated by
Holdings and the Company or HM2 by written notice delivered to the other
parties on or before the 30th day prior to the expiration of the Primary Term
or prior to the expiration of any subsequent yearly term.
3. Compensation.
(a) As compensation for HM2's services as financial
advisor to Holdings and the Company in connection with the Transaction, the
Company hereby irrevocably agrees to pay to HM2 (i) a cash fee of $1,175,000 to
be paid at the closing of the Transaction and (ii) a cash fee in the amount of
1.5% of the principal amount actually earned on the promissory notes (Series A
and B), dated as the date hereof made by the Company to the several payees
parties thereto, to be paid as of the date of the determination of the earned
principal amounts thereon. The parties hereto agree that the compensation due
pursuant to this Section 3(a) shall be allocated among the segments of the
financing for the Transaction in proportion to the dollar amount of each such
segment.
(b) As compensation for HM2's financial advisory,
investment banking, and other similar services rendered in connection with any
Add-on Transaction pursuant to Section 1(b) hereof, the Company shall pay to
HM2, at the closing of any such Add-on Transaction, a cash fee in the amount of
1.5% of the Transaction Value of such Add-on Transaction. As used herein, the
term "Transaction Value" means the total value of the Add-on Transaction,
including, without limitation, the aggregate amount of the funds required to
complete the Add-on Transaction (excluding any fees payable pursuant to this
Section 3(b)) including the amount of any indebtedness, preferred stock or
similar items assumed (or remaining outstanding).
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, Holdings and
2
<PAGE> 3
the Company agree to reimburse HM2, promptly following demand therefor,
together with invoices or reasonably detailed descriptions thereof, for all
reasonable disbursements and out-of-pocket expenses (including fees and
disbursements of counsel) incurred by HM2 (i) as financial advisor to Holdings
and the Company in connection with the Transaction or (ii) in connection with
the performance by it of the services contemplated by Section 1(b) hereof.
5. Indemnification. Holdings and the Company hereby jointly and
severally agree to indemnify HM2, its affiliates, and certain other indemnitees
as provided in that certain letter agreement dated of even date herewith by and
among Holdings, the Company, and HM2 (a copy of which is attached hereto as
Exhibit A). The indemnity provisions contained in such letter agreement shall
remain operative and in full force and effect notwithstanding termination of
this Agreement.
6. Confidential Information. In connection with the performance
of the services hereunder, HM2 agree not to divulge any confidential
information, secret processes or trade secrets disclosed by Holdings or the
Company to it solely in its capacity as a financial advisor, unless Holdings
and the Company consents to the divulging thereof or such information, secret
processes, or trade secrets are publicly available or otherwise available to
HM2 without restriction or breach of any confidentiality agreement or unless
required by any governmental authority or in response to any valid legal
process.
7. Governing Law. This Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Texas,
excluding any choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned (other than with respect to the rights and obligations of HM2 to
Thomas O. Hicks, John R. Muse, Charles W. Tate and/or Jack D. Furst or to any
entity controlled by any one or more of Thomas O. Hicks, John R. Muse, Charles
W. Tate and/or Jack D. Furst) by any of the parties without the prior written
consent of the other parties.
9. Counterparts. 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, and the signature of any
party to any counterpart
3
<PAGE> 4
shall be deemed a signature to, and may be appended to, any other counterpart.
10. Other Understandings. All discussions, understandings, and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the Agreement of the parties hereto.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HM2/MANAGEMENT PARTNERS, L.P.
By: HICKS, MUSE & CO. PARTNERS,
L.P., its General Partner
By: HM PARTNERS INC., its General
Partner
By: /s/ ALAN B. MENKES
----------------------------------
Alan B. Menkes
Vice President
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
<PAGE> 6
Exhibit A
October 27, 1995
HM2/Management Partners, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
In connection with the engagement (herein so called) of
HM2/Management Partners, L.P. ("HM2") pursuant to the Financial Advisory
Agreement, dated as of October 27, 1995, by and among HM2, Hedstrom Holdings,
Inc. ("Holdings") and Hedstrom Corporation (the "Company"), Holdings and the
Company jointly and severally will indemnify and hold harmless each of HM2, its
affiliates, and their respective directors, officers, controlling persons
(within the meaning of Section 15 of the Securities Act of 1933 or Section
20(a) of the Securities Exchange Act of 1934), if any, agents and employees of
HM2 or any of its affiliates (HM2, its affiliates, and such other specified
persons being collectively referred to as "Indemnified Persons" and
individually as an "Indemnified Person") from and against any and all claims,
liabilities, losses, damages and expenses incurred by any Indemnified Person
(including fees and disbursements of the respective Indemnified Person's
counsel) which (A) are related to or arise out of (i) actions taken or omitted
to be taken (including any untrue statements made or any statements omitted to
be made) by Holdings and/or the Company or (ii) actions taken or omitted to be
taken by an Indemnified Person with Holdings' or the Company's consent or in
conformity with Holdings' or the Company's instructions or Holdings' or the
Company's actions or omissions or (B) are otherwise related to or arise out of
HM2's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees of any Indemnified Person's counsel, as they are
incurred, in connection with investigating, preparing for, defending, or
appealing any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with HM2's acting pursuant to the
engagement, whether or not any Indemnified Person is named as a party thereto
and whether or not any liability results therefrom. Neither Holdings nor the
Company will, however, be responsible for any claims, liabilities, losses,
damages, or expenses pursuant to clause (B) of the preceding sentence that have
resulted primarily from HM2's bad faith, gross negligence or willful
misconduct. Holdings and
<PAGE> 7
HM2/Management Partners, L.P.
August 29, 1995
Page 2
the Company also agree that neither HM2 nor any other Indemnified Person shall
have any liability to Holdings or the Company for or in connection with such
engagement except for any such liability for claims, liabilities, losses,
damages, or expenses incurred by Holdings and/or the Company that have resulted
primarily from HM2's bad faith, gross negligence or willful misconduct.
Holdings and the Company further agree that neither of them will, without the
prior written consent of HM2, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnifications may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of HM2 and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding.
The foregoing right to indemnity shall be in addition to any
rights that HM2 and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Holdings and the Company hereby consent to
personal jurisdiction and to service and venue in any court in which any claim
which is subject to this agreement is brought against HM2 or any other
Indemnified Person.
It is understood that, in connection with HM2's engagement,
HM2 may also be engaged to act for Holdings and/or the Company in one or more
additional capacities, and that the terms of this engagement or any such
additional engagement may be embodied in one or more separate written
agreements. This indemnification shall apply to the engagement specified in
the first paragraph hereof as well as to any such additional engagement(s)
(whether written or oral) and any modification of said engagement or such
additional engagement(s) and shall remain in full force and effect following
the completion or termination of said engagement or such additional
engagements.
Holdings and the Company further understand that if HM2 is
asked to furnish Holdings and/or the Company a financial opinion letter or act
for Holdings and/or the Company in any other formal capacity, such further
action may be subject to a separate agreement containing provisions and terms
to be mutually agreed upon.
<PAGE> 8
HM2/Management Partners, L.P.
August 29, 1995
Page 3
This letter agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof. This letter agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
Very truly yours,
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
AGREED AND ACCEPTED:
HM2/MANAGEMENT PARTNERS, L.P.
By: HICKS, MUSE & CO. PARTNERS, L.P.,
its General Partner
By: HM PARTNERS INC.,
its General Partner
By: /s/ ALAN B. MENKES
----------------------------
Alan B. Menkes
Vice President
<PAGE> 1
EXHIBIT 10.24
HEDSTROM HOLDINGS, INC.
1995 STOCK OPTION PLAN
1. Purpose.
HEDSTROM HOLDINGS, INC., a Delaware corporation (herein, together with
its successors, referred to as the "Company"), by means of this 1995 Stock
Option Plan (the "Plan"), desires to afford certain officers, directors and
other key employees of the Company and any parent corporation or subsidiary
corporation thereof now existing or hereafter formed or acquired (such parent
and subsidiary corporations sometimes referred to herein as "Related Entities")
who are responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and thus to create in such
persons an increased interest in and a greater concern for the welfare of the
Company and any Related Entities. As used in the Plan, the terms "parent
corporation" and "subsidiary corporation" shall mean, respectively, a
corporation within the definition of such terms contained in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code").
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as defined in Section 3) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in
lieu of any salary or other compensation for services.
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer this Plan (the "Committee"); provided, however, that the entire
Board of Directors may act as the Committee if it chooses to do so. The number
of individuals that shall constitute the Committee shall be determined from
time to time by a majority of all the members of the Board of Directors, and,
unless that majority of the Board of Directors determines otherwise, shall be
no less than two individuals. A majority of the Committee shall constitute a
quorum (or if the Committee consists of only two members, then both members
shall constitute a quorum), and subject to the provisions of Section 5, the
<PAGE> 2
acts of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Committee, shall be
the acts of the Committee. Whenever the Company shall have a class of equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), each member of the Committee shall be
required to be (i) a "disinterested person" within the meaning of Rule 16b-3,
as amended ("Rule 16b-3"), or other applicable rules under Section 16(b) of the
Exchange Act.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the
Committee may be with or without cause. Any individual serving as a member of
the Committee shall have the right to resign from membership in the Committee
by written notice to the Board of Directors. The Board of Directors, and not
the remaining members of the Committee, shall have the power and authority to
fill vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3
may require from time to time.
3. Shares Available.
Subject to the adjustments provided in Section 10, the maximum
aggregate number of shares of common stock, $.01 par value per share, of the
Company ("Common Stock") which may be granted for all purposes under the Plan
shall be 2,446,236 shares. If, for any reason, any shares as to which Options
have been granted cease to be subject to purchase thereunder, including the
expiration of such Option, the termination of such Option prior to exercise, or
the forfeiture of such Option, such shares shall thereafter be available for
grants to any individual or individuals under the Plan as determined by the
Committee. Options granted under the Plan may be fulfilled in accordance with
the terms of the Plan with (i) authorized and unissued shares of the Common
Stock, (ii) issued shares of such Common Stock held in the Company's treasury,
or (iii) issued shares of Common Stock reacquired by the Company in each
situation as the Board of Directors or the Committee may determine from time to
time.
2
<PAGE> 3
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as defined in Section 6) and
Non-Qualified Options (as defined in Section 6) may be made under the Plan,
subject to and in accordance with Section 6, to Key Employees. As used herein,
the term "Key Employee" shall mean any employee of the Company or any Related
Entity, including officers and directors of the Company or any Related Entity
who are also employees of the Company or any Related Entity, who are regularly
employed on a salaried basis and who are so employed on the date of such grant,
whom the Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non- Employee. As used herein, the
term "Eligible Non-Employee" shall mean any director or officer (who is not
also an employee) of the Company or any Related Entity whom the Board of
Directors or the Committee identifies as having a direct and significant effect
on the performance of the Company or any Related Entity.
The adoption of this Plan shall not be deemed to give any Person a
right to be granted any Options.
5. Authority of Committee.
Subject to and not inconsistent with the express provisions of the
Plan, the Code and, if applicable, Rule 16b- 3, the Committee shall have
plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be
granted, the number of Options, the purchase price or exercise
price of each Option, the period(s) during which such Options
shall be exercisable (whether in whole or in part), the
restrictions to be applicable to Options and all other terms
and provisions thereof (which need not be identical);
b. require, as a condition to the granting of any Option, that
the Person receiving such Option agree not to sell or
otherwise dispose of such Option, any Common Stock acquired
pursuant to such Option, or any other "derivative security"
(as defined by Rule 16a-1(c) under the
3
<PAGE> 4
Exchange Act) for a period of six months following the later
of (i) the date of the grant of such Option or (ii) the date
when the exercise price of such Option is fixed if such
exercise price is not fixed at the date of grant of such
Option, or for such other period as the Committee may
determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an
optionee by the broker-dealer, under the rules and regulations
of the Board of Governors of the Federal Reserve, for the
purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to
have withheld from the total number of shares of Common Stock
to be acquired upon the exercise of an Option (other than an
Incentive Option) that number of shares having a Fair Market
Value (as defined in Section 18) which, together with such
cash as shall be paid in respect of fractional shares, shall
equal the Option exercise price, and (ii) to exercise a
portion of an Option by delivering that number of shares of
Common Stock already owned by such optionee having an
aggregate Fair Market Value which shall equal the partial
Option exercise price and to deliver the shares thus acquired
by such optionee in payment of shares to be received pursuant
to the exercise of additional portions of such Option, the
effect of which shall be that such optionee can in sequence
utilize such newly acquired shares in payment of the exercise
price of the entire Option, together with such cash as shall
be paid in respect of fractional shares; provided, however,
that in the case of an Incentive Option, no shares shall be
used to pay the exercise price unless such shares were not
acquired through the exercise of an Incentive Option or, if so
acquired, have been held for more than two years since the
grant of such Option and for more than one year since the
exercise of such Option;
e. provide (in accordance with Section 13 or otherwise) the
establishment of a procedure whereby a number of shares of
Common Stock or other securities may be withheld from the
total number of shares of Common Stock or other securities to
be issued upon exercise of an Option (other than an Incentive
Option) to meet the obligation of withholding for
4
<PAGE> 5
income, social security and other taxes incurred by an
optionee upon such exercise or required to be withheld by the
Company or a Related Entity in connection with such exercise;
f. prescribe, amend, modify and rescind rules and regulations
relating to the Plan;
g. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other
acts, exercise all other powers, and establish any other
procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the
conduct of the Committee's business. Any act of the
Committee, including interpretations of the provisions of the
Plan or any Option and determinations under the Plan or any
Option shall be final, conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that
whenever the Company has a class of equity securities registered under Section
12 of the Exchange Act, the Committee may not delegate any duties to a member
of the Board of Directors who, if elected to serve on the Committee, would not
qualify as a "disinterested person" to administer the Plan as contemplated by
Rule 16b-3, as amended, or other applicable rules under the Exchange Act. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member
or agent of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan and
all members and agents of the Committee shall be fully protected by the Company
in respect of any such action, determination or interpretation.
6. Stock Options for Key Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant incentive stock options pursuant to Section 422 of
the Code ("Incentive Options"), to grant non-qualified stock options (options
which do not
5
<PAGE> 6
qualify under Section 422 of the Code) ("Non-Qualified Options"), and to grant
both types of Options to Key Employees. No Incentive Option shall be granted
pursuant to this Plan after the earlier of ten years from the date of adoption
of the Plan or ten years from the date of approval of the Plan by the
stockholders of the Company. Notwithstanding anything in this Plan to the
contrary, Incentive Options may be granted only to Key Employees. The terms
and conditions of the Options granted under this Section 6 shall be determined
from time to time by the Committee; provided, however, that the Options granted
under this Section 6 shall be subject to all terms and provisions of the Plan
(other than Section 7), including the following:
a. Option Exercise Price. The Committee shall establish the
option exercise price at the time any Option is granted at
such amount as the Committee shall determine; provided, that
such price shall not be not less than the Fair Market Value
per share of Common Stock at the date such Option is granted;
and provided, further, that in the case of an Incentive Option
granted to a person who, at the time such Incentive Option is
granted, owns shares of the Company or any Related Entity
which possess more than 10% of the total combined voting power
of all classes of shares of the Company or of any Related
Entity, the option exercise price shall not be less than 110%
of the Fair Market Value per share of Common Stock at the date
such Option is granted. The option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 10 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan (but, with
respect to Incentive Options, subject to the limitations
described in such Section 5.d.). Shares delivered to or
withheld by the Company in payment of the option exercise
price shall be valued at the Fair Market Value of the Common
Stock on the day preceding the date of the exercise of the
Option.
c. Continuation of Employment. Each Incentive Option shall
require the optionee to remain in the continuous employ of the
Company or any Related Entity from the date of grant of the
Incentive Option until no
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<PAGE> 7
more than three months prior to the date of exercise of the
Incentive Option.
d. Exercisability of Stock Option. Subject to Section 8, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No Option
by its terms shall be exercisable after the expiration of ten
years from the date of grant of the Option, unless, as to any
Non-Qualified Option, otherwise expressly provided in such
Option; provided, however, no Incentive Option shall be
exercisable after the expiration of ten years from the date
such Option is granted; and provided, further, that no
Incentive Option granted to a person who, at the time such
Option is granted, owns stock of the Company, or any Related
Entity, possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any Related
Entity, shall be exercisable after the expiration of five
years from the date such Option is granted.
e. Death. If any optionee's employment with the Company or a
Related Entity terminates due to the death of such optionee,
the estate of such optionee, or a Person who acquired the
right to exercise such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise such Option in accordance with its terms at any time
and from time to time within one year after the date of death
unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to
Section 8 (but in no event after the expiration date of such
Option).
f. Disability. If the employment of any optionee terminates
because of his Disability (as defined in Section 18), such
optionee or his legal representative shall have the right to
exercise the Option in accordance with its terms at any time
and from time to time within one year after the date of such
termination unless a longer or shorter period is expressly
provided in such Option or established by the Committee
pursuant to Section 8 (but not after the expiration date of
the Option); provided, however, that in the case of an
Incentive Option, the optionee or his legal representative
shall in any event be required to exercise the Incentive
Option within one year after termination of the optionee's
employment due to his Disability.
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<PAGE> 8
g. Other Termination of Employment. If the employment of an
optionee with the Company or a Related Entity terminates for
any reason other than those specified in subsections 6(e) and
(f) above, such optionee shall have the right to exercise his
Option in accordance with its terms, within 60 days after the
date of such termination, unless a longer period is expressly
provided in such Option or established by the Committee
pursuant to Section 8 (but not after the expiration date of
the Option); provided, that no Incentive Option shall be
exercisable more than three months after such termination;
and, provided, further, that, unless the Option expressly
provides otherwise, if such optionee's employment was
terminated by the Company or any Related Entity for Good Cause
(as defined in Section 18), or if the optionee voluntarily
terminates employment without the consent of the Company or
any Related Entity (other than on a basis expressly permitted
by the optionee's employment agreement with the Company or any
Related Entity), such optionee shall immediately forfeit all
rights under his Option except as to the shares of stock
already purchased. The determination that there exists Good
Cause for termination shall be made by the Option Committee
(unless otherwise agreed to in writing by the Company and the
optionee or unless otherwise restricted by the optionee's
employment agreement).
h. Maximum Exercise. The aggregate number of shares of stock
with respect to which Incentive Options may be granted to any
Key Employee shall not exceed one-half of the number of shares
described in Section 3.
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant Non-Qualified Options to Eligible Non-Employees;
provided, however, that whenever the Company has any class of equity securities
registered pursuant to Section 12 of the Exchange Act, no Eligible Non-Employee
then serving on the Committee (or such other committee then administering the
Plan) shall be granted Options hereunder if the grant of such Options would
cause such Eligible Non-Employee to no longer be a "disinterested person" as
set forth in Section 2 hereof. The terms and conditions of the Options granted
under this Section 7 shall be determined from time to time by the Committee;
provided, however, that the Options
8
<PAGE> 9
granted under this Section 7 shall be subject to all terms and provisions of
the Plan (other than Section 6), including the following:
a. Option Exercise Price. The Committee shall establish the
option exercise price at the time any Non- Qualified Option is
granted at such amount as the Committee shall determine. The
option exercise price shall be subject to adjustment in
accordance with the provisions of Section 10 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan. Shares
delivered to or withheld by the Company in payment of the
option exercise price shall be valued at the Fair Market Value
of the Common Stock on the day preceding the date of the
exercise of the Option.
c. Exercisability of Stock Option. Subject to Section 8, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No Option
shall be exercisable after the expiration of ten years from
the date of grant of the Option, unless otherwise expressly
provided in such Option.
d. Death. If the retention by the Company or any Related Entity
of the services of any Eligible Non- Employee terminates
because of his death, the estate of such optionee, or a Person
who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the optionee, shall
have the right to exercise such Option in accordance with its
terms, at any time and from time to time within one year after
the date of death unless a longer or shorter period is
expressly provided in such Option or established by the
Committee pursuant to Section 8 (but in no event after the
expiration date of such Option).
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<PAGE> 10
e. Disability. If the retention by the Company or any Related
Entity of the services of any Eligible Non- Employee
terminates because of his Disability, such optionee or his
legal representative shall have the right to exercise the
Option in accordance with its terms at any time and from time
to time within one year after the date of the optionee's
termination unless a longer or shorter period is expressly
provided in such Option or established by the Committee
pursuant to Section 8 (but not after the expiration of the
Option).
f. Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those
specified in subsections 7(d) and (e) above, such optionee
shall have the right to exercise his or its Option in
accordance with its terms within 30 days after the date of
such termination, unless a longer or shorter period is
expressly provided in such Option or established by the
Committee pursuant to Section 8 (but not after the expiration
date of the Option); provided, that, in the case of an
Eligible Non-Employee serving as a director of the Company or
of any Related Entity, unless the Committee provides
otherwise, if the optionee is removed from office for cause by
action of the stockholders in accordance with the by-laws of
the Company or such Related Entity, as applicable, and the
General Corporation Law of the State of Delaware or if such
optionee voluntarily terminates his service without the
consent of the Company or any Related Entity, then such
optionee shall immediately forfeit his rights under his Option
except as to the shares of stock already purchased.
g. Ineligibility for Other Grants. Any Eligible Non-Employee who
receives an Option pursuant to this Section 7 shall be
ineligible to receive any Options under any other Section of
the Plan unless such Person becomes a Key Employee subsequent
thereto.
8. Change of Control.
If a Change of Control (as defined in Section 18) shall occur, or if
the Company shall enter into an agreement providing for a Change of Control,
the Committee may declare any or all Options outstanding under the Plan to be
vested and exercisable in full at such time or times as the Committee shall
determine, notwithstanding the express provisions of such Options. Each Option
accelerated by
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<PAGE> 11
the Committee in connection with a Change of Control pursuant to the preceding
sentence may be terminated, notwithstanding any express provision thereof or
any other provision of the Plan, on such date (not later than the stated
expiration date) as the Committee shall determine.
9. Purchase Option.
a. To the extent and only to the extent expressly provided in any
particular Option, if any optionee's employment (or, in the
case of any Option granted under Section 7, the optionee's
relationship) with the Company or a Related Entity terminates
for any reason at any time, the Company and/or its designee(s)
shall have the option (the "Purchase Option") to purchase, and
if the option is exercised, the optionee (or the optionee's
executor or the administrator of the optionee's estate, in the
event of the optionee's death, or the optionee's legal
representative in the event of the optionee's incapacity
(hereinafter, collectively with such optionee, the "Grantor"))
shall sell to the Company and/or its assignee(s), all or any
portion (at the Company's option) of the shares of Common
Stock and/or Options held by the Grantor (such shares of
Common Stock and Options collectively being referred to as the
"Purchasable Shares").
b. The Company shall give notice in writing to the Grantor of the
exercise of the Purchase Option within 60 days from the date
of the termination of the optionee's employment or engagement.
Such notice shall state the number of Purchasable Shares to be
purchased and the determination of the Board of Directors of
the Fair Market Value per share of such Purchasable Shares.
If no notice is given within the time limit specified above,
the Purchase Option shall terminate.
c. The purchase price to be paid for the Purchasable Shares
purchased pursuant to the Purchase Option shall be, in the
case of any Common Stock, the Fair Market Value per share
times the number of shares being purchased, and in the case of
any Option, the Fair Market Value per share, less the
applicable per share Option exercise price, times the number
of vested shares subject to such Option which are being
purchased. The purchase price shall be paid in cash. The
closing of such purchase shall take place at the Company's
principal executive offices within ten days after the notice
described in Section 9.b has
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<PAGE> 12
been delivered to Grantor. At such closing, the Grantor shall
deliver to the purchaser(s) the certificates or instruments
evidencing the Purchasable Shares being purchased, duly
endorsed (or accompanied by duly executed stock powers) and
otherwise in good form for delivery, against payment of the
purchase price by check of the purchaser(s). In the event
that, notwithstanding the foregoing, the Grantor shall have
failed to obtain the release of any pledge or other
encumbrance on any Purchasable Shares by the scheduled closing
date, at the option of the purchaser(s) the closing shall
nevertheless occur on such scheduled closing date, with the
cash purchase price being reduced to the extent of all unpaid
indebtedness for which such Purchasable Shares are then
pledged or encumbered.
d. To assure the enforceability of the Company's rights under
this Paragraph 9, each certificate or instrument representing
Common Stock or an Option held by him or it shall bear a
conspicuous legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION
TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE HEDSTROM HOLDING
CORP. 1995 STOCK OPTION PLAN AND A STOCK OPTION AGREEMENT ENTERED INTO
PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT ARE
AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES."
The Company's rights under this Section 9 shall terminate upon the
consummation of an underwritten public offering of the Common Stock, registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to which the Company receives aggregate cash sales proceeds, before
underwriting discount, of at least $25 million or such lesser amount as the
Committee shall determine.
10. Adjustment of Shares.
Unless otherwise expressly provided in a particular Option, in the
event that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up, split-
off, spin-off, combination of shares, exchange of shares or other like change
in capital structure of the Company
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<PAGE> 13
(collectively, a "Reorganization"), the Common Stock is substituted, combined,
or changed into any cash, property, or other securities, or the shares of
Common Stock are changed into a greater or lesser number of shares of Common
Stock, the number and/or kind of shares and/or interests subject to an Option
and the per share price or value thereof shall be appropriately adjusted by the
Committee to give appropriate effect to such Reorganization. Any fractional
shares or interests resulting from such adjustment shall be eliminated. The
adjustments set forth in this paragraph shall be applied to each successive
Reorganization, if any. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Option shall comply with the rules of
Section 424(a) of the Code, and (ii) in no event shall any adjustment be made
which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of a
Reorganization and, following such Reorganization, any optionee will hold
Options issued pursuant to this Plan which have not been exercised, cancelled,
or terminated in connection therewith, the Company shall cause such Options to
be assumed (or cancelled and replacement Options issued) by the surviving
entity or a Related Entity.
11. Assignment or Transfer.
Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of descent
and distribution, and during the lifetime of an optionee, Options granted to
him or her hereunder shall be exercisable only by the optionee or, in the event
that a legal representative has been appointed in connection with the
Disability of an optionee, such legal representative.
12. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities law to permit exercise of any Option or to issue any Common Stock in
violation of the Securities Act or any applicable state securities law. Each
optionee (or, in the event of his death or, in the event a legal representative
has been appointed in connection with his Disability, the Person exercising the
Option) shall, as a condition to his right to exercise any Option, deliver to
the Company an agreement or certificate containing such representations,
warranties and covenants as the Company may deem necessary or appropriate to
ensure that the issuance of shares of Common Stock pursuant to
13
<PAGE> 14
such exercise is not required to be registered under the Securities Act or any
applicable state securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
13. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree
to reimburse the Company or Related Entity by which the optionee is employed
for any federal, state, or local taxes required by any government to be
withheld or otherwise deducted by such corporation in respect of the optionee's
exercise of all or a portion of the Option; (ii) authorize the Company or any
Related Entity by which the Grantee is employed to withhold from any cash
compensation paid to the optionee or in the optionee's behalf, an amount
sufficient to discharge any federal, state, and local taxes imposed on the
Company, or the Related Entity by which the optionee is employed, and which
otherwise has not been reimbursed by the optionee, in respect of the optionee's
exercise of all or a portion of the Option; and (iii) agree that the Company
may, in its discretion, hold the stock certificate to which the optionee is
entitled upon exercise of the Option as security for the payment of the
aforementioned withholding
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<PAGE> 15
tax liability, until cash sufficient to pay that liability has been
accumulated, and may, in its discretion, effect such withholding by retaining
shares issuable upon the exercise of the Option which shares shall have a Fair
Market Value on the date of exercise which is equal to the amount to be
withheld.
14. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
15. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the payment of any Option under the Plan.
16. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
17. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided
herein or therein. Nothing contained in the Plan or any agreement related
hereto or referred to herein shall impose, or be construed as imposing, an
obligation on (i) the Company or any Related Entity to continue the employment
of any Key Employee, and (ii) any Key Employee to remain in the employ of the
Company or any Related Entity.
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<PAGE> 16
18. Definitions.
In addition to the terms specifically defined elsewhere in the Plan,
as used in the Plan, the following terms shall have the respective meanings
indicated:
a. "Affiliate" shall mean, as to any Person, a Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control
with, such Person.
b. "Board of Directors" shall have the meaning set forth in
Section 2 hereof.
c. "Change of Control" shall mean the first to occur of the
following events: (i) any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"); (ii) a
majority of the Board of Directors of the Company shall
consist of Persons who are not Continuing Directors (as
defined below); or (iii) the acquisition by any Person or
Group (other than HMTF) of the power, directly or indirectly,
to vote or direct the voting of securities having more than
50% of the ordinary voting power for the election of directors
of the Company.
d. "Code" shall have the meaning set forth in Section 1 hereof.
e. "Committee" shall have the meaning set forth in Section 2
hereof.
f. "Common Stock" shall have the meaning set forth in Section 3
hereof.
g. "Company" shall have the meaning set forth in Section 1
hereof.
h. "Continuing Director" shall mean, as of the date of
determination, any Person who (i) was a member of the Board of
Directors of the Company on the date of adoption of this Plan
or (ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a
majority of the Continuing Directors who were members of such
Board of Directors at the time of such nomination or election.
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<PAGE> 17
i. "Disability" shall mean permanent disability as defined under
the appropriate provisions of the long- term disability plan
maintained for the benefit of employees of the Company or any
Related Entity who are regularly employed on a salaried basis
unless another meaning shall be agreed to in writing by the
Committee and the optionee; provided, however, that in the
case of an Incentive Option "disability" shall have the
meaning specified in Section 22(e)(3) of the Code.
j. "Eligible Non-Employee" shall have the meaning set forth in
Section 4 hereof.
k. "Exchange Act" shall have the meaning set forth in Section 2
hereof.
l. "Fair Market Value" shall, as it relates to the Common Stock,
mean the average of the high and low prices of the Common
Stock as reported on the principal national securities
exchange on which the shares of Common Stock are then listed
on the date specified herein, or if there were no sales on
such date, on the next preceding day on which there were
sales, or if such Common Stock is not listed on a national
securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are not traded in
the over-the-counter market, the per share cash price for
which all of the outstanding Common Stock could be sold to a
willing purchaser in an arms length transaction (without
regard to minority discount, absence of liquidity, or transfer
restrictions imposed by any applicable law or agreement) at
the date which is the end of the Company's fiscal quarter
preceding the event giving rise to a need for a determination.
Except as may be otherwise expressly provided in a particular
Option, Fair Market Value shall be determined in good faith by
the Committee.
m. "Good Cause" shall mean (unless another definition is agreed
to in writing by the Company and the optionee) termination by
action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the
optionee's personal dishonesty, incompetence, willful
misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or
breach of fiduciary duty which involves personal profit; (C)
the optionee's commission of material mismanagement in the
conduct of his duties as assigned to him
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<PAGE> 18
by the Board of Directors or the President of the Company; (D)
the optionee's willful failure to execute or comply with the
policies of the Company or his stated duties as established by
the Board of Directors or the President of the Company, or
intentional failure to perform his stated duties; or (E)
substance abuse or addiction on the part of the optionee.
n. "Grantor" has the meaning set forth in Section 9 hereof.
o. "HMTF" shall mean Hicks, Muse, Tate & Furst Equity Fund II,
L.P. and its Affiliates.
p. "Incentive Options" shall have the meaning set forth in
Section 6 hereof.
q. The term "including" when used herein shall mean "including,
but not limited to".
r. "Key Employee" shall have the meaning set forth in Section 4
hereof.
s. "Non-Qualified Options" shall have the meaning set forth in
Section 6 hereof.
t. "Options" shall have the meaning set forth in Section 1
hereof.
u. "Person" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a
company, a corporation, a partnership, a trust, or other
entity.
v. "Plan" shall have the meaning set forth in Section 1 hereof.
w. "Purchasable Shares" shall have the meaning set forth in
Section 9 hereof.
x. "Purchase Option" shall have the meaning set forth in Section
9 hereof.
y. "Related Entities" shall have the meaning set forth in Section
1 hereof.
z. "Reorganization" shall have the meaning set forth in Section
10 hereof.
18
<PAGE> 19
aa. "Rule 16b-3" shall have the meaning set forth in Section 2
hereof.
ab. "Securities Act" shall have the meaning set forth in Section 9
hereof.
19. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, that no amendment shall be made
which shall increase the total number of shares of the Common Stock which may
be issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive
Options unless such amendment is made by or with the approval of the
stockholders. The Board of Directors shall be authorized to amend the Plan and
the Options granted thereunder (i) to qualify as "incentive stock options"
within the meaning of Section 422 of the Code, and (ii) to comply with Rule
16b-3 (or any successor rule) under the Exchange Act. No amendment,
modification, suspension or termination of the Plan shall alter or impair any
Options previously granted under the Plan, without the consent of the holder
thereof, or violate any provision of Rule 16b-3.
20. Effective Date.
The Plan shall become effective on the date on which it is approved by
the Board of Directors of the Company and shall be void retroactively if not
approved by the stockholders of the Company within twelve months of the date of
approval by the Board of Directors.
19
<PAGE> 1
EXHIBIT 10.25
MANUFACTURING AGREEMENT
Agreement made this 21st day of July, 1987, by and between Euro-Matic
Ltd., a company organized under the laws of the United Kingdom and having its
offices and principal place of business located at Sinclair House, The Avenue,
Ealing, London W13 BNT, England (hereinafter referred to as "Euro-Matic") and
Hedstrom Corporation, an Illinois corporation, having its offices and principal
place of business located at Sunnyside Road, P.O. Box 432, Bedford,
Pennsylvania (hereinafter referred to as "Hedstrom").
Euro-Matic desires to engage Hedstrom, and Hedstrom agrees to be
engaged by Euro-Matic, to manufacture, using machinery and tooling supplied to
Hedstrom by Euro-Matic, playpen balls pursuant to Euro-Matic's specifications
described on Exhibit A, attached hereto and made a part of this Agreement,
(hereinafter referred to as "Products"), as well as provide for the storage,
packing and shipping of Products, pursuant to Euro-Matic's instructions,
subject to the terms, conditions and limitations of this Agreement.
The parties hereto agree as follows:
1. Manufacture and Supply
(a) Euro-Matic hereby engages Hedstrom to manufacture Products
pursuant to the specifications set out in Exhibit A, using machinery and
tooling supplied to Hedstrom by Euro-Matic, and also to provide for the
storage, packing and shipping of Products all pursuant to instruction by
Euro-Matic. All Products shall be made by Hedstrom to conform to specifications
supplied by Euro-Matic covering in particular material, weight, finish, internal
pressurer and packing. It is understood by the parties hereto that Euro-Matic
may from time to time change the specifications, which changes shall be made by
Euro-Matic in writing to Hedstrom.
(b) If any Products produced by Hedstrom do not conform to
Euro-Matic's specifications or to warranties applicable thereto, and such
Products are not acceptable to Euro-Matic, Euro-Matic shall notify Hedstrom and
Hedstrom shall, at its expense, promptly produce a replacement quantity
conforming to Euro-Matic's specifications and all warranties hereunder.
Euro-Matic shall not be required to pay Hedstrom for the production of any
Products that fail to conform to Euro-Matic's specifications.
2. Equipment and Tooling
Euro-Matic shall arrange, within thirty (30) days of this Agreement,
for the delivery to Hedstrom of a Euro-Matic compact blow molder, extruder and
molds for the manufacture of Products by Hedstrom on behalf of Euro-Matic.
Euro-Matic represents and warrants that the compact blow molder, extruder and
molds to be supplied to Hedstrom shall be in good operating condition and shall
be able to manufacture the Products in full accordance with the specifications
provided to Hedstrom by Euro-Matic.
3. Pricing
(a) In consideration for the manufacture, storage, packing and
shipping of Products produced on Euro-Matic machinery by Hedstrom, Euro-Matic
hereby agrees initially (the "initial price") to pay Hedstrom Sixty Dollars
($60) per
<PAGE> 2
1,000 Products, subject to revision from to time to time upon mutual agreement
of the parties hereto. The initial price has been calculated in major part upon
the following factors: (i) an average weight per individual Product of thirteen
(13) grams; (ii) a cycle time of 24 seconds using an eight (8) cavity mold;
and, (iii) a cots to Hedstrom for low density polyethylized resin of 37 cents
per pound. The parties agree from time to time to renegotiate the price to be
paid by Euro-Matic to the extent there is a material change in any of factor
(i), (i) or (iii) above.
(b) All prices are f.o.b. Ashland, Ohio or at such other Hedstrom
manufacturing location as the parties may determine appropriate. All payments
shall be made in U.S. funds to Hedstrom.
(c) The actual cost of shipping Products to Euro-Matic customers
shall not be included in the foregoing price but shall be billed separately to
Euro-Matic based upon the actual cost of shipping incurred by Hedstrom on
behalf of Euro-Matic.
(d) All amounts payable by Euro-Matic to Hedstrom hereunder shall be
made by the end of the calendar month following the date of Hedstrom's
invoice [net 60 days].
4. Marketing
It is understood by the parties hereto that Euro-Matic shall provide
all marketing for the sale of Products produced by Hedstrom on behalf of
Euro-Matic pursuant to this Agreement.
5. Manufacturer of Hedstrom Product
In the event that Hedstrom utilizes Euro-Matic machinery and tooling
supplied to Hedstrom hereunder for the manufacture of Hedstrom's own products,
Hedstrom shall pay Euro-Matic One Hundred Twenty-Five Dollars ($125) per day or
any portion thereof for use of such machinery and tooling. Hedstrom shall
account for use of actual machinery hours during which it uses Euro-Matic
machinery. Hedstrom shall provide such equipment necessary to register machine
working hours and account to Euro-Matic for all hours during which such
machinery has been utilized by Hedstrom on its own behalf. Euro-Matic shall be
entitled to send auditors from time to time to Hedstrom during reasonable
business hours to review Hedstrom's records with respect to usage of the
Euro-Matic machinery by Hedstrom. It is understood by the parties hereto,
however, that Euro-Matic has "first call" upon the machinery for the
manufacture of Products to satisfy Euro-Matic's stock level requirements.
6. Stock Level Requirements
Euro-Matic will from time to time notify Hedstrom to provide certain
stock levels of Products. Notification will be by written purchase order,
specifying the item requested, production date and price. Hedstrom agrees as
promptly as possible after receiving notice from Euro-Matic to maintain such
stock levels as directed by Euro-Matic. Hedstrom will invoice Euro-Matic every
Monday for total Products produced in the previous week as per the written
purchase orders issued by Euro-Matic. Euro-Matic shall pay the amount due on
such invoices in accordance with paragraph 3(d) of this Agreement. All such
inventory at Hedstrom premises shall be insured for Euro-Matic's benefit as part
of the general insurance maintained by Hedstrom and carried on all
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<PAGE> 3
Hedstrom inventory. Euro-Matic will also from time to time instruct Hedstrom to
manufacture special orders on Euro-Matic equipment which Hedstrom shall
undertake as promptly as possible. If goods are available from stock, an order
from Euro-Matic to Hedstrom shall be drop-shipped by Hedstrom to customers of
Euro-Matic within seven (7) days after the receipt of such order from
Euro-Matic. If Products are not available from stock, Hedstrom shall as
promptly as possible produce such required stock which shall be shipped to
Euro-Matic customers within seven (7) days after production of such stock.
7. Purchase Orders and Acknowledgements
Euro-Matic will use its best efforts to supply Hedstrom with written
purchase orders for Products to provide for full capacity usage during normal
business hours of the machinery and tooling supplied to Hedstrom pursuant to
this Agreement. Hedstrom shall provide Euro-Matic with written acknowledgement
of said purchase orders. All orders shall be non-cancellable after the date of
written acknowledgement.
8. Breach of Contract - Termination
(a) In the event of a breach of either party hereto of any term,
condition or provision of this Agreement, the other party, in addition to any
other rights and remedies it may have hereunder, shall have the right to
terminate this Agreement by giving notice of termination to the defaulting
party, provided that at least thirty (30) business days prior written notice of
the breach and intention to terminate has been given to the defaulting party
and the breach has not been cured during the thirty-day notice period.
(b) The foregoing notwithstanding, in the event that (i) Products
produced by Hedstrom at any time do not conform to Euro-Matic's specifications
or do not conform to warranties applicable to Hedstrom and Hedstrom does not
deliver to a particular Euro-Matic customer a replacement quantity of such
Products conforming to Euro-Matic's specifications and to all warranties
applicable thereto within thirty (30) days after notice to Hedstrom that the
Products produced by Hedstrom do not so conform, or (ii) the parties hereto
cannot reach agreement as to price revision as provided in paragraph 3(a)
hereof, either party hereto may, at its option, by written notice to the other
party terminate this Agreement.
(c) This Agreement shall be terminable by Euro-Matic by written notice
to Hedstrom in the event that: (i) Hedstrom ceases to operate its business for
fifteen (15) days (other than a temporary suspension resulting from an act of
God or cause beyond Hedstrom's control, including but not limited to strikes,
trade disputes, government regulations or restrictions) and is otherwise unable
to meet its obligations under this Agreement; (ii) Hedstrom ceases to operate
its business for 30 days for any reason; (iii) Hedstrom shall be unable to pay
its debts as they mature or shall admit in writing its inability to pay its
debts as they mature or shall make a general assignment for the benefit of its
creditors; (iv) Hedstrom shall file a petition seeking protection under the
United States Bankruptcy Code or any other applicable federal, state or other
law or shall consent to the institution of proceedings under such bankruptcy
laws; (v) an involuntary petition or complaint shall be filed against Hedstrom
seeking bankruptcy or reorganization with respect to it under the United States
Bankruptcy Code or other similar law, or seeking the appointment of a receiver,
liquidator, assignee or similar official of Hedstrom, and such petition or
complaint is not dismissed within sixty (60) days of the filing thereof; or
(vi) Hedstrom or any affiliate of Hedstrom
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<PAGE> 4
merges with or acquires substantially all of the assets of a company or is
acquired by a company which, at the time of such merger or acquisition, is a
competitor of Euro-Matic.
(d) It is understood that in the event this Agreement is cancelled or
terminates, Euro-Matic shall reimburse Hedstrom or otherwise pay for packaging
cartons provided by Hedstrom specifically to ship Euro-Matic Products.
(e) Upon termination of this Agreement, Euro-Matic shall arrange at its
expense for removal of its machinery, molds and inventory from Hedstrom's
premises.
9. Non-Compete Agreement
Hedstrom agrees that neither Hedstrom nor any companies affiliated with
Hedstrom will directly or indirectly market or seek to market or offer for sale
to Euro-Matic customers or in Euro-Matic's general market (which includes
restaurants, schools and other educational, health and supportive institutions
and the amusement industry) any items of the same or similar nature to the
Products manufactured for Euro-Matic pursuant to this Agreement during the term
of this Agreement and for the three (3) years thereafter. Similarly, Euro-Matic
agrees that during the term of this Agreement and for three (3) years
thereafter neither Euro-Matic nor any affiliate of Euro-Matic will market any
Products which are the same or similar nature to products manufactured by
Hedstrom, to the wholesale discount market, food and drug chain stores, or the
retail toy industry. Either party hereto may seek injunction relief to enforce
the terms of this paragraph 9.
10. Term and Termination Without Cause
This Agreement shall continue from year to year until it is cancelled by
either party hereto pursuant to the provisions of this Agreement.
Notwithstanding any other provisions of this Agreement, either party may
terminate this Agreement by written notice to the other party not less than
ninety (90) days prior to the effective date of termination. Termination of
this Agreement under any provisions hereof shall not relieve Euro-Matic's
obligation to pay Hedstrom for Products manufactured pursuant to Euro-Matic
purchase orders or on behalf of Euro-Matic's customers to accept delivery of
Products manufactured pursuant to such purchase orders.
11. Patent Infringement and Indemnification
(a) Euro-Matic warrants and guarantees that the manufacture of the
Products and the use of the machinery and tooling provided to Hedstrom by
Euro-Matic shall be free of infringement of any patent, patent right or any
other rights belonging to third parties. Nothing in this Agreement shall be
construed as imposing on Hedstrom any obligation to institute any suit or
action for infringement of any patent or imposing on Hedstrom any obligation to
defend any suit or action brought by any third party which challenges
Hedstrom's rights under this Agreement. Euro-Matic shall indemnify and hold
harmless Hedstrom from and against any and all claims, damages, suits,
expenses, liabilities and judgments, and from and against the costs (including
reasonable attorneys' fees and disbursements) related to any claims made
against Hedstrom related to the Products for patent infringement or the
violation of the right claimed by any third party in the Products.
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<PAGE> 5
(b) Hedstrom shall indemnify and hold harmless Euro-Matic from and
against the attempted imposition by any customer of Euro-Matic of any claims,
damages, suits, expenses, liabilities and judgments, and from and against the
costs (including reasonable attorneys' fees and disbursements) of defending
against the same, with respect to any such claims, damages, suits, expenses,
liabilities and judgments resulting from the sole failure of Hedstrom to
conform to Euro-Matic's specifications in the production of Products hereunder
or other negligence in the production thereof on the part of Hedstrom.
(c) Euro-Matic shall indemnify and hold harmless Hedstrom from and
against the attempted imposition by any customer of Euro-Matic of any claims,
damages, suits, expenses, liabilities and judgments, and from and against the
costs (including reasonable attorneys' fees and disbursements) of defending
against the same, with respect to any such claims, resulting from Euro-Matic's
specifications, provided, however, that Hedstrom has produced the Products in
conformance with the specifications provided by Euro-Matic without any
negligence on the part of Hedstrom.
13. Product Warranty
Hedstrom warrants and agrees that it will ship good and marketable
title to Products to Euro-Matic's customers and the Products will conform to
Euro-Matic's specifications, will be free from defects in workmanship and
material and will comply with all applicable statutes, laws, orders, rules and
other governmental regulations. These warranties shall survive inspection,
shipment and payment.
14. Best Efforts and Maintenance of Equipment
Hedstrom shall in good faith and with diligence use its best efforts to
conduct all manufacturing, storage, packing and shipping of the Products in
accordance with the best business customs of its industry. In addition,
Hedstrom shall maintain all machinery and tooling supplied to it by Euro-Matic
and used by Hedstrom pursuant to this Agreement in good working order, subject
to normal wear and tear, and shall be liable to Euro-Matic for any damage
thereto due to Hedstrom's negligence. It is understood that Euro-Matic shall be
responsible for any major repairs or replacements to machinery and tooling not
caused by the negligence of Hedstrom. Title to all machinery and tooling
supplied by Euro-Matic to Hedstrom shall remain with Euro-Matic and Euro-Matic
shall have the right to affix permanently to such machinery and tooling an
appropriate sign or label showing that title is retained by Euro-Matic. All
such machinery and tooling at Hedstrom's premises shall be insured for
Euro-Matic's benefit as part of the general insurance carried on all Hedstrom
equipment.
15. Assignment
Without the prior written consent of Euro-Matic, Hedstrom shall have no
right to transfer or assign to any unrelated third party the right to use
Euro-Matic machinery or tooling. Provided, however, that Hedstrom may assign
this Agreement, or any of its rights hereunder, to its corporate parent or a
wholly-owned subsidiary of its parent or Hedstrom or may assign this Agreement
and all of its rights hereunder (but only in its and their entirety) to any
entity which succeeds to all or substantially all of Hedstrom's assets or those
of any permitted assignee by merger, consolidation, reorganization or purchase.
-5-
<PAGE> 6
16. Independence of Parties
This Agreement shall not be construed as creating a relationship of
joint venture partnership or principal and agent between the parties. Neither
party shall act or attempt to act or represent itself as acting directly or by
implication as agent for the other or in any manner assume or create or attempt
to assume or create any obligation on behalf of the other.
17. Euro-Matic Authority
Euro-Matic hereby warrants that it has all necessary right, title and
authority to permit Hedstrom to manufacture, package and ship Products pursuant
to this Agreement.
18. Application of Agreement to Other Products
It is understood by the parties hereto that Euro-Matic may specify that
Hedstrom produce for Euro-Matic, on the same or different machinery and molds
supplied to Hedstrom by Euro-Matic, products other than playpen balls as called
for hereunder. Subject to agreement by the parties hereto as the price payable
by Euro-Matic to Hedstrom for such other products, the parties agree that this
agreement shall apply in full for the production by Hedstrom of any such other
products.
19. Confidential Information
During the term of this Agreement and for three (3) years thereafter,
Hedstrom will regard as strictly confidential all knowledge and information
which it may acquire from Euro-Matic, or from employees or consultants,
respecting Euro-Matic's market and other private matters. This information and
knowledge shall be regarded as strictly confidential and held in trust and
solely for Euro-Matic's benefit and use, and shall not be directly disclosed by
Hedstrom other than to Euro-Matic without Euro-Matic's written permission.
Confidential information under this provision shall not include: (i) any
information that Hedstrom can demonstrate was in its possession on or prior to
the date hereof; (ii) any information available to Hedstrom on a
non-confidential basis through other sources; and (iii) any information
generally available to the public. Notwithstanding the foregoing, Hedstrom will
endeavor in good faith to keep Euro-Matic information confidential even though
such information may be generally available to the public.
20. Notice
All notice and other communication from either party hereto to the
other party under this Agreement shall be in writing and addressed to such
other party at its address first written above or sent by telex, telefax or the
equivalent thereof. Either party may by notice in writing to the other, change
its address. Notices and other communications required by this Agreement shall
be sent by registered or certified mail, return receipt requested, or the
United Kingdom equivalent thereof, and shall be deemed to have been given on
the day such notice or communication was mailed.
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<PAGE> 7
21. Governing Law
This Agreement has been entered into and shall be governed, construed
and interpreted pursuant to in accordance with the laws of the State of
Pennsylvania.
22. Integration
This Agreement sets forth the entire understanding between the parties
hereto and may not be added to or modified by oral representations or
understandings. No change in the printed terms of this Agreement shall be of
any force or effect unless in writing and signed by each party. Section
headings are for convenience only and shall not be considered a part of this
Agreement, nor referred to in any construction or interpretation thereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first written above.
HEDSTROM CORPORATION EURO-MATIC LIMITED
By: /s/ JAMES D. BRAEUNIG By: [illegible]
----------------------- -----------------------
Title: Vice President Mfg Title: President
-------------------- -------------------
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<PAGE> 8
[HEDSTROM LOGO]
Euro-Matic Limited
July 21, 1987
EXHIBIT A
SPECIFICATION
Ball Size: 73 mm
Material: Low Density Polyethylene - First Grade
Melt Index 2.0, Density 0.92
40% Virgin, 60% Regrind
Weight: 12 - 14 grams
Finish: Very little flash/minimum to none
Color: Clean and free from imperfections, stripes
and contamination
To match Euro-Matic colors
Internal Pressure: Atmosphere 1.2
Packing: 500 per carton
1 net bag/carton
Sealed center and wings
Page 4
<PAGE> 1
[HEDSTROM LETTERHEAD]
EXHIBIT 10.26
MANUFACTURING AND ROYALTY AGREEMENT
Agreement made this 13th day of April 1994, by and between Euro-Matic
Ltd., a company organized under the laws of the United Kingdom and having its
offices and principal place of business located at Sinclair House, The Avenue,
Faling, London W13 8NT, England (hereinafter referred to as "Euro-Matic") and
Hedstrom Corporation, a Delaware Corporation, having its offices and place of
business at 710 Orange Street, Ashland, Ohio, U.S.A. (hereinafter referred to
as "Hedstrom").
Hedstrom currently manufactures Euro-Matic playpen balls for Euro-Matic
per terms and conditions as set forth in "Manufacturing Agreement" dated 21
July 1987.
PLAYPEN BALLS are manufactured using molds designed by Euro-Matic in
LDPE and also the EURO-PLUS LDPE/LLDPE technology patented in the USA.
All terms and conditions of the manufacturing agreement remain in force
unaltered, except for Article 9 "Non-Compete Agreement", which will be modified
by this agreement.
The parties hereto agree as follows:
Hedstrom agrees that neither Hedstrom nor any companies affiliated with
Hedstrom will directly or indirectly market or seek to market or offer for
sale to Euro-Matic's customers or in Euro-Matic's general market (which
includes restaurants, schools, and other educational, health and supportive
institutions and the amusement industry) any items of the same or similar
nature to the products manufactured for Euro-Matic pursuant to this agreement
during the term of the agreement and for three (3) years thereafter.
Similarly Euro-Matic agrees that during the term of this agreement and
for three (3) years thereafter neither Euro-Matic or any affiliate of
Euro-Matic will market any product which is the same or similar nature to
products manufactured by Hedstrom, to the wholesale discount market, food and
drug chain stores or the retail toy industry. Either party hereto may seek
injunction relief to enforce the terms of paragraph 9.
Hedstrom now desires to market to the wholesale discount market, food
and drug chain stores and the retail toy industry a home and backyard ball pit
which will use the playpen type of ball manufactured under the manufacturing
agreement dated 21 July 1987, and as modified using the Euro-Plus technology.
<PAGE> 2
Hedstrom Corporation
Manufacturing and Royalty Agreement April 13, 1994
Euro-Matic agrees that Hedstrom may manufacture, market and offer for
sale the ball pit product with Euro-Matic balls to the aforementioned market
under the terms and conditions as set forth below:
Hedstrom will only use mold supplied by or designed by Euro-Matic and
use the Euro-Matic approved technology, so as to protect ball quality and the
play concept.
Euro-Matic will provide Hedstrom with two (2) 10-cavity, 80mm molds
with plain inserts and four (4) 4-cavity, 76mm molds with plain inserts to be
used on Hedstrom-owned blow-mold machines. The 76mm molds will also be used
from time to time to manufacture balls for Euro-Matic. However, other Euro-Matic
molds may also be used for Hedstrom ball production with the prior approval of
Euro-Matic when capacity is available.
The molds provided will be for use only by Hedstrom and will remain the
property of Euro-Matic Ltd. Euro-Matic and Hedstrom agree that normal routine
maintenance will be the responsibility of Hedstrom Corporation. Cavity and
parting line refurbishment necessary to maintain quality standards will be the
responsibility of Euro-Matic unless caused by the mis-use or abuse by Hedstrom
Corporation.
In consideration for the molds furnished and the right to market
Euro-Matic-type playpen balls to Hedstrom's traditional market, Hedstrom agrees
to compensate Euro-Matic Ltd. at the rate of $.01 per ball for all balls sold
with the ball pit. Hedstrom will also pay Euro-Matic the same royalty in
respect of any balls manufactured for the same purpose but left unsold for
whatever reason upon termination of the contract of discontinuation of the ball
pit or related products. Royalty will also be payable for balls not sold with
the ball pits, but as spares, replacement or additional supplies.
Balls sold shall mean the summarized invoice quantity of ball pits
multiplied by the number of balls per ball pit sold as spares, replacements or
additional supplies less any returns, but no deduction may be taken for
uncollectible accounts.
Within thirty (30) days after the initial shipment of the ball pit
containing the Euro-Matic balls and promptly on the 15th day of every month
thereafter, Hedstrom shall furnish to Euro-Matic a complete and accurate
statement of the balls sold by Hedstrom during the preceding calendar month.
The report shall also specify the number of balls sold independently of the
ball pits, but essentially for use with the pits.
The report will contain the number of units sold, the quantity of
Euro-Matic playpen balls included in each unit and gross amount of balls per
unit with accumulated total for all units. Such statements shall be furnished
to Euro-Matic whether or not any of the Euro-Matic balls were sold during
calendar months to which such statements refer.
2
<PAGE> 3
Hedstrom Corporation
Manufacturing and Royalty Agreement April 13, 1994
Upon demand, Euro-Matic shall at its own expense, but not more than
once in a twelve (12) month period, have the right to examine Hedstrom's
records, during normal business hours, to determine the accuracy of monthly
reports submitted.
Hedstrom shall remit at the rate of $.01 per ball the total gross
amount due with each monthly statement. Statements and remittances shall be
mailed to:
Euro-Matic Ltd.
66 West Street
Leominster, MA 01453
Attn: Evelyn Berube or whomever subsequently appointed by
Euro-Matic
To be forwarded via courier to Euro-Matic U.K.
The term of this agreement shall be self-renewing on the annual anniversary
date unless written notice is presented ninety (90) days prior to the
anniversary date. Terms of the royalty rate, however, may be negotiated each
year before the anniversary date, but it shall not be less the $.01 per ball.
EURO-MATIC LTD.
BY: [illegible]
---------------------
TITLE: Director
------------------
HEDSTROM CORPORATION
BY: James D. Braeunig
---------------------
TITLE: Vice President
------------------
3
<PAGE> 1
EXHIBIT 10.27
MANUFACTURING AGREEMENT
Agreement made this 21st day of December 1994 by and between Euro-Matic
Limited, a company organized under the laws of the United Kingdom and having
its offices and principal place of business at Sinclair House, The Avenue,
Ealing, London W13 8NT England (hereinafter referred to as "Euro-Matic") and
Hedstrom Corporation, a Delaware Corporation, having a place of business at
1401 Jacobson Avenue, Ashland, Ohio U.S.A. (hereinafter referred to as
"Hedstrom").
Euro-Matic and Hedstrom are currently parties to two separate contracts dated
July 21, 1987 and April 13, 1994 respectively regarding the production of
playpen balls for both Hedstrom and Euro-Matic. All terms and conditions of the
previous contracts remain in full force and effect and are not amended by the
terms of this Agreement.
The purpose of this Agreement is to establish the terms and conditions for the
manufacture and sale of additional playpen balls by Euro-Matic to Hedstrom.
The parties agree as follows:
1. Hedstrom Corporation currently projects the required annual volume of
playpen balls to be purchased by Hedstrom from Euro-Matic at 25,000,000
balls. Euro-Matic hereby agrees to purchase the necessary equipment
(blow molder, molds and support equipment) to produce from such
equipment and make available to Hedstrom 20,000,000 80mm playpen balls
annually. Euro-Matic also agrees to produce and make available to
Hedstrom an additional 5,000,000 balls from existing equipment at
Euro-Matic's Wilson, North Carolina facility.
2. In consideration of the investment by Euro-Matic from the purchase of
the required equipment, Hedstrom agrees to purchase a minimum of
40,000,000 playpen balls from Euro-Matic during the first two years
of this agreement, beginning January 1, 1995. If for any reason
Hedstrom shall have failed to purchase at least 40,000,000 playpen
balls by the end of the initial two year period, Hedstrom agrees to pay
to Euro-Matic an amount equal to $.0065 times the difference between
the number of balls actually purchased and 40,000,000.
3. During the third and fourth years of this agreement, the purchase price
for any balls purchased by Hedstrom shall be at $.0065 per ball
less than the then existing sell price for each ball as to which
Hedstrom paid $.0065 in accordance with paragraph 2 of this Agreement,
up to the amount previously paid to Euro-Matic for the failure to meet
the agreed upon minimum 40,000,000 balls.
4. If during the two year period starting January 1, 1995, Euro-Matic
fails to make deliveries of at least an average 5,000,000 balls
per quarter, averaged over two consecutive quarters, Hedstrom's
obligation to purchase the minimum number of balls set forth in
paragraph 2 of this Agreement shall terminate.
<PAGE> 2
5. The purchase price for playpen balls to be sold pursuant to this Agreement
shall be the sum of $.068 per ball during the term of this Agreement.
Notwithstanding the foregoing, if Hedstrom and Euro-Matic agree upon a
price change for balls manufactured by Hedstrom for Euro-Matic, such
price change shall be applied to the purchase price for balls purchased
by Hedstrom pursuant to this Agreement. The playpen balls to be purchased
by Hedstrom will be made available prepacked in a polybag with 450 mixed
color balls per polybag. Terms of the sale will be FOB Wilson, North
Carolina, net at the end of the month following date of invoice.
6. Hedstrom agrees to purchase playpen balls exclusively from Euro-Matic
during the four year term of this Agreement, provided, however, if
Hedstrom's demands should be greater than Euro-Matic's contractual
obligation to supply (25,000,000 balls annually) and Euro-Matic fails to
supply the additional requirements, Hedstrom shall have the right to
purchase the excess demand from any other source.
7. Hedstrom and Euro-Matic agree that 80mm playpen balls are required by
Hedstrom, but Hedstrom agrees that on occasion it will temporarily accept
a limited quantity of 73mm, 75mm and/or 76mm playpen balls.
8. Hedstrom agrees that the $.01 royalty per ball pit ball provided for by
that certain agreement dated April 13, 1994 between the parties will be
paid on all ball pits sold regardless of whether balls were manufactured
and/or supplied by Euro-Matic or Hedstrom Corporation per Manufacturing
and Royalty Agreement dated April 13, 1994.
9. This Agreement shall automatically renew for successive one year renewal
terms following the initial four year term, provided, however, that
either party shall have the right to terminate this Agreement by giving a
written notice of cancellation not less than 90 days prior to the
commencement of any renewal term.
10. Euro-Matic warrants and agrees that it will ship good and marketable title
to balls to Hedstrom and the balls will conform to Euro-Matic's current
specifications, will be free from defects in workmanship and material and
will comply with all applicable statutes, laws, orders, rules and other
governmental regulations. These warranties shall survive inspection,
shipment and payment.
11. Euro-Matic shall indemnify and hold harmless Hedstrom from and against the
attempted imposition by any customer of Hedstrom of any claims, damages,
suits, expenses, liabilities and judgments, and from and against the
costs (including reasonable attorneys' fees and disbursements) of
defending against the same, with respect to any such claims, damages,
suits, expenses, liabilities and judgments resulting from the sole
failure of Euro-Matic to conform to Hedstrom's specifications in the
production of Products hereunder or other negligence in the production
thereof in the part of Euro-Matic.
12. This Agreement shall not be construed as creating a relationship of joint
venture partnership or principal and agent between the parties. Neither
party shall act or attempt to act or represent itself as acting directly
or by implication as agent for the other or in any manner assume or
create or attempt to assume or create any obligation on behalf of the
other.
<PAGE> 3
13. All notices and other communications from either party hereto to the other
party under this Agreement shall be in writing and addressed to such other
party at its address first written above or sent by telex, telefax or the
equivalent thereof. Either party may by notice in writing to the other,
change its address. Notices and other communications required by this
Agreement shall be sent by registered or certified mail, return receipt
requested, or the United Kingdom equivalent thereof, and shall be deemed to
have been given on the day such notice or communication was mailed.
14. This Agreement has been entered into and shall be governed, construed and
interpreted pursuant to in accordance with the laws of the State of
Pennsylvania.
15. This Agreement sets forth the entire understanding between the parties
hereto and may not be added to or modified by oral representations or
understandings. No change in the printed terms of this Agreement shall be of
any force or effect unless in writing and signed by each party.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first written above.
HEDSTROM CORPORATION EURO-MATIC LIMITED
By: /s/ James D. Braeunig By: /s/ [ILLEGIBLE]
---------------------- ---------------------
Title: Vice-President Title: M. Director
------------------- ------------------
<PAGE> 1
EXHIBIT 10.28
[HEDSTROM CORPORATION LETTERHEAD]
LEASE
THIS LEASE AGREEMENT is made and entered into this twenty-fourth day of
January, 1992 at Ashland, Ohio, by and between J.J.D. Properties, Ashland,
Ohio, hereinafter called Lessor, and Hedstrom Corporation, Ashland, Ohio,
hereinafter called Lessee.
ARTICLE I.
Demise, Description, Use, Term and Rent
---------------------------------------
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
that certain property, hereinafter called the leased premises, situated in the
City of Ashland, County of Ashland and State of Ohio and described as follows:
The leased premises shall consist of 61,000 square feet of the
Lessor's building, manufacturing section, beginning where the current
office section ends and extending eastward to encompass a total of
61,000 square feet, being the most westerly portion of the
manufacturing facility. A suitable barrier will be placed, at Lessor's
cost, on a line running north and south at a place where there is a
total of 78,000 square feet of manufacturing space to its west. The
lessee shall occupy and rent 61,000 square feet until or unless it
exercises its option to enlarge the area to a maximum of 78,000 square
feet. On a monthly basis, the Lessee may wish to utilize the space
between the 61,000 square foot line and the 78,000 square foot line.
Utilization will be in 2,500 square foot increments up to the maximum
of 17,000 additional square feet. Any portion of this space utilized
will be payable at the then existing square footage rate. Payments will
be payable monthly for the square footage occupied at the end of each
month. Either party may cancel the additional square footage agreement
upon 60-days prior notice. Lessor agrees that the space will not be
rented to another party without giving the Lessee the option to enlarge
the regular leased space to 78,000 square feet, at which time the
additional square footage becomes a part of the lease and will continue
until the termination of the lease. Included in the original leased
premises is the manufacturing office. In addition, Lessee wishes to
lease 2,380 square feet of office space immediately adjacent to the
west end of the manufacturing area. The office space shall be on a
month-to-month basis at the same rate per square foot as the original
lease. Lessee may upon sixty-days notice elect to discontinue
Page 1
<PAGE> 2
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
use of the office area. Additionally there shall be provided a total of
fifty (50) parking spaces for the Lessee immediately adjoining the south
side of the building.
to be used as manufacturing facility and support uses, for the term of five (5)
years commencing on January 1, 1992 and ending on December 31, 1996. The Lessee
is granted the option to extend the initial lease term for five (5) three-year
extension terms. The first extension term is to be exercised by the Lessee
providing written notification to the lessor at least ninety (90) days
preceding the expiration of the initial lease term. The Lessee may extend the
lease, at its option, for a second three-year extension term by providing
written notification to the Lessor of at least ninety (90) days preceding the
end of the first extension three-year term. If the first three-year extension
term is exercised, it shall run from January 1, 1997, through December 31,
1999. If the second three-year extension term is exercised, it shall run from
January 1, 2000, through December 31, 2002. If the third through fifth
three-year extensions are exercised, the terms would be:
Third - January 1, 2003, through December 31, 2005
Fourth - January 1, 2006, through December 31, 2008
Fifth - January 1, 2009, through December 31, 2011
The annual rental shall be payable as specified in Article II.
ARTICLE II.
Rent
The Lesses shall pay to Lessor, at such address as Lessor shall
designate in writing, as rent for the lease premises, the sum of Two and .10
dollars ($2.10) per square foot of leased area, per year. The rent shall be
payable in equal monthly installments due on the first day of January 1992, and
the first day of each month thereafter during the initial lease term of five
(5) years. If the Lessee exercises its first three-year extension term, the
rental shall be in the sum of Two and 20/100 Dollars ($2.20) per square foot of
leased area, per year, payable in equal monthly installments. If the second
through fifth three-year extensions are exercised, the rental amount shall be
determined at that time. However, the rental amount per square foot will not
exceed the change in the Producer Price Index since the beginning of the
immediately preceding three-year extension.
The amount of square footage occupied by the lessee shall determine the
amount of rental to be paid to the Lessor and any changes in the amount of
square footage used by the Lessee shall change the rental as of the date of the
beginning of usage with partial months being prorated.
Page 2
<PAGE> 3
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
Additional Charges
The Lessee agrees to pay its prorated share of real estate taxes based
upon the amount of square footage occupied by the Lessee compared to the total
amount of the manufacturing area. The Lessee's share of the real estate taxes
shall not exceed Fourteen Cents ($0.14) per square foot of leased area per
year. The accrual of taxes for the Lessee shall begin on the date of occupancy
and shall be paid on a semi-annual basis corresponding with the due dates of
real estate taxes in Ashland County, Ohio.
ARTICLE III.
Utilities
The Lessor shall provide, at its cost, a separate metering system for
natural gas, electric and water usage of the Lessee. The Lessee shall be
responsible for the actual cost of gas, electric and water utilities used by it
for the leased area.
Any telephone usage shall be at the cost of the Lessee including the
cost of installation. The building is currently heated through a boiler system,
the Lessee will pay the cost of the heating gas and charge other tenants a
rateable share based on square footage used. However, tenants who do not have
any full-time employees and would require no heat will not be charged a
pro-ratio share of the heating cost. The Lessor shall provide suitable access
to sewer drains.
ARTICLE IV.
Insurance
Lessee agrees to secure from a good and responsible company or
companies doing insurance business in the State of Ohio and maintain during the
entire term of this lease the following insurance coverages:
a. Public liability insurance in the minimum amount of Five Million
Dollars ($5,000,000.00) for loss from an accident resulting in
bodily injury to or death of persons, and One Million Dollars
($1,000,000.00) for loss from an accident resulting in damage to
or destruction of property.
b. Fire and extended coverage insurance on Lessee's fixtures, goods,
wares and merchandise, in or on the leased premises.
Page 3
<PAGE> 4
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
Lessee agrees that the Lessor shall be named as an additional insured
on the aforementioned policies of insurance.
On securing the foregoing coverages, the Lessee shall give the Lessor
written notice of a certificate of insurance as to the coverages obtained.
Proof must also be given by Lessee to the Lessor that the policies provided for
in this Article expressly provides that they shall not be cancelled or altered
without thirty (30) days prior written notice to the Lessor.
If the building is damaged by fire, flood, or other casualty, the
Lessor shall make such repairs that will restore the premises to a condition at
least as good as that immediately preceding the casualty, as more fully
provided below.
If the building on the leased premises should be totally destroyed by
fire, flood, or other casualty, or if it should be so damaged that rebuilding
or repairs cannot reasonably be completed within sixty (60) working days from
the date of the occurrence, this lease shall be terminable by the Lessee and
rent shall be abated for the unexpired portion of this lease, effective as of
the date of said occurrence.
If the building or other improvements on the leased premises should be
damaged by fire, flood, or other casualty, but not to such an extent that
rebuilding or repairs cannot be reasonably completed within sixty (60) working
days from the date of the occurrence, this lease shall not terminate, but
Lessor shall, at its sole cost and risk proceed forthwith to rebuild or repair
such building and other improvements to substantially the condition to which
they existed prior to such damage. If the building and other improvements are
to be rebuilt or repaired and are untenantable in whole or in part following
such damage, the rent payable hereunder during the period in which they are
untenantable shall be adjusted equitably. In the event that lessor shall fail
to complete such rebuilding or repairs, within sixty (60) working days from
the date of occurrence, Lessee may at its option terminate this lease by
written notification at such time to Lessor, whereon all rights and obligations
hereunder shall cease.
ARTICLE V.
Waste and Nuisance
Lessee shall not commit, or suffer to be committed, any waste on the
leased premises, nor shall it maintain, commit, or permit the maintenance or
commission of any nuisance on the leased premises or use the leased premises
for any unlawful purpose.
Page 4
<PAGE> 5
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
Repairs
Lessee agrees to keep the leased premises in good order and repair,
reasonable wear and tear (and damage by accident, fire, or other casualty not
resulting from Lessee's negligence) excepted.
Lessor shall maintain the leased premises in condition fit for its
intended use and shall make all necessary repairs except that the Lessee shall
make all repairs of the leased premises occasioned by its negligent use of the
leased premises.
More specifically, Lessor shall repair and maintain the leased premises
so that the premises will have:
a. Effective waterproofing and weather protection of roof and
exterior walls, including unbroken windows and doors.
b. Plumbing facilities that conform to applicable law in effect at
the time of installation, maintained in good working order.
c. Restroom facilities for the exclusive use of the employees and
guests of Lessee.
d. A water supply approved under applicable law which is under the
control of Lessee, capable of producing hot and cold running
water.
e. Heating facilities which conform with applicable law at the time
of installation, maintained in good working order.
f. Electrical lighting, with wiring and electrical equipment which
conform with applicable law at the time of installation,
maintained in good working order.
g. Building, grounds, and appurtenances at the time of the
commencement of the lease in every part clean, sanitary, and
free from all accumulations of debris, filth, rubbish, garbage,
rodents, and vermin.
h. Floors maintained in good repair.
However, no duty on the part of the Lessor shall arise with respect to
maintenance or repairs under the above paragraph if Lessee is in substantial
violation of any one or more of the following affirmative obligations:
a. To keep that portion of the leased premises which it occupies
and uses as clean and sanitary as the condition of the premises
permits.
b. To dispose from the leased premises all rubbish, garbage and
other waste, in a clean and sanitary manner.
Page 5
<PAGE> 6
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
c. To use and operate properly all electrical, gas, and plumbing
fixtures and keep them as clean and sanitary as their condition
permits.
d. Not to permit any person on the premises, with its permission,
willfully or wantonly to destroy, deface, damage, impair, or
remove any part of the lease premises or the facilities,
equipment, or appurtenances thereto.
If, within a reasonable time after Lessee's notice to Lessor of repairs
or maintenance which Lessor has a duty to repair, Lessor neglects to make such
repairs, Lessee may repair the same itself, and if the cost of the repairs does
not require an expenditure greater than one (1) month's rent, to deduct the
expenses of such repairs from the rent.
Notwithstanding the foregoing provisions, Lessor shall have no
liability to the Lessee, nor for any damage to Lessee's property or the
interruption of Lessee's business that results from any storm, flood, riot,
civil disturbance, any act of God, or nature.
ARTICLE VI.
Usage, Alterations, Improvements and Fixtures
The intended use of the leased premises is for the conducting of the
Lessee's manufacturing of plastic products through the rotocast process. All
equipment brought to the premises or installed or affixed to the property shall
remain the personal property of the Lessee and may be removed at the expiration
of the lease or any extensions thereof. In the event that the Lessee does
remove any property from the premises at the end of the lease, than it shall be
required to restore the premises to its prior condition, normal wear and tear
excepted.
To facilitate the operation of the Lessee's manufacturing process, it
will be necessary to provide roof vents which shall be installed at the
Lessee's cost. At the expiration of the lease, the Lessee shall repair the roof
to its prior condition or, at Lessor's election, leave the roof vents in place.
The Lessee shall not alter or improve the leased premises without the prior
approval of Lessor which approval shall not unreasonably be withheld.
All improvements, equipment and fixtures placed on the leased premises
by lessee shall at all times be and remain the property of Lessee, and Lessee
shall have the option and right to remove said improvements, equipment and
fixtures at any time during the lease term and within sixty (60) days after
the expiration or sooner termination of this lease. Should Lessee fail to
remove such
Page 6
<PAGE> 7
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
improvements, equipment, fixtures, or any of them within said sixty (60) day
period, such property remaining on the leased premises shall be deemed
abandoned by the Lessee and shall thereupon become the absolute property of the
Lessor without compensation to the Lessee.
ARTICLE VII.
Environmental Matters
Lessee covenants that it will not permit any hazardous substance or
contamination to be released or discharged into or upon the premises in any
way, nor will Lessee permit any hazardous substance or contamination to be
released or discharged into any sewer or drainage system flowing through, from
or upon the land of which the premises are a part. In this regard, Lessee
agrees to indemnify and hold Lessor harmless from any and all claims, actions
and causes of action that may be asserted against Lessor (whether during the
term of this Lease or subsequent to the term) that arise out of or by reason of
Tenant's breach of its covenants under this Section. Lessor agrees that Lessee
will be held harmless from any and all claims, actions and causes of action
that may be asserted against Lessor for any release of hazardous substances
caused by former tenants prior to the commencement date of this Lease. Lessee
will also be held harmless for any hazardous substance release which may be
cause during the term of this lease by other tenants of the premises. As used
herein, the words "hazardous substance or contamination" means any substance
that is toxic, ignitable, reactive or corrosive and that is regulated by any
local, state or federal governmental agency or entity, or any material or
substance that is defined as "hazardous waste", "extremely hazardous waste" or
a "hazardous substance" under any local, state or federal law or regulation.
ARTICLE VIII.
Quiet Possession
Lessor shall, on the commencement date of the term of this lease, place
Lessee in quiet possession of the leased premises and shall secure it in the
quiet possession thereof against all persons lawfully claiming the same during
the entire lease term and any extension thereof.
Lessor covenants that the leased premises are not subject to any lien,
claim, or encumbrance, and that it is not in default or arrears in the making
of any payment or the performance of any obligation relating to the leased
premises.
ARTICLE IX.
Page 7
<PAGE> 8
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
Defaults and Remedies
If the rent provided for herein or any part thereof shall at any time
be in arrears and unpaid for more than twenty (20) days, and without any demand
being make therefor, or if the Lessee shall fail to keep and perform any of the
covenants, agreements or conditions of this lease on the part of the Lessee to
be kept and performed, or shall make an assignment for the benefit of
creditors, or if the interest of the Lessee therein shall be sold under
execution or other legal process, or if Lessee shall abandon or vacate said
premises during said term, then in any such case it shall be lawful for Lessor
to enter into said premises and again have, repossess and enjoy the same as if
this lease has not been made, and thereupon this lease and everything herein
contained on the part of Lessor to be done and performed shall cease, determine
and be utterly void; without prejudice, however, to the right of the Lessor to
recover from Lessee rent due up to the time of such entry. The commencement of
a proceeding or suit in forcible entry and detainer, or in ejectment or
otherwise, after any default by the Lessee, shall be equivalent in every
respect to an actual entry by the Lessor. In case of any default and entry by
Lessor, Lessor may relet said premises for the remainder of said term at the
highest rent reasonably obtainable and may recover from Lessee any deficiency
between the amount obtained and the rent hereinbefore reserved.
If Lessor defaults in the performance of any term, covenant, or
condition required to be performed by it under this Agreement, Lessee may elect
either one of the following:
a. After the expiration of a reasonable amount of time subsequent to
written notice to Lessor, Lessee may remedy such default by any
necessary action, and in connection with remedy may pay expenses
and employ counsel; all reasonable sums expensed or obligations
incurred by Lessee in connection therewith shall be paid by Lessor
to Lessee on demand, and on failure of such reimbursement, Lessee
may, in addition to any other right or remedy the Lessee may have,
deduct the costs and expenses thereof from rent subsequently
becoming due hereunder; or
b. Elect to terminate this Agreement after the expiration of a
reasonable amount of time to lessor of such intention, thereby
terminating this Agreement on the date designated in such notice,
unless Lessor shall have cured such default prior to the expiration
of a reasonable amount of time.
Assignment and Sublease
Lessee shall not have the right without prior approval of Lessor to
assign this lease, any interest therein, or to sublet the leased premises, or
any part thereof, provided, however, that the Lessor's approval shall not
unreasonably be withheld.
Page 8
<PAGE> 9
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
ARTICLE X.
Miscellaneous
All notices provided to be given under this Agreement shall be given by
certified mail addressed to the proper party at the following addresses:
Lessor Lessee
- ------ ------
J.J.D. Properties Hedstrom Corporation
611 County Road 620 710 Orange Street
R.D. 3 Ashland, OH 44805
Ashland, OH 44805
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
This Agreement shall be construed under and in accordance with the laws of
the State of Ohio and all obligations of the parties created hereunder are
performable in Ashland County, Ohio.
In case any one or more of the provisions contained in this lease shall
for any reason be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision thereof and this lease shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
This lease constitutes the sole and only agreement of the parties hereto
and supersedes any prior understandings or written or oral agreements between
the parties respecting the within subject matter.
No amendment, modification, or alteration of the terms hereof shall be
binding unless the same shall be in writing, dated subsequent to the date
hereof, and duly executed by the parties hereto.
No waiver by the parties hereto of any default or breach of any term,
condition, or covenant of this lease shall be deemed to be a waiver of any
other breach of the same or any other term, condition, or covenant contained
herein.
Page 9
<PAGE> 10
Lease Agreement between J.J.D. Properties
and Hedstrom Corporation
IN WITNESS WHEREOF, the undersigned Lessor and Lessee hereto execute
this agreement as of the day and year first above written.
Signed in the presence of: LESSOR
/s/ JANICE K. STEELE
- ------------------------------
/s/ [ILLEGIBLE] by [ILLEGIBLE]
- ------------------------------ -----------------------------
LESSEE
/s/ MARTIN T. ALAN
- ------------------------------
/s/ KATHY BECK by /s/ JAMES D. BRAEUNIG
- ------------------------------ -----------------------------
The State of Ohio, County of Ashland:
Before me, a notary public, in and for said County and State,
personally appeared, Lessor, J.J.D. Properties, by L. Thomas S. [ILLEGIBLE], its
proprietor, who acknowledges that he did sign the foregoing instrument for and
on behalf of said Corporation, and that the same is the free act and deed of
said Corporation, and the free act and deed of him personally and as such
officer.
In Testimony Whereof, I have hereunto set my hand and official seal at
Ashland, Ohio, this 19th day of February, 1991.
/s/ JANICE K. STEELE
--------------------------------
notary public
My Commission expires 5/2/95
Page 10
<PAGE> 1
EXHIBIT 10.29
NET LEASE AGREEMENT
OPUS NORTH CORPORATION - LANDLORD
ERO INDUSTRIES, INC. - TENANT
DATED: MAY 26, 1992
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
TERM OF LEASE
Section 1.1 Term of Lease . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
CONSTRUCTION OF IMPROVEMENTS
Section 2.1 Landlord's Improvements . . . . . . . . . . . . . . . . . . 1
Section 2.2 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Possession of Demised Premises. . . . . . . . . . . . . . . 4
Section 2.4 Construction Guaranty . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Tenant's Acceptance of Demised Premises . . . . . . . . . . 6
Section 2.6 Repair and Maintenance. . . . . . . . . . . . . . . . . . . 6
ARTICLE III
BASIC RENT
Section 3.1 Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Basic Rent Adjustment. . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Additional Rent. . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Delinquent Payments. . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 Independent Obligations. . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
USE OF DEMISED PREMISES
Section 4.1 Permitted Use. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.2 Preservation of Demised Premises . . . . . . . . . . . . . . 8
Section 4.3 Acceptance of Demised Premises . . . . . . . . . . . . . . . 8
ARTICLE V
PAYMENT OF TAXES, ASSESSMENTS, ETC.
Section 5.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . 8
Section 5.2 Tenant's Right to Contest Impositions. . . . . . . . . . . . 9
Section 5.3 Levies and Other Taxes . . . . . . . . . . . . . . . . . . . 10
Section 5.4 Evidence of Payment. . . . . . . . . . . . . . . . . . . . . 10
Section 5.5 Escrow for Taxes and Assessments . . . . . . . . . . . . . . 11
Section 5.6 Landlord's Right to Contest Impositions. . . . . . . . . . . 11
Section 5.7 Real Estate Tax Limitation . . . . . . . . . . . . . . . . . 12
ARTICLE VI
INSURANCE
Section 6.1 Tenant's Insurance Obligations . . . . . . . . . . . . . . . 12
Section 6.2 Insurance Coverage . . . . . . . . . . . . . . . . . . . . . 13
Section 6.3 Insurance Provisions . . . . . . . . . . . . . . . . . . . . 13
Section 6.4 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . 14
Section 6.5 Tenant's Indemnification of Landlord . . . . . . . . . . . . 14
Section 6.6 Unearned Premiums. . . . . . . . . . . . . . . . . . . . . . 14
Section 6.7 Blanket Insurance Coverage . . . . . . . . . . . . . . . . . 14
ARTICLE VII
UTILITIES
Section 7.1 Payment of Utilities . . . . . . . . . . . . . . . . . . . . 15
Section 7.2 Additional Charges . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
REPAIRS
Section 8.1 Tenant's Repairs . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.2 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.3 Tenant's Waiver of Claims Against Landlord . . . . . . . . . 16
Section 8.4 Prohibition Against Waste. . . . . . . . . . . . . . . . . . 16
Section 8.5 Landlord's Right to Effect Repairs . . . . . . . . . . . . . 16
<PAGE> 3
Section 8.6 Misuse or Neglect . . . . . . . . . . . . . . . . . . . . . 16
Section 8.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX
COMPLIANCE WITH LAWS AND ORDINANCES
Section 9.1 Compliance with Laws and Ordinances . . . . . . . . . . . . . 18
Section 9.2 Compliance with Permitted Encumbrances. . . . . . . . . . . . 19
Section 9.3 Tenant's Obligations . . . . . . . . . . . . . . . . . . . . 19
Section 9.4 Tenant's Right to Contest Laws and Ordinances . . . . . . . . 19
Section 9.5 Compliance with Hazardous Materials Laws. . . . . . . . . . . 19
Section 9.6 Hazardous Materials Representation by Landlord. . . . . . . . 21
Section 9.7 Cost of Compliance with Hazardous Materials Laws. . . . . . . 21
Section 9.8 Discovery of Hazardous Materials. . . . . . . . . . . . . . . 21
Section 9.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.10 Environmental Audits. . . . . . . . . . . . . . . . . . . . . 22
Section 9.11 Acts or Omissions Regarding Hazardous Materials . . . . . . . 22
Section 9.12 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE X
MECHANIC'S LIENS AND OTHER LIENS
Section 10.1 Freedom from Liens. . . . . . . . . . . . . . . . . . . . . . 22
Section 10.2 Landlord's Indemnification. . . . . . . . . . . . . . . . . . 23
Section 10.3 Removal of Liens. . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XI
INTENT OF PARTIES
Section 11.1 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 11.2 Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . 24
Section 11.3 Interest on Unpaid Amounts. . . . . . . . . . . . . . . . . . 25
ARTICLE XII
DEFAULTS OF TENANT
Section 12.1 Event of Default. . . . . . . . . . . . . . . . . . . . . . . 25
Section 12.2 Surrender of Demised Premises . . . . . . . . . . . . . . . . 26
Section 12.3 Reletting by Landlord . . . . . . . . . . . . . . . . . . . . 26
Section 12.4 Survival of Tenant's Obligations. . . . . . . . . . . . . . . 26
Section 12.5 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 12.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 12.7 Landlord's Remedies . . . . . . . . . . . . . . . . . . . . . 28
Section 12.8 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 12.9 Waiver by Tenant. . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XIII
DESTRUCTION AND RESTORATION
Section 13.1 Destruction and Restoration . . . . . . . . . . . . . . . . . 29
Section 13.2 Application of Insurance Proceeds . . . . . . . . . . . . . . 29
Section 13.3 Continuance of Tenant's Obligations . . . . . . . . . . . . . 30
Section 13.4 Availability of Insurance Proceeds. . . . . . . . . . . . . . 30
Section 13.5 Completion of Restoration . . . . . . . . . . . . . . . . . . 31
Section 13.6 Termination of Lease. . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XIV
CONDEMNATION
Section 14.1 Condemnation of Entire Demised Premises . . . . . . . . . . . 31
Section 14.2 Partial Condemnation/Termination of Lease . . . . . . . . . . 32
Section 14.3 Partial Condemnation/Continuation of Lease. . . . . . . . . . 32
Section 14.4 Continuance of Obligations. . . . . . . . . . . . . . . . . . 34
Section 14.5 Adjustment of Rent. . . . . . . . . . . . . . . . . . . . . . 34
<PAGE> 4
Section 14.6 Tenant's Interest in Alterations . . . . . . . . . . . . . . 34
ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
Section 15.1 Restriction on Transfer. . . . . . . . . . . . . . . . . . . 35
Section 15.2 Restriction From Further Termination . . . . . . . . . . . . 36
Section 15.3 Landlord's Termination Right . . . . . . . . . . . . . . . . 36
Section 15.4 Tenant's Failure to Comply . . . . . . . . . . . . . . . . . 37
Section 15.5 Sharing of Excess Rent . . . . . . . . . . . . . . . . . . . 38
ARTICLE XVI
SUBORDINATION, NONDISTURBANCE
NOTICE TO MORTGAGEE AND ATTORNMENT
Section 16.1 Subordination by Tenant. . . . . . . . . . . . . . . . . . . 37
Section 16.2 Landlord's Default . . . . . . . . . . . . . . . . . . . . . 38
Section 163. Attornment . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XVII
SIGNS
Section 17.1 Tenant's Signs . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XVIII
REPORTS BY TENANT
Section 18.1 Annual Statements. . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XIX
CHANGES AND ALTERATIONS
Section 19.1 Tenant's Changes and Alterations . . . . . . . . . . . . . . 39
ARTICLE XX
MISCELLANEOUS PROVISIONS
Section 20.1 Entry by Landlord. . . . . . . . . . . . . . . . . . . . . . 41
Section 20.2 Exhibition of Demised Premises . . . . . . . . . . . . . . . 42
Section 20.3 Indemnification by Tenant. . . . . . . . . . . . . . . . . . 42
Section 20.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 20.5 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . 43
Section 20.6 Landlord's Continuing Obligations. . . . . . . . . . . . . . 43
Section 20.7 Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 20.8 Delivery of Corporate Documents. . . . . . . . . . . . . . . 44
Section 20.9 Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . 45
Section 20.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 20.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . 45
Section 20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 20.13 Relationship of Parties. . . . . . . . . . . . . . . . . . . 45
Section 20.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 46
Section 20.15 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 20.16 Possession and Use . . . . . . . . . . . . . . . . . . . . . 46
Section 20.17 No Surrender During Lease Term . . . . . . . . . . . . . . . 46
Section 20.18 Surrender of Demised Premises. . . . . . . . . . . . . . . . 46
Section 20.19 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 20.20 Landlord Approval. . . . . . . . . . . . . . . . . . . . . . 47
Section 20.21 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 20.22 Attorney's Fees. . . . . . . . . . . . . . . . . . . . . . . 47
Section 20.23 Landlord's Limited Liability . . . . . . . . . . . . . . . . 47
Section 20.24 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 20.25 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 48
Section 20.26 Joint and Several Liability. . . . . . . . . . . . . . . . . 48
Section 20.27 Time is of the Essence . . . . . . . . . . . . . . . . . . . 48
<PAGE> 5
ARTICLE XXI
MOVING EXPENSES ALLOWANCE
ARTICLE XXII
REIMBURSEMENT OF COST OF
PREPARING THE WORKING DRAWINGS
ARTICLE XXIII
OPPORTUNITY TO NEGOTIATE EXTENSION TERM
ARTICLE XXIV
ASSIGNMENT AND SUBLETTING TO WHOLLY OWNED SUBSIDIARY
ARTICLE XXV
FAILURE TO DELIVER POSSESSION
EXHIBITS
Exhibit "A" Legal Description and Permitted Encumbrances
Exhibit "B" Preliminary Contract Documents
Exhibit "C" Working Drawings
Exhibit "D" Allowance Items
<PAGE> 6
NET LEASE AGREEMENT
THIS NET LEASE AGREEMENT ("Lease"), made this 26th day of May, 1992, by
and between OPUS NORTH CORPORATION, an Illinois corporation ("Landlord") and
ERO INDUSTRIES, INC., a Delaware corporation ("Tenant").
WITNESSETH:
Landlord, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of Tenant,
its successors and assigns, to be paid, kept, observed and performed, has
leased, rented, let and demised, and by these presents does lease, rent, let
and demise unto Tenant, and Tenant does hereby take and hire, upon and subject
to the conditions and limitations hereinafter expressed, all that parcel of
land situated in the Village of Mount Prospect, County of Cook and State of
Illinois, described in Exhibit "A" attached hereto and made a part hereof,
together with any appurtenant easements described in said Exhibit "A" (the
"Land"), together with all improvements located on and to be constructed
thereon. Landlord's Improvements (as defined in Article II) and all other
improvements, machinery, equipment, fixtures and other property, real, personal
or mixed (except Tenant's trade fixtures and equipment) installed or located
thereon, together with all additions, alterations and replacements thereof are
hereinafter referred to as the "Improvements." The Land and the Improvements
are hereinafter referred to as the "Demised Premises." The Demised Premises are
subject to the easements, restrictions, reservations and other "permitted
encumbrances" set forth in said Exhibit "A". The structures located upon and
being a part of the Demised Premises which are constructed for human occupancy
or for storage of goods, merchandise, equipment, or other personal property are
collectively called the "Building."
ARTICLE I
TERM OF LEASE
Section 1.1 Term of Lease. The initial term of this Lease shall
commence on the fifteenth day of July, 1992, and shall end seven (7) years, two
(2) weeks and no (0) months thereafter, on the thirty-first day of July, 1999.
The initial term of the Lease, as set forth above, is sometimes hereinafter
referred to as the "Initial Term." Any reference to the term of this Lease or
similar reference shall be a reference to the Initial Term together with any
renewal terms (if any) of this Lease or any extensions to or modifications of
the Initial Term. Tenant shall not be liable to Landlord for the payment of
Basic Rent (as hereinafter defined) or the payment of any other obligation to
be paid by Tenant until the Commencement Date as defined in Section 2.3.
ARTICLE II
CONSTRUCTION OF IMPROVEMENTS
Section 2.1 Landlord's Improvements. Landlord agrees to furnish at
Landlord's sole cost and expense all of the material, labor, and equipment for
the construction on the Land of the improvements ("Landlord's Improvements")
contemplated by the documents listed on Exhibit B attached hereto and made a
part hereof (such documents are sometimes hereinafter collectively referred to
as the "Preliminary Contract Documents"). Landlord's Improvements shall be
constructed in a good and workmanlike manner in substantial accordance with the
Preliminary Contract Documents and Landlord agrees to complete the construction
thereof in accordance with the applicable building code as it is presently
interpreted and enforced by the governmental bodies having jurisdiction thereof
subject to the conditions and limitations set forth in the third succeeding
paragraph. Landlord's Improvements shall consist of, among other things, an
expansion of the existing
<PAGE> 7
parking facility serving the Building to provide a total of 140 standard size
parking spaces for the Building. Tenant agrees to cause a complete set of
working drawings, including HVAC, plumbing, sprinkler, electrical,
architectural and structural (collectively, the "Working Drawings") to be
prepared in accordance with (and not reflecting items in excess of those
contemplated by) the Preliminary Contract Documents and the aforesaid building
code and to submit the same to Landlord for its approval. Landlord agrees that
it will not withhold its approval except for just and reasonable cause and will
not act in an arbitrary or capricious manner with respect to the approval of
the Working Drawings. The Working Drawings shall be approved by Landlord and
Tenant by affixing thereon the signature or initials of an authorized officer
or employee of each of the respective parties hereto and copies thereof shall
be attached to each party's copy of this Lease and make a part hereof as
Exhibit "C." Such Exhibit "C" shall be in lieu of and shall replace the
Preliminary Contract Documents except as to non-construction matters contained
in the Preliminary Contract Documents such as allowances and exclusions not
expressly and specifically superseded by the Working Drawings. the signature of
an authorized officer or employee shall be deemed conclusive evidence of the
approval indicated by such signature. Landlord agrees to appoint competent
personnel to work with Tenant in the preparation of the Working Drawings and
Tenant agrees to appoint an officer or employee of Tenant to work with Landlord
in the preparation of the Working Drawings. In addition to the Working Drawings
(which Tenant shall cause to be prepared), Landlord shall cause to be prepared
civil engineering drawings ("Civil Drawings") for the expansion of the parking
lot, which Civil Drawings shall be subject to Tenant's review and approval.
Tenant agrees that it will not act in an arbitrary or capricious manner with
respect to the approval of the Civil Drawings. The Civil Drawings will be
attached to the Lease in the manner provided above relative to attachment of
the Working Drawings.
After Tenant delivers the Working Drawings to Landlord, Landlord shall
have ten (10) days to approve or disapprove the Working Drawings and, in the
event Landlord does not approve the Working Drawings, Landlord shall notify
Tenant of Landlord's comments to the Working Drawings and under what conditions
Landlord would approve the Working Drawings. In the event Landlord disapproves
the Working Drawings and furnishes comments to Tenant within the time limits
prescribed herein, Tenant shall incorporate the comments into the Working
Drawings within five (5) days from receipt thereof and resubmit the Working
Drawings to Landlord who shall have five (5) days to approve or disapprove the
revised Working Drawings and, in the event Landlord does not approve the
revised Working Drawings, the procedure set forth herein shall be followed
until such time as Landlord has approved the Working Drawings.
Tenant shall be responsible for procuring the building permit
("Building Permit") for Landlord's Improvements, which Building Permit shall be
procured by Tenant and furnished to Landlord on or before May 27, 1992.
Landlord shall reasonably cooperate with Tenant in procuring the Building
Permit; provided, however, nothing herein contained shall diminish Tenant's
responsibility to procure the Building Permit and deliver the same to Landlord
on or before May 27, 1992. When Landlord requests Tenant to specify details or
layouts, Tenant shall specify same, subject to the provisions of the
Specifications and the Drawings, so as not to delay completion of the
Landlord's Improvements. Tenant shall pay to Landlord all increased costs
reasonably incurred by Landlord and damages incurred by Landlord attributable
to delays solely caused by Tenant; provided, however, in the event the delay
caused by Tenant is of a nature that does not preclude Landlord from otherwise
proceeding to complete all or a portion of the Landlord's Improvements,
Landlord shall, to the extent possible under the circumstances, use reasonable
efforts to endeavor to proceed to complete the portion of Landlord's
Improvements not affected by
2
<PAGE> 8
such delay.
Landlord and Tenant expressly agree and acknowledge that Tenant has
independently employed and retained the architectural firm of Tilton and Lewis,
Inc. ("Tilton") and the engineering firm of Klaucens & Associates, Inc.
("Klaucens; "Klaucens; "Tilton & Klaucens being sometimes hereinafter
collectively referred to as "Tenant's Consultants") in connection with the
preparation of certain of the Preliminary Contract Documents and Working
Drawings. Tenant shall, at Tenant's sole cost and expense, be responsible for
causing the Working Drawings to be prepared in accordance with applicable
building codes and rules and regulations of governmental authorities having
jurisdiction thereof and other applicable laws, including without limitation The
Americans With Disabilities Act as amended from time to time and the rules and
regulations promulgated thereunder (the "Act"). Tenant shall cause Landlord to
be named as a additional insured on the "errors and omissions" insurance policy
maintained by Klaucens, which policy shall be written in limits of not less
than One Million and 00/100 Dollars ($1,000,000.00). Tenant agrees to save,
defend, indemnify and hold Landlord and its employees and agents from and
against any loss, cost, liability, damage, claim (whether or not the same is
groundless, false or fraudulent), cause of action, expense (including without
limitation reasonable attorneys' fees), penalties or settlement arising from or
related to (i) any architectural, design and/or engineering defects contained
in the Preliminary Contract Documents prepared by Tenant's Consultants or the
Working Drawings, including without limitation non-compliance of the same with
applicable building codes, and rules and regulations of governing bodies having
jurisdiction thereof or other applicable laws, including the Act or (ii) errors
and/or omissions and/or negligent acts by Tenant's Consultants; provided,
however, nothing herein contained shall diminish Landlord's obligation to
construct Landlord's Improvements substantially in accordance with the Working
Drawings, and in the event Landlord fails to so construct Landlord's
Improvements Landlord shall be responsible for matters caused solely and
directly by such failure (excluding any matter attributable to any
architectural, design or engineering defects contained in the Preliminary
Contract Documents prepared by Tenant's Consultants or the Working Drawings or
from errors and/or omissions and/or negligent acts by Tenant's Consultants). In
the event of any dispute as to construction of Landlord's Improvements in the
substantial accordance with the Working Drawings or the existence of any
incomplete items referred to in Section 2.5 or the completion thereof, such
dispute shall be decided by Landlord and Tenant's respective architects
(sometimes hereinafter collectively referred to as the "Architects"). If said
dispute has not been resolved within two (2) business days from submission of
same to the Architects, the Architects shall appoint a third party to resolve
the dispute, with directions to resolve said dispute no later than five (5)
business days from the date of the dispute.
<PAGE> 9
If said dispute has not been resolved within the time limits prescribed, then
the parties shall have all available rights and remedies at law or in equity or
otherwise, subject to the terms of this Lease.
If Tenant's requests for Landlord's Improvements cause the aggregate
price allowances set forth in Exhibit "D" attached hereto and made a part
hereof to be exceeded or result in any other increase in cost to Landlord, such
excess price or increased cost (together with a 10% general contractor's fee)
shall be paid by Tenant to Landlord in cash within thirty (30) days from the
date Landlord's Improvements are substantially completed and Landlord has
submitted a written statement to Tenant requesting such payment. In the event
that the price of any portion of Landlord's Improvements for which an allowance
is provided in Exhibit D is less than the amount allowed, there shall be no
cash or other refund.
Section 2.2 Force Majeure. Landlord shall diligently proceed with the
construction of the Landlord's Improvements and complete the same and deliver
possession thereof to Tenant on or about July 15, 1992; provided, however, if
delay is caused or contributed to by labor disputes, casualties, acts of God or
the public enemy, governmental embargo restrictions, shortages of fuel, labor,
of building materials, action or non-action of public utilities, or of local
state or federal governments affecting the work, or other causes (other than
obtaining financing for the construction of Landlord's Improvements) beyond
Landlord's reasonable control, including without limitation delays in the
issuance of necessary permits and approvals and delays caused or contributed to
by (i) failure of Tenant to secure the Building Permit and deliver the same to
Landlord on or before May 27, 1992 unless such failure is solely and directly
caused by Landlord's unwillingness to reasonably cooperate with Tenant in
procuring the Building Permit (notwithstanding that Landlord may be able
independently to secure preliminary approvals or permits for commencement of
construction of Landlord's Improvements or any portion thereof) or (ii) failure
of Tenant to execute and deliver a counterpart of this Lease Agreement in a
form acceptable to Landlord on or before May 22, 1992, or failure of Tenant to
deliver all of the Working Drawings to Landlord on or before May 22, 1992, or
(iii) failure of Tenant to make equipment and material selections required by
the Specifications in a prompt and timely manner, or (iv) act or neglect of
Tenant, or those acting for or under Tenant, including without limitation,
change orders requested by Tenant (the matters set forth in clauses (i), (ii),
(iii) and (iv) above are sometimes hereinafter referred to individually as a
"Tenant Delay" and collectively as the "Tenant Delays"), then the time of
completion of said construction shall be extended for the additional time
caused by such delay (such delays, including Tenant Delays, are each sometimes
hereinafter referred to as an "Excused Delay") and the rent reserved and
covenant to pay same shall not commence until the Commencement Date (as herein
defined) and failure to give possession on the date of commencement of the
Initial Term shall in no way affect the validity of this Lease or the
obligations of Tenant hereunder. In the event completion of said construction
is delayed in accordance with the provisions of this Section 2.2, the
termination date of the Initial Term shall be delayed for an equal number of
days so that in all events the Initial Term shall consist of seven (7) years,
two (2) weeks and no (0) months.
Section 2.3 Possession of Demised Premises. Tenant shall be
responsible for Landlord's increased cost of labor and materials if any, and
loss of rent, arising out of delay in the completion of the Demised Premises
caused by the occurrence of a Tenant Delay. Tenant shall not be liable to
Landlord for the payment of Basic Rent or the payment of any other obligation to
be paid by Tenant under this Lease nor shall Tenant have any right to
possession or use of the Demised Premises until the date upon which the Demised
4
<PAGE> 10
Premises are substantially completed and ready for occupancy for the conduct of
Tenant's business by Tenant ("Commencement Date"). If the Landlord's
Improvements are not substantially completed but are partially ready for
occupancy, Tenant may, but need not, occupy the portion of same that is ready
for occupancy, and in the event of such occupancy Tenant shall pay to Landlord
the pro rata portion of the full Basic Rent and the pro rata portion of the
full amount of other obligations to be paid by Tenant hereunder equitably based
upon the value and area of the Building occupied by Tenant. If Tenant occupies
any portion of the Demised Premises prior to substantial completion of the
Landlord's Improvements the terms of this Lease shall apply to such occupancy
or use of the Demised Premises by Tenant. Basic Rent and the payment of other
obligations to be paid by Tenant shall commence upon the Commencement Date;
provided, however, in the event that Landlord's Improvements are partially
completed and partially ready for occupancy, and are occupied by Tenant, a pro
rata portion of the Basic Rent and the pro rata portion of all other
obligations to be paid by Tenant shall be payable commencing with such date of
partial occupancy, and shall be equitably adjusted from time to time based upon
the area and value of the portion of Landlord's Improvements substantially
completed and ready for Tenant's occupancy. The failure of Tenant to take
possession of or to occupy the Demised Premises or any portion thereof which
Tenant is required to occupy on or after the date Landlord's Improvements or
such applicable portion thereof are substantially complete and ready for
occupancy by Tenant shall not serve to relieve Tenant of said obligations or
delay payments by Tenant to Landlord. Tenant shall be allowed not less than 30
days prior to the Commencement Date to install its machinery, equipment,
fixtures and other personal property on the Demised Premises during the final
stages of completion of construction provided that Tenant does not thereby
interfere with the completion of construction or occasion any labor dispute as
a result of such installations and provided further that Tenant does hereby
agree to assume all risk of loss or damage to such machinery, equipment,
fixtures and other personal property, and to indemnify, defend and hold harmless
Landlord from any loss or damage to such machinery, equipment, fixtures and
personal property, and all liability, loss or damage arising from any injury to
the property of Landlord, or its contractors, subcontractors or materialmen,
and any death or personal injury to any person or persons to the extent arising
out of such installations, except for liability, loss or damage caused by
Landlord's negligence or willful misconduct. Delay in putting Tenant in
possession of the Demised Premises shall not make Landlord liable for any
damages arising therefrom other than as contemplated by Article XXV hereof.
Section 2.4 Construction Guaranty. Landlord guarantees the
Landlord's Improvements against defective workmanship and/or materials for a
period of one year from the date of substantial completion of Landlord's
Improvements and Landlord agrees, at its sole cost and expense, to repair or
replace any defective item occasioned by poor workmanship and/or materials
during said one-year period, and performance of such one-year guaranty shall be
Landlord's sole and exclusive obligation with respect to defective workmanship
and/or materials, and Tenant's rights to enforce such one-year guaranty shall
be Tenant's sole and exclusive remedy with respect to such defective
workmanship and/or materials in limitation of any contract, warranty or other
rights, whether express or implied, that Tenant may otherwise have under
applicable law. The Landlord's Improvements shall be considered substantially
completed at such time as the municipality having jurisdiction thereof issues a
certificate of occupancy permitting Tenant to occupy the Landlord's
Improvements or takes such other action as may be customary to permit occupancy
or use thereof; provided, however, the issuance of a certificate of occupancy
of such other action as may be customary to permit occupancy or use thereof
shall not be a condition to payment of rent or commencement of the term if
failure to secure such certificate or action is caused by the act or neglect of
Tenant or unless matters required for issuance
5
<PAGE> 11
are not the responsibility of Landlord (e.g. procurement of operating permits
and approvals or any other requirements related to, or applicable to because
of, particular uses proposed for the Landlord's Improvements). From and after
the expiration of the one year guaranty of Landlord against defective
workmanship and material Landlord agrees to cooperate with Tenant in the
enforcement by Tenant, at Tenant's sole cost and expense, of any express
warranties or guaranties of workmanship or materials given by subcontractors or
materialmen that guarantee or warrant against defective workmanship or
materials for a period of time in excess of the one-year period described above
and to cooperate with Tenant in the enforcement by Tenant, at Tenant's sole
cost and expense, of any service contracts that provide service, repair or
maintenance to any item incorporated in the Building for a period of time in
excess of such one-year period; provided, however, to the extent any of the
foregoing warranties are assignable to Tenant, Landlord shall assign the same
(which assignment shall not be effective until expiration of Landlord's one
year warranty against defective workmanship and materials), in which event
Landlord's above covenant shall be inoperative with respect to the warranties
and contracts so assigned, and provided further Landlord shall not assign any
such warranties (or cooperate with Tenant as above provided) which relate to
Landlord's obligations under Section 8.7 hereof, which warranties shall be
enforceable exclusively by Landlord during the entire term of this Lease
Agreement.
Section 2.5 Tenant's Acceptance of Demised Premises. Within a period
of 120 days after commencement of the Initial Term, Tenant shall notify
Landlord, in writing, of all portions of the Landlord's Improvements which are
incomplete and Landlord shall use reasonable efforts to complete such items
within thirty (30) days thereafter, subject to the occurrence of Excused
Delays.
Section 2.6 Repair and Maintenance. Save and except for the one year
guaranty against defective items occasioned by poor workmanship and/or
materials referred to in Section 2.4 above and the incomplete items referred to
in Section 2.5 above, Tenant upon commencement of the term shall have and hold
the Demised Premises as the same shall then be without any liability or
obligation on the part of Landlord for making any alterations, improvements or
repairs of any kind in or about the Demised Premises for the term of this
Lease, or any extension or renewal thereof, and Tenant agrees to maintain the
Demised Premises and all parts thereof in a good and sufficient state of repair
as required by the provisions of this Lease.
ARTICLE III
BASIC RENT
Section 3.1 Basic Rent. In consideration of the leasing of the Demised
Premises and the construction of the Landlord's Improvements referred to in
Article II hereof, Tenant covenants to pay Landlord, without previous demand
therefor and without any right of setoff or deduction whatsoever, at the office
of Landlord at:
c/o Normandale Properties
North Corporation
2311 West 22nd Street
Oak Brook, Illinois 60521
Attention: Accounting Manager
or at such other place as Landlord may from time to time designate in writing,
an annual rental for the Initial Term of this Lease of Three Hundred Twenty-Two
Thousand Three Hundred Sixty-Seven and 52/100 Dollars ($322,367.52), payable
monthly, in advance, in equal installments of Twenty-Six Thousand Eight Hundred
Sixty-Three and 96/100 Dollars ($26,863.96), commencing on the Commencement
Date
6
<PAGE> 12
and continuing on the first day of each month thereafter for the succeeding
months during the balance of the Initial Term. The rent provided for in this
Section 3.1 is hereinafter called the "Basic Rent."
Section 3.2 Basic Rent Adjustment. If the Initial Term of this Lease
does not commence on the first day of a calendar month or end on the last day
of a calendar month, the installment of Basic Rent for the partial calendar
month at the commencement or the termination of the term shall be prorated on
the basis of the number of days of the term within such calendar month.
Section 3.3 Additional Rent. Except as otherwise expressly provided
herein, the Basic Rent shall be absolutely net to Landlord so that this lease
shall yield, net to Landlord, the Basic Rent specified in Section 3.1 in each
year of the term of this Lease and that all impositions, insurance premiums,
utility charges, maintenance, repair and replacement expenses, all expenses
relating to compliance with laws, and all other costs, fees, charges, expenses,
reimbursements and obligations of every kind and nature whatsoever relating to
the Demised Premises (excepting only Landlord's portion of the proration of
real estate taxes and special assessments for the first and last years of the
term of this Lease referred to in Section 5.1 and certain taxes of Landlord
referred to in the last sentence of Section 5.3 of this Lease) which may arise
or become due during the term or by reason of events occurring during the term
of this Lease shall be paid or discharged by Tenant. In the event Tenant fails
to pay or discharge any imposition, insurance premium, utility charge,
maintenance repair or replacement expense which it is obligated to pay or
discharge, Landlord may, but shall not be obligated to pay the same, and in
that event Tenant shall reimburse Landlord therefor upon demand and pay the
same as additional rent (all such items being sometimes hereinafter
collectively referred to as "Additional Rent"), and Tenant hereby agrees to
indemnity, defend and save Landlord harmless from the against such impositions,
insurance premiums, utility charges, maintenance, repair and replacement
expenses, all expenses relating to compliance with laws, and all other costs,
fees, charges, expenses, reimbursements and obligations above referred to.
Anything herein to the contrary notwithstanding, the rights and obligations of
the parties hereto relating to environmental matters shall be governed
exclusively by the provisions of Sections 9.5, 9.6, 9.7, 9.8, 9.9, 9.10, 9.11
and 9.12.
Section 3.4 Delinquent Payments. Except as otherwise expressly
provided herein, all payments of Basic Rent and Additional Rent shall be
payable without previous demand therefor and without any right of setoff or
deduction whatsoever, and in case of nonpayment of any item of Additional Rent
by Tenant when the same is due, Landlord shall have, in addition to all its
other rights and remedies, all of the rights and remedies available to Landlord
under the provisions of this Lease or by law in the case of nonpayment of Basic
Rent. The performance and observance by Tenant of all the terms, covenants,
conditions and agreements to be performed or observed by Tenant hereunder shall
be performed and observed by Tenant at Tenant's sole cost and expense. Any
installment of Basic Rent or Additional Rent or any other charges payable by
Tenant under the provisions hereof which shall not be paid when due or within
ten days thereafter shall bear interest at an annual rate equal to two
percentage points per annum in excess of the published "prime rate" or "base
rate" of interest charged by Norwest Bank Minneapolis, N.A. (or similar
institution if said Bank shall cease to exist or to publish such a prime rate)
from the date when the same is due hereunder until the same shall be paid, but
in no event in excess of the maximum lawful rate permitted to be charged by
Landlord against Tenant. Said rate of interest is sometimes hereinafter
referred to as the "Maximum Rate of Interest." In addition, any installment of
Basic Rent or Additional Rent or any other charge payable by Tenant under the
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provisions hereof which shall not be paid when due and which shall remain
unpaid ten days thereafter shall be subject to a late payment fee of 5% of the
unpaid amount.
Section 3.5 Independent Obligations. Any term or provision of this
Lease to the contrary notwithstanding, the covenants and obligations of Tenant
to pay Basic Rent and Additional Rent hereunder shall be independent from any
obligations, warranties or representations, express or implied, if any, of
Landlord herein contained.
ARTICLE IV
USE OF DEMISED PREMISES
Section 4.1 Permitted Use. The Demised Premises including all
buildings or other improvements hereafter erected upon the same shall be used
for such activities as may be lawfully carried on in and about the Demised
Premises. Tenant shall not use or occupy the same, or knowingly permit them to
be used or occupied, contrary to any statute, rule, order ordinance,
requirement or regulation applicable thereto, or in any manner which would
violate any certificate of occupancy affecting the same, or which would make
void or voidable any insurance then in force with respect thereto or which
would make it impossible to obtain fire or other insurance thereon required to
be furnished hereunder by Tenant, or which would cause structural injury to the
improvements or cause the value or usefulness of the Demised Premises, or any
portion thereof, substantially to diminish (reasonable wear and tear excepted),
or which would constitute a public or private nuisance or waste or would
violate any Hazardous Materials Laws (as defined in Section 9.5), and Tenant
agrees that it will promptly, upon discovery of any such use, take all
necessary steps to compel the discontinuance of such use.
Section 4.2 Preservation of Demised Premises. Tenant shall not use,
suffer, or permit the Demised Premises, or any portion thereof, to be used by
Tenant, any third party or the public in such manner as might reasonably tend
to impair Landlord's title to the Demised Premises, or any portion thereof, or
in such manner as might reasonably make possible a claim or claims of adverse
usage or adverse possession by the public, as such, or third persons, or of
implied dedication of the Demised Premises, or any portion thereof. Nothing in
this Lease contained and no action or inaction by Landlord shall be deemed or
construed to mean that Landlord has granted to Tenant any right, power or
permission to do any act or make any agreement that may create, or give rise to
or be the foundation for any such right, title, interest, lien, charge or other
encumbrance upon the estate of Landlord in the Demised Premises.
Section 4.3 Acceptance of Demised Premises. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Demised Premises or the Building or with respect
to the suitability or fitness of either for the conduct of Tenant's business or
for any other purpose and Tenant accepts the Demised Premises in an "as is"
condition subject to the provisions of Article II hereof. Tenant shall comply
with any recorded covenants, conditions, and restrictions affecting the Demised
Premises and the Building as of the commencement of the Lease or which are
recorded during the Lease Term.
ARTICLE V
PAYMENT OF TAXES, ASSESSMENTS, ETC.
Section 5.1 Payment of Impositions. Tenant covenants and agrees to pay during
the term of this Lease, as Additional Rent, before any fine, penalty, interest
or cost may be added thereto for
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the nonpayment thereof, all real estate taxes, special assessments, water rates
and charges, sewer rates and charges, including any sum or sums payable for
present or future sewer or water capacity, charges for public utilities, street
lighting, excise levies, licenses, permits, inspection fees, other governmental
charges, and all other charges or burdens of whatsoever kind and nature
(including costs, fees, and expenses of complying with any restrictive
covenants or similar agreements to which the Demised Premises are subject)
incurred in the use, occupancy, ownership, operations, leasing or possession of
the Demised Premises, without particularizing by any known name or by whatever
name hereafter called, and whether any of the foregoing be general or special,
ordinary or extraordinary, foreseen or unforeseen (all of which are sometimes
herein referred to as "Impositions"), which at any time during the term may
have been or may be assessed, levied, confirmed, imposed upon, or become a lien
on the Demised Premises, or any portion thereof, or any appurtenance thereto,
rents or income therefrom, and such easements or rights as may now or hereafter
be appurtenant or appertain to the use of the Demised Premises. Tenant shall
pay all special (or similar) assessments for public improvements or benefits
which, during the term of this Lease shall be laid, assessed, levied or imposed
upon or become payable or become a lien upon the Demised Premises, or any
portion thereof; provided, however, that if by law any special assessment is
payable (without default) or, at the option of Landlord, may be paid (without
default) in installments (whether or not interest shall accrue on the unpaid
balance of such special assessment), Tenant may pay the same, together with any
interest accrued on the unpaid balance of such special assessment in
installments as the same respectively become payable and before any fine,
penalty, interest or cost may be added thereto for the nonpayment of any such
installment and the interest thereon. Tenant shall pay all special assessments
or installments thereof (including interest accrued thereon), whether
heretofore or hereafter laid, assessed, levied or imposed upon the Demised
Premises, or any portion thereof, which are due and payable during the term of
this Lease. Landlord shall pay all installments of special assessments
(including interest accrued on the unpaid balance) which are payable prior to
the commencement and after the termination date of the term of this Lease.
Tenant shall pay all real estate taxes, whether heretofore or hereafter levied
or assessed upon the Demised Premises, or any portion thereof, which are due
and payable during the term of this Lease. Landlord shall pay all real estate
taxes which are payable prior to the commencement of the term of this Lease and
after the termination date of the term of this Lease regardless of the year
assessed and levied. Provisions herein to the contrary notwithstanding,
Landlord shall pay that portion of the real estate taxes and installments of
special assessments due and payable in respect to the Demised Premises during
the year the term commences and the year in which the term ends which the
number of days in said year not within the term of this Lease bears to 365, and
Tenant shall pay the balance of said real estate taxes and installments of
special assessments during said years.
Section 5.2 Tenant's Right to Contest Impositions. Subject to Section
5.6 hereof, Tenant shall have the right at its own expense to contest the
amount or validity, in whole or in part, of any Imposition by appropriate
proceedings diligently conducted in good faith, but only after payment of such
Imposition, unless such payment, or a payment thereof under protest, would
operate as a bar to such contest or interfere materially with the prosecution
thereof, in which event, notwithstanding the provisions of Section 5.1 hereof,
Tenant may postpone or defer payment of such Imposition if (a) neither the
Demised Premises nor any portion thereof would, by reason of such postponement
or deferment, be in danger of being forfeited or lost, and (b) Tenant shall
have deposited with Landlord cash or a certificate of deposit payable to
Landlord issued by a national bank or federal savings and loan association in
the amount of the Imposition so contested and unpaid, together with all
interest and penalties which may accrue in Landlord's
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<PAGE> 15
reasonable judgment in connection therewith, and all charges that may or might
be assessed against or become a charge on the Demised Premises, or any portion
thereof, during the pendency of such proceedings. If, during the continuance of
such proceedings, Landlord shall, from time to time, reasonably deem the amount
deposited, as aforesaid, insufficient, Tenant shall, upon demand of Landlord,
make additional deposits of such additional sums of money or such additional
certificates of deposit as Landlord may reasonably request. Upon failure of
Tenant to make such additional deposits, the amount theretofore deposited may
be applied by Landlord to the payment, removal and discharge of such
Imposition, and the interest, fines and penalties in connection therewith, and
any costs, fees (including attorney's fees) and other liability (including
costs incurred by Landlord) accruing in any such proceedings. Upon the
termination of any such proceedings, Tenant shall pay the amount of such
Imposition or part thereof, if any, as finally determined in such proceedings,
the payment of which may have been deferred during the prosecution of such
proceedings, together with any costs, fees, including attorney's fees,
interest, penalties, fines and other liability in connection therewith, and
upon such payment Landlord shall return all amounts or certificates deposited
with it with respect to the contest of such Imposition, as aforesaid, or, at
the written direction of Tenant, Landlord shall make such payment
out of the funds on deposit with Landlord and the balance, if any, shall be
returned to Tenant. Tenant shall be entitled to the refund of any Imposition,
penalty, fine and interest thereon received by Landlord which have been paid by
Tenant or which have been paid by Landlord but for which Landlord has been
previously reimbursed in full by Tenant. Landlord shall not be required to join
in any proceedings referred to in this Section 5.2 unless the provisions of any
law, rule or regulation at the time in effect shall require that such
proceedings be brought by or in the name of Landlord, in which event Landlord
shall join in such proceedings or permit the same to be brought in Landlord's
name upon compliance with such conditions as Landlord may reasonably require.
Landlord shall not ultimately be subject to any liability for the payment of
any fees, including attorney's fees, costs and expenses in connection with such
proceedings. Tenant agrees to pay all such fees (including reasonable
attorney's fees), costs and expenses or, on demand, to make reimbursement to
Landlord for such payment. During the time when any such certificate of deposit
is on deposit with Landlord, and prior to the time when the same is returned to
Tenant or applied against the payment, removal or discharge of Impositions, as
above provided, Tenant shall be entitled to receive all interest paid thereon,
if any. Cash deposits shall not bear interest.
Section 5.3. Levies and Other Taxes. If, any time during the term of
this Lease, any method of taxation shall be such that there shall be levied,
assessed or imposed on Landlord, or on the Basic Rent or Additional Rent, or on
the Demised Premises or on the value of the Demised Premises, or any portion
thereof, a capital levy, sales or use tax, gross receipts tax or other tax on
the rents received therefrom, or a franchise tax, or an assessment, levy or
charge measured by or based in whole or in part upon such rents or value, Tenant
covenants to pay and discharge the same, it being the intention of the parties
hereto that the rent to be paid hereunder shall be paid to Landlord absolutely
net without deduction or charge of any nature whatsoever foreseeable or
unforeseeable, ordinary or extraordinary, or of any nature, kind or description,
except as in this Lease otherwise expressly provided. Nothing in this Lease
contained shall require Tenant to pay any municipal, state or federal net income
or excess profits taxes assessed against Landlord, or any municipal, state or
federal capital levy, estate, succession, inheritance or transfer taxes of
Landlord, or corporation franchise taxes imposed upon any corporate owner of the
fee of the Demised Premises.
Section 5.4 Evidence of Payment. Tenant covenants to furnish
Landlord, within 15 days after the date upon which any
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Imposition or other tax, assessment, levy or charge would be delinquent,
official receipts of the appropriate taxing authority, or other appropriate
proof satisfactory to Landlord, evidencing the payment of the same. If Tenant
has failed to furnish Landlord with official receipts of the appropriate taxing
authority or other appropriate proof satisfactory to Landlord evidencing
payment of any Imposition or other tax, assessment, levy or charge within 15
days after the date upon which the same would be delinquent, the certificate,
advice or bill of the appropriate official designated by law to make or issue
the same or to receive payment of any Imposition or other tax, assessment, levy
or charge may be relied upon by Landlord as sufficient evidence that such
Imposition or other tax, assessment, levy or charge is due and unpaid at the
time of the making or issuance of such certificate, advice or bill; provided,
however, so long as Tenant is not otherwise in default hereunder, Landlord
shall notify Tenant (in writing or orally if given to Tenant's Senior Vice
President of Finance) prior to payment of any such Imposition by Landlord.
Section 5.5 Escrow for Taxes and Assessments. At Landlord's written
demand after any Event of Default and for as long as such Event of Default is
uncured, Tenant shall pay to Landlord the known or estimated yearly real estate
taxes and assessments payable with respect to the Demised Premises in monthly
payments equal to one-twelfth of the known or estimated yearly real estate
taxes and assessments next payable with respect to the Demised Premises. From
time to time Landlord may reestimate the amount of real estate taxes and
assessments, and in such event Landlord shall notify Tenant, in writing, of
such reestimate and fix future monthly installments for the remaining period
prior to the next tax and assessment due date in an amount sufficient to pay
the reestimated amount over the balance of such period after giving credit for
payments made by Tenant on the previous estimate. If the total monthly payments
made by Tenant pursuant to this Section 5.5 shall exceed the amount of payments
necessary for said taxes and assessments, such excess shall be credited on
subsequent monthly payments of the same nature; but if the total of such
monthly payments so made under this paragraph shall be insufficient to pay
Landlord such amount as maybe necessary to make up the deficiency. Payment by
Tenant of real estate taxes and assessments under this section shall be
considered as performance of such obligation under the provisions of Section
5.1 hereof.
Section 5.6 Landlord's Right to Contest Impositions. In addition to
the right of Tenant under Section 5.2 to contest the amount or validity of
Impositions, Landlord shall also have the right, but not the obligation, to
contest the amount or validity, in whole or in part, of any Impositions not
contested by Tenant, by appropriate proceedings conducted in the name of
Landlord or in the name of Landlord and Tenant; provided however, and
anything in this Article V to the contrary notwithstanding, Landlord shall have
the right to contest any Imposition (whether or not contested by Tenant) due and
payable during the Tax Cap Period (as herein defined) and if Landlord elects to
so contest Tenant shall not be entitled to contest any such Imposition, but
shall cooperate with Landlord in connection with Landlord's contest. If
Landlord elects Impositions, such contests by Landlord shall be at Landlord's
expense, provided, however, that if the amounts payable by Tenant amounts is
avoided or reduced) by reason of Landlord's contest of Landlord in contesting
Impositions, but such reimbursements shall not be in excess of the amount saved
by Tenant by reason of Landlord's actions in contesting such Impositions.
<PAGE> 17
Section 5.7 Real Estate Tax Limitation. Anything in this Article V to
the contrary notwithstanding, Tenant's aggregate liability for payment of real
estate taxes which are due and payable for the thirty-six (36) month period
following the Commencement Date (the "Tax Cap Period') shall not exceed the
sum of Two Hundred Four Thousand One Hundred Two and 50/100 Dollars
($204,102.50) taking into account any sums which are refunded by reason of tax
contest proceedings (such amount is sometimes hereinafter referred to as the
"Tax Cap'). In the event real estate taxes which are due and payable during
the Tax Cap Period exceed the Tax Cap, Tenant shall pay such excess amount
prior to the due date of the real estate tax installment causing the Tax Cap to
be exceeded and Landlord shall reimburse Tenant for such excess amount within
thirty (30) days from receipt by Landlord of a written request for
reimbursement setting forth in reasonable detail computation of such excess
amount.
Notwithstanding the foregoing, if real estate taxes which are due and
payable during the Tax Cap Period are being contested in accordance with the
provisions of this Article V and payment thereof may be deferred or postponed
during such contest, then Landlord shall not be required to pay the Tenant the
amount, if any, by which said real estate taxes exceed the Tax Cap until
termination of the tax contest proceeding. Further, if Landlord shall have paid
to Tenant the amount by which real estate taxes due and payable during the Tax
Cap Period exceed the Tax Cap and all or a portion of said real estate taxes is
subsequently refunded, then Landlord shall be entitled to such refund, not to
exceed amounts paid by Landlord to Tenant in excess of the Tax Cap, and Tenant
shall be entitled to the balance of such refund, if any. Reimbursement of costs
incurred by Landlord in contesting the real estate taxes so refunded shall be
governed by Section 5.6 hereof.
ARTICLE VI
INSURANCE
Section 6.1 Tenant's Insurance Obligations. Tenant, at its sole cost and
expense, shall obtain and continuously maintain in full force and effect during
the term of this Lease, commencing with the date that rental (full or partial)
commences, policies of insurance covering the Improvements constructed,
installed or located on the Demised Premises naming the Landlord, as an
additional insured, against (a) loss or damage by fire; (b) loss or damage from
such other risks or hazards now or hereafter embraced by an "Extended Coverage
Endorsement,' including, but not limited to, windstorm, hail, explosion,
vandalism, riot and civil debris commotion, damage from vehicles, smoke damage,
water damage and debris removal; (c) loss for flood if the Demised
Premises are in a designated flood or flood insurance area; (d) loss for damage
by earthquake if the Demised Premises are located in an earthquake-prone area;
(e) loss from so-called explosion, collapse and underground hazards; and (f)
loss or damage from such other risks or hazards of a similar or dissimilar
nature which are now or may hereafter be customarily insured against with
respect to improvements similar in construction, design, general location, use
and occupancy to the Improvements. At all times, such insurance coverage shall
be in an amount equal to 100% of the then "full replacement cost" of the
Improvements. "Full Replacement Cost" shall be interpreted to mean the cost of
replacing the improvements without deduction for depreciation or wear and tear,
and it shall include a reasonable sum for architectural, engineering, legal,
administrative and supervisory fees connected with the restoration or
replacement of the Improvements in the event of damage thereto or destruction
thereof. If a sprinkler system shall be located in the Improvements, sprinkler
leakage insurance shall be procured and continuously maintained by Tenant at
Tenant's sole cost and expense. For the period prior to the date when full or
partial rental commences hereunder Landlord, at its sole cost and expense,
<PAGE> 18
shall maintain in full force and effect, on a completed value basis, insurance
coverage on the Building on Builder's Risk or other comparable coverage.
Section 6.2 Insurance Coverage. During the term of this Lease,
Tenant, at its sole cost and expense, shall obtain and continuously maintain in
full force and effect the following insurance coverage:
(a) Comprehensive general liability insurance against any loss,
liability or damage on, about or relating to the Demised Premises,
or any portion thereof, with limits of not less than Five Million
Dollars ($5,000,000.00) combined single limit, per occurrence and
aggregate, coverage on an occurrence basis. Any such insurance
obtained and maintained by Tenant shall name Landlord as an
additional insured therein and shall be obtained and maintained
from and with a reputable and financially sound insurance company
authorized to issue such insurance in the state in which the
Demised Premises are located. Such insurance shall specifically
insure (by contractual liability endorsement) Tenant's obligations
under Section 20.3 of this Lease.
(b) Boiler and pressure vessel (including, but not limited to,
pressure pipes, steam pipes and condensation return pipes)
insurance, provided the building contains a boiler or other
pressure vessel or pressure pipes. Landlord shall be named as an
additional insured in such policy or policies of insurance.
(c) Such other insurance and in such amounts as may from time to time
be reasonably required by Landlord, against other insurable
hazards which at the time are commonly insured against in the case
of premises and/or buildings or improvements similar in
construction, design, general location, use and occupancy to those
on or appurtenant to the Demised Premises.
The insurance set forth in this Section 6.2 shall be maintained by
Tenant at not less than the limits set forth herein until reasonably required
to be changed from time to time by Landlord, in writing, whereupon Tenant
covenants to obtain and maintain thereafter such protection in the amount or
amounts so required by Landlord.
Section 6.3 Insurance Provisions. All policies of insurance required
by Section 6.1 shall provide that the proceeds thereof shall be payable to
Landlord and if Landlord so requests shall also be payable to any contract
purchaser of the Demised Premises and the holder of any mortgages now or
hereafter becoming a lien on the fee of the Demised Premises, or any portion
thereof, as the interest of such purchaser or holder appears pursuant to a
standard named insured or mortgagee clause. Tenant shall not, on Tenant's own
initiative or pursuant to request or requirement of any third party, take out
separate insurance concurrent in form or contributing in the event of loss with
that required in Section 6.1 hereof, unless Landlord is named therein as an
additional insured with loss payable as in said Section 6.1 provided. Tenant
shall immediately notify Landlord whenever any such separate insurance is taken
out and shall deliver to Landlord original certificates evidencing the same.
Each policy required under this Article VI shall have attached thereto
(a) an endorsement that such policy shall not be cancelled or materially
changed without at least 30 days prior written notice to Landlord, and (b) an
endorsement to the effect that the insurance as to the interest of Landlord
shall not be invalidated by any act or neglect of Landlord or Tenant. All
policies of insurance shall be written in companies reasonably satisfactory to
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Landlord and licensed in the state in which the Demised Premises are located.
Such certificates of insurance shall be in a form reasonably acceptable to
Landlord, shall be delivered to Landlord upon commencement of the term and
prior to expiration of such policy, new certificates of insurance, shall be
delivered to Landlord not less than 20 days prior to the expiration of the then
current policy term.
Section 6.4 Waiver of Subrogation. Tenant shall cause to be inserted
in the policy or policies of insurance required by this Article VI hereof a
so-called "Waiver of Subrogation Clause" as to Landlord. Tenant hereby waives,
releases and discharges Landlord, its agents and employees from all claims
whatsoever arising out of loss, claim, expense or damage to or destruction
covered or coverable by insurance required under this Article VI
notwithstanding that such loss, claim, expense or damage may have been caused
by Landlord, its agents or employees, and Tenant agrees to look to the
insurance coverage only in the event of such loss.
Section 6.5 Tenant's Indemnification of Landlord. Tenant shall
maintain insurance coverage (including loss of use and business interruption
coverage) upon Tenant's business and upon all personal property of Tenant or
the personal property of others kept, stored or maintained on the Demised
Premises against loss or damage by fire, windstorm or other casualties or causes
for such amount as Tenant may desire, and Tenant agrees that such policies
shall contain a waiver of subrogation clause as to Landlord.
Section 6.6 Unearned Premiums. Upon expiration of the term of this
Lease, the unearned premiums upon any insurance policies or certificates
thereof lodged with Landlord by Tenant shall, subject to the provisions of
Section 13.6, be payable to Tenant, provided that Tenant shall not then be in
default in keeping, observing or performing the terms and conditions of this
Lease; if Tenant is then in default in keeping, observing or performing the
terms and conditions of this Lease, disposition of said unearned premiums shall
be subject to Article XII hereof.
Section 6.7 Blanket Insurance Coverage. Nothing in this Article shall
prevent Tenant from taking out insurance of the kind and in the amount provided
for under the preceding paragraphs of this Article under a blanket insurance
policy or policies (certificates thereof reasonably satisfactory to Landlord
shall be delivered to Landlord) which may cover other properties owned or
operated by Tenant as well as the Demised Premises; provided, however, that any
such policy of blanket insurance of the kind provided for shall (a) specify
therein the amounts thereof exclusively allocated to the Demised Premises or
Tenant shall furnish Landlord and the holder of any fee mortgage with a written
statement from the insurers under such policies specifying the amounts of the
total insurance exclusively allocated to the Demised Premises, and (b) not
contain any clause which would result in the insured thereunder being required
to carry any insurance with respect to the property covered thereby in an
amount not less than any specific percentage of the Full Replacement Cost of
such property in order to prevent the insured therein named from becoming a
co-insurer of any loss with the insurer under such policy; and further
provided, however, that such policies of blanket insurance shall, as respects
the Demised Premises, contain the various provisions required of such an
insurance policy by the foregoing provisions of this Article VI.
Section 6.8 Rent Loss Insurance. In addition to the insurance
coverages required to be carried and maintained by Tenant under the foregoing
provisions of this Article VI, Tenant shall procure and cause to be maintained
during the term hereof for Landlord's benefit, at Tenant's sole cost and
expense, a policy of rent loss insurance naming Landlord as the insured party,
covering Tenant's rental obligations under the Lease Agreement and providing,
among other things, that if this Lease Agreement is
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<PAGE> 20
terminated as contemplated by Section 13.6 hereof then Landlord shall be
entitled to the amount of rental (Basic Rent and Additional Rent) for the
balance of the term assuming the term had not been so terminated. Such policy
shall be written by an insurance company reasonably satisfactory to Landlord
and be licensed to do business in the State of Illinois. Prior to the
commencement of the Initial Term, Tenant shall deliver to Landlord such rental
loss insurance policy and Tenant shall during the term of this Lease Agreement
deliver to Landlord a new policy at least twenty (20) days prior to expiration
of the current policy term.
ARTICLE VII
UTILITIES
Section 7.1 Payment of Utilities. During the term of this Lease, Tenant
will pay, when due, all charges of every nature, kind or description for
utilities furnished to the Demised Premises or chargeable against the Demised
Premises, including all charges for water, sewage, heat, gas, light, garbage,
electricity, telephone, steam, power, or other public or private utility
services. Prior to the Commencement Date, Tenant shall pay for all utilities or
services at the Demised Premises used by it or its agents, employees or
contractors; provided, however, nothing herein contained shall be construed to
require Tenant to pay for any utilities furnished to the Demised Premises for
use by Landlord in constructing the Landlord's Improvements.
Section 7.2 Additional Charges. In the event that any charge or fee is
required after the Commencement Date by the state in which the Demised Premises
are located, or by any agency, subdivision, or instrumentality thereof, or by
any utility company furnishing services or utilities to the Demised Premises, as
a condition precedent to furnishing or continuing to furnish utilities or
services to the Demised Premises, such charge or fee shall be deemed to be a
utility charge payable by Tenant. The provisions of this Section 7.2 shall
include, but not be limited to, any charges or fees for present or future water
or sewer capacity to serve the Demised Premises, any charges for the
underground installation of gas or other utilities or services, and other
charges relating to the extension of or change in the facilities necessary to
provide the Demised Premises with adequate utility services. In the event that
Landlord has paid any such charge or fee after the date hereof, Tenant shall
reimburse Landlord for such utility charge. Nothing contained in this Section
7.2 shall be construed to relieve Landlord of the obligation to finish
Landlord's Improvements described in Exhibit "B", including without limitation
the obligation to connect the Demised Premises to the utilities serving the
same (and pay any corresponding tap-on fees) as contemplated by the
Specifications and the Drawings.
ARTICLE VIII
REPAIRS
Section 8.1 Tenant's Repairs. Save and except for the one-year guaranty
against defective materials and workmanship or other guaranties provided for in
Section 2.4 hereof, and the completion or incomplete items provided for in
Section 2.5 hereof, Tenant, at its sole cost and expense, throughout the term
of this Lease, shall take good care of the Demised Premises (including any
improvements hereafter erected or installed on the Land), and shall keep the
same in good order, condition and repair, and irrespective of such guaranty
shall make and perform all routine maintenance thereof and all necessary
repairs thereto, interior and exterior, structural and nonstructural, ordinary
and extraordinary, foreseen and unforeseen, of every nature, kind and
description. When used in this Article VIII, "repairs" shall include all
necessary replacements, renewals, alterations, additions and betterments.
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All repairs made by Tenant shall be at least equal in quality and cost to the
original work and shall be made by Tenant in accordance with all laws,
ordinances and regulations whether heretofore or hereafter enacted. The
necessity for or adequacy of maintenance and repairs shall be measured by the
standards which are appropriate for improvements of similar construction and
class, provided that Tenant shall in any event make all repairs necessary to
avoid any structural damage or other damage or injury to the Improvements.
Section 8.2 Maintenance. Tenant, at its sole cost and expense, shall
take good care of, repair and maintain all driveways, pathways, roadways,
sidewalks, curbs, spur tracks, parking areas, loading areas, landscaped areas,
entrances and passageways in good order and repair and shall promptly remove
all accumulated snow, ice and debris from any and all driveways, pathways,
roadways, sidewalks, curbs, parking areas, loading areas, entrances and
passageways, and keep all portions of the Demised Premises, including areas
appurtenant thereto, in a clean and orderly condition free of snow, ice, dirt,
rubbish, debris and unlawful obstructions. Further, Tenant shall keep the
Demised Premises safe for human occupancy and use.
Section 8.3 Tenant's Waiver of Claims Against Landlord. Except for the
one year guaranty against defective materials and workmanship, Landlord's
undertaking to complete the incomplete items pursuant to Section 2.5 and
Landlord's structural replacement and extraordinary structural repair
obligations set forth in Section 8.7, Landlord shall not be required to furnish
any services or facilities or to make any repairs or alterations in, about or
to the Demised Premises or any improvements hereafter erected thereon. Except
for the one year guaranty against defective materials and workmanship,
Landlord's undertaking to complete the incomplete items pursuant to Section 2.5
and Landlord's structural replacement and extraordinary structural repair
obligations set forth in Section 8.7, Tenant hereby assumes the full and sole
responsibility for the condition, operation, repair, replacement, maintenance
and management of the Demised Premises and all improvements hereafter erected
thereon, and Tenant hereby waives any rights created by any law now or
hereafter in force to make repairs to the Demised Premises or improvements
hereafter erected thereon at Landlord's expense.
Section 8.4 Prohibition Against Waste. Tenant shall not do or suffer
any waste or damage, disfigurement or injury to the Demised Premises, or any
improvements hereafter erected thereon, or to the fixtures or equipment
therein, or permit or suffer any overloading of the floors or other use of the
Improvements that would place an undue stress on the same or any portion
thereof beyond that for which the same was designed.
Section 8.5 Landlord's Right to Effect Repairs. If Tenant should fail
to perform any of its obligations under this Article VIII, then Landlord may,
if it so elects, in addition to any other remedies provided herein, effect such
repairs and maintenance. Any sums expended by Landlord in effecting such
repairs and maintenance shall be due and payable, on demand, together with
interest thereon at the Maximum Rate of Interest from the date of each such
expenditure by Landlord to the date of repayment by Tenant.
Section 8.6 Misuse or Neglect. Tenant shall be responsible for all
repairs to the Building which are made necessary by any misuse or neglect by:
(i) Tenant or any of its officers, agents, employees, contractors, licensees,
or subtenants; or (ii) any visitors, patrons, guests, or invitees of Tenant or
its subtenant while in or upon the Demised Premises.
Section 8.7 Anything herein to the contrary notwithstanding, except as
to structural replacements or extraordinary structural repairs made necessary
by uninsured damage caused by Tenant, during
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the term of this Lease, including any extension hereof, Landlord shall, at its
sole cost and expense, be responsible for the replacement of and extraordinary
repairs to the structural portions of the principal Building located on the
Demised Premises; provided, however, and anything herein to the contrary
notwithstanding, it is agreed and acknowledged that Tenant shall, at its sole
cost and expense, keep in good order, condition and repair the structural
portions of the principal Building located on the Demised Premises, but nothing
herein contained shall obligate Tenant to perform any extraordinary structural
repairs. For purposes hereof, the phrase "extraordinary structural repairs"
shall mean and include only those repairs to the structural portions of the
principal Building located on the Demised Premises the cost of which exceeds
$20,000.00 on an individual per occurrence basis and which repairs are not made
in the ordinary course of repair and maintenance of a facility comparable in
age, design, structure, class and construction to the Building. Tenant
acknowledges that the floor of the Demised Premises has been constructed to
withstand a uniformly distributed live load capacity of 500 pounds per square
foot in the warehouse area as designated in the original plans and
specifications and Tenant represents and warrants that it will not at any time
subject the floor of the Building located on the Demised Premises or any part
thereof to any load exceeding such capacity, and Tenant shall use all reasonable
and prudent storage techniques, including but not limited to, even distribution
of weight loads. During the term of this Lease, Tenant will not allow any person
to go upon the roof of the Building or any materials or equipment to be placed
upon the roof of the Building without the prior written consent of Landlord,
which will not unreasonably be withheld. At any time that any person goes upon
such roof or any material or equipment are placed upon such roof, Tenant shall
reasonably notify and allow Landlord or its agent to inspect the roof operation
or procedure. The structural portions of the Building for the purposes of this
Section 8.7 shall be deemed to include only the footings, foundation, roof,
structural steel, bearing walls, columns, joists, structural floors and
structural supports for the utility lines (but excluding the lines themselves)
of the Building. Any failure of Tenant to comply with the covenants and
agreements contained in this Section 8.7 which may directly or indirectly have
caused damage to the structural portions of the Building shall void the
covenants of Landlord set forth in this Section 8.7 as to the structural portion
which may have been so affected. Nothing in this Section 8.7 shall relieve
Tenant of any covenants or undertakings by it elsewhere contained in this Lease,
except as to the obligations of Landlord specifically provided for herein.
Tenant shall notify Landlord as soon as reasonably possible after becoming aware
of any defect for which Landlord might be liable herein in such time as to avoid
prejudice to Landlord. Any replacements or extraordinary repairs required to be
made by Landlord shall be promptly and diligently made. Anything herein to the
contrary notwithstanding, any uninsured structural damage requiring replacement
or extraordinary repair caused by Tenant, its agents, employees or invitees
shall be replaced by Tenant. Nothing in this Section 8.7 shall require Landlord
to repair, restore, replace or rebuild or otherwise be responsible for any of
Tenant's property, trade fixtures or property of any third party. Further, the
only structural portions which Landlord shall be obligated to replace or to make
extraordinary repairs shall be the structural portions constituting the
improvements originally delivered to Tenant upon commencement of the term of
this Lease or changes or alterations made by Landlord at Tenant's expense in
conformity with Article XIX hereof. Landlord reserves the right to enter upon
the Demised Premises for the purpose of making such replacements or
extraordinary repairs during regular business hours or otherwise and to
temporarily close doors, entryways, spaces and corridors and to interrupt or
temporarily suspend services and facilities of the Demised Premises; provided,
however, Landlord shall give Tenant reasonable advance notice of such entry
(written or oral) and shall use reasonable efforts to conduct its extraordinary
structural
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repair and replacement operations in the Demised Premises in such a manner so
as to minimize inconvenience to Tenant's business to the extent practical under
the circumstances. No entry in making any of such replacement shall be deemed
an eviction or disturbance of Tenant's use or possession, or otherwise or
relieve Tenant from any obligation herein set forth; provided, however,
Landlord shall give Tenant reasonable advance notice of such entry (written or
oral) and shall use reasonable efforts to conduct its extraordinary structural
repair and replacement operations in the Demised Premises in such a manner so
as to minimize inconvenience to Tenant's business to the extent practical under
the circumstances. Tenant shall take such action as clean-up or removal of its
property if such action is reasonably necessary in connection with the
replacement and extraordinary structure repair required herein to be performed
by Landlord.
ARTICLE IX
COMPLIANCE WITH LAWS AND ORDINANCES
Section 9.1 Compliance with Laws and Ordinances. Tenant shall,
throughout the term of this Lease, and at Tenant's sole cost and expense,
promptly comply or cause compliance with or remove or cure any violation of any
and all present and future laws, ordinances, orders, rules, regulations and
requirements (including without limitation the Act and the rules and
regulations promulgated thereunder) of all federal, state, municipal and other
governmental bodies having jurisdiction over the Demised Premises and the
appropriate departments, commissions, boards and officers thereof, and the
orders, rules and regulations of the Board of Fire Underwriters where the
Demised Premises are situated, or any other body now or hereafter constituted
exercising lawful or valid authority over the Demised Premises, or any portion
thereof, or the sidewalks, curbs, roadways, alleys, entrances or railroad track
facilities adjacent or appurtenant thereto, or exercising authority with
respect to the use or manner of use of the Demised Premises, or such adjacent
or appurtenant facilities, and whether the compliance, curing or removal of any
such violation and the costs and expenses necessitated thereby shall have been
foreseen or unforeseen, ordinary or extraordinary, and whether or not the same
shall be presently within the contemplation of Landlord or Tenant or shall
involve any change of governmental policy, or require structural or
extraordinary repairs, alterations or additions by Tenant and irrespective of
the costs thereof. Landlord represents that as of the date hereof, the Building
complies with the design guidelines attached to the Act as and to the extent
such design guidelines are applicable to the Building.
Anything in this Section 9.1 to the contrary notwithstanding, in the
event Tenant is required to install capital improvements in the Demised
Premises during the last twelve (12) months of the term of this Lease and such
improvements have a reasonable cost in excess of $25,000.00 (such excess cost
is hereinafter referred to as the "Excess Cost"), Tenant shall pay 100% of the
cost of such improvements other than the Excess Cost and the Excess Cost shall
be allocated between Landlord and Tenant in the following manner: Tenant shall
pay that portion of the Excess Cost equal to the Excess Cost multiplied by a
fraction, the numerator of which shall be the number of remaining months in the
term of this Lease and the denominator of which shall be the number of months
constituting the useful life of such improvement for tax purposes according to
generally accepted accounting principles consistently applied, and Landlord
shall pay the balance; provided, however, if such improvements are required
specifically because of the nature of the business of Tenant carried on in the
Demised Premises and would not be required for any other user occupying the
Demised Premises, Tenant shall pay all costs of such improvements.
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Section 9.2 Compliance with Permitted Encumbrances. Tenant, at its
sole cost and expense, shall comply with all agreements, contracts, easements,
restrictions, reservations or covenants, if any, set forth in Exhibit "A"
attached, or hereafter created by Tenant or consented to, in writing, by Tenant
or requested, in writing, by Tenant. Tenant shall also comply with, observe and
perform all provisions and requirements of all policies of insurance at any time
in force with respect to the Demised Premises and required to be obtained and
maintained under the terms of Article VI hereof and shall comply with all
development permits issued by governmental authorities issued in connection
with development of the Demised Premises.
Section 9.3 Tenant's Obligations. Notwithstanding that it may be
usual and customary for Landlord to assume responsibility and performance of
any or all of the obligations set forth in this Article IX, and notwithstanding
any order, rule or regulation directed to Landlord to perform, and except for
the one-year guaranty against defective materials and workmanship, Landlord's
undertaking to complete the incomplete items pursuant to Section 2.5 and
Landlord's structural replacement and extraordinary structural repair
obligations set forth in Section 8.7, Tenant hereby assumes such obligations
because, by nature of this Lease, the rents and income derived from this Lease
by Landlord are not rentals not to be diminished by any expense incident to the
ownership, occupancy, use, leasing, or possession of the Demised Premises or
any portion thereof.
Section 9.4 Tenant's Right to Contest Laws and Ordinances. After prior
written notice to Landlord, Tenant, at its sole cost and expense and without
cost or expense to Landlord, shall have the right to contest the validity or
application of any law or ordinance referred to in this Article IX in the name
of Tenant or Landlord, or both, by appropriate legal proceedings diligently
conducted but only if compliance with the terms of any such law or ordinance
pending the prosecution of any such proceeding may legally be delayed without
the incurrence of any lien, charge or liability of any kind against the Demised
Premises, or any portion thereof, and without subjecting Landlord or Tenant to
any liability, civil or criminal, for failure so to comply therewith until the
final determination of such proceeding; provided, however, if any lien, charge
or civil liability would be incurred by reason of any such delay, Tenant
nevertheless, on the prior written consent of Landlord, may contest as aforesaid
and delay as aforesaid provided that such delay would not subject Tenant or
Landlord to criminal liability and Tenant (a) furnishes Landlord security,
reasonably satisfactory to Landlord, against any loss or injury by reason of any
such contest or delay, (b) prosecutes the contest with due diligence and in good
faith, and (c) agrees to indemnify, defend and hold harmless Landlord and the
Demised Premises from any charge, liability or expense whatsoever. The security
furnished to Landlord by Tenant shall be in the form of a cash deposit or a
Certificate of Deposit issued by a national bank or federal savings and loan
association payable to Landlord. Said deposit shall be held, administered and
distributed in accordance with the provisions of Section 5.2 hereof relating to
the contest of the amount or validity of any Imposition.
If necessary or proper to permit Tenant so to contest the validity or
application of any such law or ordinance, Landlord shall, at Tenant's sole cost
and expense, including reasonable attorney's fees incurred by Landlord, execute
and deliver any appropriate papers or other documents; provided, Landlord shall
not be required to execute any document or consent to any proceeding which
would result in the imposition of any cost, charge, expense or penalty on
Landlord or the Demised Premises.
Section 9.5 Compliance with Hazardous Materials Laws. Tenant shall at
all times and in all respects comply with all federal, state and local laws,
ordinances and regulations
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("Hazardous Materials Laws") relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any oil, petroleum products, flammable
explosives, asbestos, urea formaldehyde, polychlorinated biphenyls, radioactive
materials or waste, or other hazardous, toxic, contaminated or polluting
materials, substances or wastes, including without limitation any "hazardous
substances," "hazardous wastes," "hazardous materials" or "toxic substances"
under any such laws, ordinances or regulations (collectively, "Hazardous
Materials").
Tenant shall at its own expense procure, maintain in effect and comply
with all conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Tenant's use of the Demised Premises,
including, without limitation, discharge of (appropriately treated) materials
or waste into or through any sanitary sewer system serving the Demised
Premises. Except as discharged into the sanitary sewer in strict accordance and
conformity with all applicable Hazardous Materials Laws, Tenant shall cause any
and all Hazardous Materials to be removed from the Demised Premises and
transported solely by duly licensed haulers to duly licensed facilities for
final disposal of such Hazardous Materials and wastes. Tenant shall in all
respects, handle, treat, deal with and manage any and all Hazardous Materials
in, on, under or about the Demised Premises in complete conformity with all
applicable Hazardous Materials Laws and prudent industry practices regarding
the management of such Hazardous Materials. All reporting obligations to the
extent imposed upon Tenant by Hazardous Materials Laws are solely the
responsibility of Tenant. Upon expiration or earlier termination of this Lease,
Tenant shall cause all Hazardous Materials (to the extent such Hazardous
Materials are generated, stored, released or disposed of during the term of
this Lease by Tenant) to be removed from the Demised Premises and transported
for use, storage or disposal in accordance and in compliance with all
applicable Hazardous Materials Laws. Tenant shall not take any remedial action
in response to the presence of any Hazardous Materials in, on, about or under
the Demised Premises or in any Improvements situated on the Land, nor enter
into any settlement agreement, consent, decree or other compromise in respect
to any claims relating to any way connected with the Demised Premises or the
Landlord's Improvements on the Land without first notifying Landlord of
Tenant's intention to do so and affording Landlord ample opportunity to appear,
intervene or otherwise appropriately assert and protect Landlord's interest
with respect thereto. In addition, at Landlord's request, at the expiration of
the term of this Lease, Tenant shall remove all tanks or fixtures which were
placed on the Demised Premises during the term of this Lease and which contain,
have contained or are contaminated with, Hazardous Materials.
Tenant shall immediately notify Landlord in writing of (a) any
enforcement, clean-up, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
(b) any claim made or threatened by any person against Landlord, or the Demised
Premises, relating to damage, contribution, cost recovery, compensation, loss
or injury resulting from or claimed to result from any Hazardous Materials; and
(c) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in, on or about the Demised Premises or
with respect to any Hazardous Materials removed from the Demised Premises,
including, any complaints, notices, warnings, reports or asserted violations in
connection therewith. Tenant shall also provide to Landlord, as promptly as
possible, and in any event within five business days after Tenant first
receives or sends the same, with copies of all claims, reports, complaints,
notices, warnings or asserted violations relating in any way to the Demised
Premises or Tenant's use thereof. Upon written request of Landlord (to enable
Landlord to defend itself from any claim or charge related to any Hazardous
Materials Law) during the term of this Lease, Tenant shall promptly
<PAGE> 26
deliver to Landlord notices of hazardous waste manifests reflecting the legal
and proper disposal of all such Hazardous Materials removed or to be removed
from the Demised Premises. All such manifests shall list the Tenant or its
agent as a responsible party and in no way shall attribute responsibility for
any such Hazardous Materials to Landlord.
Section 9.6 Hazardous Materials Representation by Landlord. To
Landlord's knowledge, Landlord is not aware of any Hazardous Materials which
exist or are located on or in the Demised Premises. Further, Landlord
represents to Tenant that Landlord has not caused the generation, storage,
manufacture or release of Hazardous Materials upon the Demised Premises, except
in accordance with Hazardous Materials Laws.
Section 9.7 Cost of Compliance with Hazardous Materials Laws.
Provisions of Sections 9.5 and 9.6 notwithstanding, Tenant shall be responsible
only for that part of the cost of compliance with Hazardous Materials Laws
which relates to a breach by Tenant of the covenants contained in this Lease to
be kept and performed by Tenant, including but not limited to the covenants
contained in Section 9.5. Landlord shall be responsible only for that part of
the cost of compliance with Hazardous Materials Laws which relates to a breach
by Landlord of the covenants contained in this Lease, including but not limited
to the covenants contained in Section 9.6.
Section 9.8 Discovery of Hazardous Materials. In the event (a)
Hazardous Materials are discovered upon the Demised Premises, (b) Landlord has
been given written notice of the discovery of such Hazardous Materials (unless
Landlord is the discovering party), and (c) pursuant to the provisions of
Section 9.7, neither Landlord nor Tenant is obligated to pay the cost of
compliance with Hazardous Materials Laws, then and in that event Landlord may
voluntarily but shall not be obligated to agree with Tenant to take all action
necessary to bring the Demised Premises into compliance with Hazardous
Materials Laws at Landlord's sole cost. In the event Landlord fails to notify
Tenant in writing within 30 days of the notice to Landlord of the discovery of
such Hazardous Materials (or the date Landlord discovers the Hazardous
Materials if Landlord is the discovering party) that Landlord intends to
voluntarily take such action as is necessary to bring the Demised Premises into
compliance with Hazardous Materials Laws, then Tenant may, (i) bring the
Demised Premises into compliance with Hazardous Materials Laws at Tenant's sole
cost or (ii) provided such Hazardous Materials materially and adversely
interfere with Tenant's use of the Demised Premises, terminate the Lease on a
date not less than 90 days following written notice of such intent to terminate.
Section 9.9 Indemnification. Tenant shall indemnify, defend (with
counsel reasonably acceptable to Landlord), protect and hold Landlord and each
of Landlord's officers, directors, partners, employees, agents, attorneys,
successors and assigns free and harmless from and against any and all claims,
liabilities, damages, costs, penalties, forfeitures, losses or expenses
(including attorneys' fees) for death or injury to any person or damage to any
property whatsoever (including water tables and atmosphere) arising or
resulting in while or in part, directly or indirectly, from the presence or
discharge of Hazardous Materials, in, on, under, upon or from the Demised
Premises or the Improvements located thereon or from the transportation or
disposal of Hazardous Materials to or from the Demised Premises to the extent
any of the foregoing caused by Tenant whether knowingly or unknowingly, the
standard herein being one of strict liability. Tenant's obligations hereunder
shall include, without limitation, and whether foreseeable or unforeseeable, all
costs of any required or necessary repairs, clean-up or detoxification or
decontamination of the Demised Premises or the Improvements, and the presence
and implementation of any closure, remedial action or other required plans in
connection therewith, and shall survive the expiration of
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or early termination of the term of this Lease. For purposes of the indemnity
provided herein, any acts or omissions of Tenant, or its employees, agents,
customers, sublessees, assignees, contractors or subcontractors of Tenant
(whether or not they are negligent, intentional, willful or unlawful) shall be
strictly negligent, intentional, willful or unlawful) shall be strictly
attributable to Tenant. Landlord shall indemnify and hold harmless Tenant and
each of Tenant's officers, directors, partners, agents, successors and assigns
free and harmless from and against the direct, out-of-pocket costs incurred by
Tenant (including reasonable attorneys' fees and court costs) to comply with
any court decision or enforcement action holding Tenant responsible for the
presence or discharge of Hazardous Materials in, on, under, upon or form the
Demised Premises or the improvements located thereon existing or occurring prior
to the commencement of the term of this Lease Agreement or from the
transportation or disposal of Hazardous Materials to or from the Demised
Premises occurring prior to the commencement of the term of this Lease
Agreement.
Section 9.10 Environmental Audits. Upon request by Landlord during the
term of this Lease, prior to the exercise of any renewal term and/or prior to
vacating the Demised Premises, Tenant shall undertake and submit to Landlord an
environmental audit from an environmental company reasonably acceptable to
Landlord which audit shall evidence Tenant's compliance with this Article IX.
Landlord shall bear the cost of such environmental audit unless such audit
discloses that Tenant has not complied with the provisions of this Article IX
in which event Tenant shall pay for such audit.
Section 9.11 Acts or Omissions Regarding Hazardous Materials. For
purposes of the convents and agreements contained in Sections 9.5 through
9.10, inclusive, any acts or omissions of Tenant, its employees, agents,
customers, sublessees, assignees, contractors or subcontractors (except Opus
North corporation, and its subcontractors providing the Landlord's
Improvements) shall be strictly attributable to Tenant; any acts or omissions
of Landlord, its employees, agents, customers, assignees, contractors or
subcontractors shall be strictly attributable to Landlord.
Section 9.12 Survival. The respective rights and obligations of
Landlord and Tenant under this Article IX shall survive the expiration or
earlier termination of this Lease.
ARTICLE X
MECHANIC'S LIENS AND OTHER LIENS
Section 10.1 Freedom from Liens. Tenant shall not suffer or permit any
mechanic's lien or other lien to be filed against the Demised Premises, or any
portion thereof, by reason of work, labor, skill, services, equipment or
materials supplied or claimed to have been supplied to the Demised Premises at
the request of Tenant, or anyone holding the Demised Premises, or any portion
thereof, through or under Tenant. If any such mechanic's lien or other lien
shall at any time be filed against the Demised Premises, or any portion thereof,
Tenant shall cause the same to be discharged of record within 30 days after the
date of filing the same. If Tenant shall fail to discharge such mechanic's lien
or liens or other lien within such period, then, in addition to any other right
or remedy of Landlord, after five days prior written notice to Tenant, Landlord
may, but shall not be obligated to, discharge the same by paying to the
claimant the amount claimed to be due or by procuring the discharge of such
lien as to the Demised Premises by deposit in the court having jurisdiction of
such lien, the foreclosure thereof or other proceedings with respect thereto,
of a cash sum sufficient to secure the discharge of the same, or by the deposit
of a bond or other security with such court sufficient in form, content and
amount to procure the discharge of such lien, or in such other manner as is now
or may in the future be provided by present or future law for the discharge of
such lien as a lien against the Demised Premises. Any amount paid by Landlord,
or the
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value of any deposit so made by Landlord, together with all costs, fees and
expenses in connection therewith (including reasonable attorney's fees of
Landlord), together with interest thereon at the Maximum Rate of Interest set
forth in Section 3.4 hereof, shall be repaid by Tenant to Landlord on demand by
Landlord and if unpaid may be treated as Additional Rent. Tenant shall
indemnify and defend Landlord against and save Landlord and the Demised
Premises, and any portion thereof, harmless from all losses, costs, damages,
expenses, liabilities, suits, penalties, claims, demands and obligations,
including, without limitation, reasonable attorney's fees resulting from the
assertion, filing, foreclosure or other legal proceedings with respect to any
such mechanic's lien or other lien.
All materialmen, contractors, artisans, mechanics, laborers and any
other person now or hereafter furnishing any labor, services, materials,
supplies or equipment to Tenant with respect to the Demised Premises, or any
portion thereof, are hereby charged with notice that they must look exclusively
to Tenant to obtain payment for the same. Notice is hereby given that Landlord
shall not be liable for any labor, services, materials, supplies, skill,
machinery, fixtures or equipment furnished or to be furnished to Tenant upon
credit, and that no mechanic's lien or other lien for any such labor, services,
materials, supplies, machinery, fixtures or equipment shall attach to or affect
the estate or interest of Landlord in and to the Demised Premises, or any
portion thereof.
Section 10.2 Landlord's Indemnification. The provisions of Section 10.1
above shall not apply to any mechanic's lien or other lien for labor, services,
materials, supplies, machinery, fixtures or equipment furnished to the Demised
Premises in the performance of Landlord's obligations to construct the
Landlord's Improvements required by the provisions of Article II hereof, and
Landlord does hereby agree to indemnify and defend Tenant against and save
Tenant and the Demised Premises, and any portion thereof, harmless from all
losses, costs, damages, expenses, liabilities and obligations, including,
without limitation, reasonable attorney's fees resulting from the assertion,
filing, foreclosure or other legal proceedings with respect to any such
mechanic's lien or other lien.
Section 10.3 Removal of Liens. Except as otherwise provided for in
this Article X, Tenant shall not create, permit or suffer, and shall promptly
discharge and satisfy of record, any other lien, encumbrance, charge, security
interest, or other right or interest which shall be or become a lien,
encumbrance, charge or security interest upon the Demised Premises, or any
portion thereof, or the income therefrom, or on the interest of Landlord or
Tenant in the Demised Premises, or any portion thereof, save and except for
those liens, encumbrances, charges, security interests, or other rights or
interests consented to, in writing, by Landlord, or those mortgages,
assignments of rents, assignments of leases and other mortgage documentation
placed thereon by Landlord in financing or refinancing the Demised Premises, or
arising by or under Landlord but not by or under Tenant.
Section 10.4 In the event no statutory procedure exists for the
discharge of mechanic's liens of record, and in the event Tenant in good faith
desires to contest the validity or amount of any mechanic's lien or lien
referred to in the foregoing provisions of this Article X, Tenant shall have
the right to contest the validity or amount of any such mechanic's lien or any
lien referred to in the foregoing provisions of this Article X, provided that
Tenant deposits with Landlord cash or a Certificate of Deposit or other
security reasonably acceptable to Landlord in an amount equal to one hundred
twenty percent (120%) of the amount of said lien and otherwise provides
Landlord reasonable security against loss and damage because of the mechanic's
lien or such proceeding. Such certificate of deposit shall be issued by a
national bank or a federal savings and loan association. If Tenant deposits
cash, Landlord shall deposit same in an interest bearing account with a
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national bank, savings and loan association, or in securities of the United
States of America. Such deposit shall be held, administered and distributed in
accordance with the provisions of Section 5.2 hereof relating to the contest of
the amount or validity of an Imposition.
ARTICLE XI
INTENT OF PARTIES
Section 11.1 Net Lease. Landlord and Tenant do each state and
represent that except as otherwise expressly provided herein, it is the
intention of each of them that this Lease be interpreted and construed as an
absolute net lease and all Basic Rent and Additional Rent shall be paid by
Tenant to Landlord without abatement, deduction, diminution, deferment,
suspension, reduction or setoff, and the obligations of Tenant shall not be
affected by reason of damage to or destruction of the Demised Premises from
whatever cause (except as provided for in Section 13.6 hereof); nor shall the
obligations of Tenant be affected by reason of any condemnation, eminent domain
or like proceedings (except as provided in Article XIV hereof); nor shall the
obligations of Tenant be affected by reason of any other cause whether similar
or dissimilar to the foregoing or by any laws or customs to the contrary. It is
the further express intent of Landlord and Tenant that (a) the obligations of
Landlord and Tenant hereunder shall be separate and independent covenants and
agreements and that the Basic Rent and Additional Rent, and all other charges
and sums payable by Tenant hereunder, shall commence at the times provided
herein and shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to an express provision in this
Lease; (b) all costs or expenses of whatsoever character or kind, general or
special, ordinary or extraordinary, foreseen or unforeseen, and of every kind
and nature whatsoever that may be necessary or required in and about the
Demised Premises, or any portion thereof, and Tenant's possession or authorized
use thereof during the term of this Lease, shall be paid by Tenant and all
provisions of this Lease are to be interpreted and construed in light of the
intention expressed in this Section 11.1; (c) the Basic Rent specified in
Section 3.1 shall be absolutely net to Landlord so that this Lease shall yield
net to Landlord the Basic Rent specified in Section 3.1 in each year during the
term of this Lease (unless extended or renewed at a different Basic Rent); (d)
all Impositions, insurance premiums, utility expense, repair and maintenance
expense, and all other costs, fees, interest, charges, expenses, reimbursements
and obligations of every kind and nature whatsoever relating to the Demised
Premises, or any portion thereof, which may arise or become due during the term
of this Lease, or any extension or renewal thereof, shall be paid or discharged
by Tenant as Additional Rent; and (e) Tenant hereby agrees to indemnify, defend
and save Landlord harmless from and against such costs, fees, charges,
expenses, reimbursements and obligations, and any interest thereon.
Section 11.2 Entry by Landlord. If Tenant shall at any time fail to
pay any Imposition in accordance with the provisions of Article V, or to take
out, pay for, maintain and deliver any of the insurance policies or
certificates of insurance provided for in Article VI, or shall fail to make any
other payment or perform any other act on its part to be made or performed,
then Landlord, after prior written notice to Tenant as provided in Section 12.1
(or without notice in case of emergency), and without waiving or releasing
Tenant from any obligation of Tenant contained in this Lease, may, but shall be
under no obligation to do so, (a) pay any Imposition payable by Tenant pursuant
to the provisions of Article V; (b) take out, pay for and maintain any of the
insurance policies provided for in this Lease; or (c) make any other payment or
perform any other act on Tenant's part to be paid or performed as in this Lease
provided, and Landlord may enter upon the Demised Premises for any such purpose
and take all such action therein or
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thereon as may be necessary therefor. Nothing herein contained shall be deemed
as a waiver or release of Tenant from any obligation of Tenant in this Lease
contained.
Section 11.3 Interest on Unpaid Amounts. If Tenant shall fail to
perform any act required of it, Landlord may perform the same, but shall not be
required to do so, in such manner and to such extent as Landlord may deem
necessary or desirable, and in exercising any such right to employ counsel and
to pay necessary and incidental costs and expenses, including reasonable
attorney's fees. All sums so paid by Landlord and all necessary and incidental
costs and expenses, including reasonable attorney's fees, in connection with
the performance of any such act by Landlord, together with interest thereon at
the Maximum Rate of Interest provided for in Section 3.4 hereof from the date
of making such expenditure by Landlord, shall be deemed Additional Rent
hereunder and, except as is otherwise expressly provided herein, shall be
payable to Landlord on demand or, at the option of Landlord, may be added to
any monthly rental then due or thereafter becoming due under this Lease, and
Tenant covenants to pay any such sum or sums, with interest as aforesaid, and
Landlord shall have, in addition to any other right or remedy of Landlord, the
same rights and remedies in the event of nonpayment thereof by Tenant as in the
case of default by Tenant in the payment of monthly Basic Rent. Landlord shall
not be limited in the proof of any damages which Landlord may claim against
Tenant arising out of or by reason of Tenant's failure to provide and keep in
force insurance as aforesaid, to the amount of the insurance premium or
premiums not paid or not incurred by Tenant, and which would have been payable
upon such insurance, but Landlord shall also be entitled to recover as damages
for such breach the uninsured amount of any loss (to the extent of any
deficiency between the dollar limits of insurance required by the provisions of
this Lease and the dollar limits of the insurance actually carried by Tenant),
damages, costs and expenses of suit, including reasonable attorney's fees,
suffered or incurred by reason of damage to or destruction of the Demised
Premises, or any portion thereof or other damages or loss which Tenant is
required to insure against hereunder, occurring during any period when Tenant
shall have failed or neglected to provide insurance as aforesaid.
ARTICLE XII
DEFAULTS OF TENANT
Section 12.1 Event of Default. If any one or more of the following
events (in this Article sometimes called "Events of Default") shall happen:
(a) If default shall be made by Tenant, by operation of law or
otherwise, under the provisions of Article XV hereof relating to
assignment, sublease, mortgage or other transfer of Tenant's
interest in this Lease or in the Demised Premises or in the income
arising therefrom;
(b) If default shall be made in the due and punctual payment of any
Basic Rent or Additional Rent payable under this Lease or in the
payment of any obligation to be paid by Tenant, when and as the same
shall become due and payable, and such default shall continue for a
period of ten days after written notice thereof given by Landlord to
Tenant;
(c) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease, other than
those referred to in Subparagraphs (a) and (b) of this Section 12.1,
which does not expose Landlord to criminal liability, and such
default shall continue for a period of 30 days after written notice
thereof given
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by Landlord to Tenant, or in the case of such a default or
contingency which cannot with due diligence and in good faith be
cured within 30 days, and Tenant fails to proceed promptly and with
due diligence and in good faith to cure the same and thereafter to
prosecute the curing of such default with due diligence and in good
faith, it being intended that in connection with a default which
does not expose Landlord to criminal liability not susceptible of
being cured with due diligence and in good faith within 30 days,
that the time allowed Tenant within which to cure the same shall be
extended for such period as may be necessary for the curing thereof
promptly with due diligence and in good faith;
(d) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease, other than
those referred to in Subparagraphs (a), (b) and (c) of this Section
12.1, and which exposes Landlord to criminal liability, and such
default shall continue after written notice thereof given by
Landlord to Tenant, and Tenant fails to proceed timely and promptly
with all due diligence and in good faith to cure the same and
thereafter to prosecute the curing of such default with all due
diligence, it being intended that in connection with a default
which exposes Landlord to criminal liability that Tenant shall
proceed immediately to cure or correct such condition with
continuity and with all due diligence and in good faith;
then, and in any such event, Landlord, at any time thereafter during the
continuance of any such Event of Default, may give written notice to Tenant
specifying such Event of Default or Events of Default and stating that this
Lease and the terms hereby demised shall expire and terminate on the date
specified in such notice, and upon the date specified in such notice this Lease
and the terms hereby demised, and all rights of Tenant under this Lease,
including all rights of renewal whether exercised or not, shall expire and
terminate, or in the alternative or in addition to the foregoing remedy,
Landlord may assert and have the benefit of any other remedy allowed herein, at
law, or in equity.
Section 12.2 Surrender of Demised Premises. Upon any expiration or
termination of this Lease, Tenant shall quit and peaceably surrender the
Demised Premises, and all portions thereof, to Landlord, and Landlord, upon or
at any time after any such expiration or termination, may, without further
notice, enter upon and reenter the Demised Premises, and all portions thereof,
and possess and repossess itself thereof, by force, summary proceeding,
ejectment or otherwise, and may dispossess Tenant and remove Tenant and all
other persons and property from the Demised Premises, and all portions thereof,
and may have, hold and enjoy the Demised Premises and the right to receive all
rental and other income of and from the same.
Section 12.3 Reletting by Landlord. At any time, or from time to time
after any such expiration or termination, Landlord may relet the Demised
Premises, or any portion thereof, in the name of Landlord or otherwise, for
such term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on such
conditions (which may include concessions or free rent) as Landlord, in its
uncontrolled discretion, may determine and may collect and receive the rents
therefor. Landlord shall in no way be responsible or liable for any failure to
relet the Demised Premises, or any part thereof, or for any failure to collect
any rent due upon any such reletting.
Section 12.4 Survival of Tenant's Obligations. No such expiration or
termination of this lease shall relieve Tenant of its liabilities and
obligations under this Lease (as if this Lease had
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not been so terminated or expired), and such liabilities and obligations shall
survive any such expiration or termination. In the event of any such expiration
or termination, whether or not the Demised premises, or any portion thereof,
shall have been relet, Tenant shall pay to Landlord a sum equal to the Basic
Rent, and the Additional Rent and any other charges required to be paid by
Tenant, up to the time of such expiration or termination of this Lease, and
thereafter Tenant, until the end of what would have been the term of this Lease
in the absence of such expiration or termination, shall be liable to Landlord
for, and shall pay to Landlord, as and for liquidated and agreed current
damages for Tenant's default:
(a) The equivalent of the amount of the Basic Rent and Additional
Rent which would be payable under this Lease by Tenant if this
Lease were still in effect, less
(b) The net proceeds of any reletting effected pursuant to the
provisions of Section 12.3 hereof after deducting all of
Landlord's reasonable expenses in connection with such
reletting, including, without limitation, all repossession
costs, brokerage commissions, legal expenses, reasonable
attorney's fees, alteration costs, and expenses of preparation
of the Demised Premises, or any portion thereof, for such
reletting.
Tenant shall pay such current damages in the amount determined in
accordance with the terms of this Section 12.4, as set forth in a written
statement thereof from Landlord to Tenant (hereinafter called the
"Deficiency"), to Landlord in monthly installments on the days on which the
Basic Rent would have been payable under this Lease if this Lease were still in
effect, and Landlord shall be entitled to recover from Tenant each monthly
installment of the Deficiency as the same shall arise.
Section 12.5 Damages. At any time after an Event of Default and
termination of this Lease, whether or not Landlord shall have collected any
monthly Deficiency as set forth in Section 12.4, Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord, on demand, as and for
final damages for Tenant's default, an amount equal to the difference between
the then present worth of the aggregate of the Basic Rent and Additional Rent
and any other charges to be paid by Tenant hereunder which have not previously
been satisfied by Tenant by payment of the Deficiency or otherwise for the
unexpired portion of the term of this Lease (measured from the period covered
by Tenant's last payment of monthly Basic Rent or the monthly Deficiency
corresponding thereto and assuming this Lease had not been so terminated), and
the then present worth of the then aggregate fair and reasonable fair market
rent of the Demised Promises for the same period. In the computation of present
worth, a discount at the rate of 6% per annum shall be employed. If the Demised
Premises, or any portion thereof, be relet by Landlord for the unexpired term
of this Lease, or any part thereof, before presentation of proof of such
damages to any court, commission or tribunal, the amount of rent reserved upon
such reletting shall, prima facie, be the fair and reasonable fair market rent
for the part or the whole of the Demised Premises so relet during the term of
the reletting. Northing herein contained or contained in Section 12.4 shall
limit or prejudice the right of Landlord to prove for and obtain, as damages by
reason of such expiration or termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to or less than the amount of the difference referred
to above.
Section 12.6 No waiver. No failure by Landlord or by Tenant to insist
upon the performance of any of the terms of this Lease or to exercise any right
or remedy consequent upon a breach thereof, and no acceptance by Landlord of
full or partial rent from
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Tenant or any third party during the continuance of any such breach, shall
constitute a waiver of any such breach or of any of the terms of this Lease.
None of the terms of this Lease to be kept, observed or performed by Landlord
or by Tenant, and no breach thereof, shall be waived, altered or modified
except by a written instrument executed by Landlord and/or by Tenant, as the
case may be. No waiver of any breach shall affect or alter this Lease, but each
of the terms of this Lease shall continue in full force and effect with respect
to any other then existing or subsequent breach of this Lease. No waiver of any
default of Tenant herein shall be implied from any omission by Landlord to take
any action on account of such default, if such default persists or is repeated
and no express waiver shall affect any default other than the default specified
in the express waiver and that only for the time and to the extent therein
stated. One or more waivers by Landlord shall not be construed as a waiver of a
subsequent breach of the same covenant, term or condition.
Section 12.7 Landlord's Remedies. In the event of any breach or
threatened breach by Tenant of any of the terms contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right or remedy allowed at law or in equity or by
statute or otherwise as though entry, reentry, summary proceedings and other
remedies were not provided for in this Lease. Each remedy or right of Landlord
provided for in this Lease shall be cumulative and shall be in addition to
every other right or remedy provided for in this Lease, or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise or
the beginning of the exercise by Landlord of any one or more of such rights or
remedies shall not preclude the simultaneous or later exercise by Landlord of
any or all other rights or remedies.
Section 12.8 Bankruptcy. If, during the term of this Lease, (a)
Tenant shall make an assignment for the benefit of creditors, (b) a voluntary
petition be filed by Tenant under any law having for its purpose the
adjudication of Tenant a bankrupt, or Tenant be adjudged a bankrupt pursuant to
an involuntary petition in bankruptcy, (c) a receiver be appointed for the
property of Tenant, or (d) any department of the state or federal government,
or any officer thereof duly authorized, shall take possession of the business
or property of Tenant, the occurrence of any such contingency shall be deemed a
breach of the Lease and this Lease shall, ipso facto upon the happening of any
of said contingencies, be terminated and the same shall expire as fully and
completely as if the day of the happening of such contingency were the date
herein specifically fixed for the expiration of the term, and Tenant will then
quit and surrender the Demised Premises, but Tenant shall remain liable as
hereinafter provided. Notwithstanding other provisions of this Lease, or any
present or future law, Landlord shall be entitled to recover from Tenant or
Tenant's estate (in lieu of the equivalent of the amount of all rent and other
charges unpaid at the date of such termination) as damages for loss of the
bargain and not as a penalty, an aggregate sum which at the time of such
termination represents the difference between the then present worth of the
aggregate of the Basic Rent and Additional Rent and any other charges payable
by Tenant hereunder that would have accrued for the balance of the term of this
Lease (assuming this Lease had not been so terminated), over the then present
worth of the aggregate fair market rent of the Demised Premises for the balance
of such period, unless any statute or rule of law covering the proceedings in
which such damages are to be proved shall limit the amount of such claim
capable of being so proved, in which case Landlord shall be entitled to prove
as and for damages by reason of such breach and termination of this Lease the
maximum amount which may be allowed by or under any such statute or rule of law
without prejudice to any rights of Landlord against any guarantor of Tenant's
obligations herein. In the computation of present worth, a discount rate of 6%
per annum shall be employed. Nothing contained herein shall limit or prejudice
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Landlord's right to prove and obtain as damages arising out of such breach and
termination of the maximum amount allowed by any such statute or rule of law
which may govern the proceedings in which such damages are to be proved,
whether or not such amount be greater, equal to, or less than the amount of the
excess of the present value of the rent and other charges required herein over
the present value of the fair market rents referred to above. Specified
remedies to which Landlord may resort under the terms of this Section 12.8 are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may be lawfully entitled.
Section 12.9 Waiver by Tenant. Tenant hereby expressly waives, so far as
permitted by law, any and all right of redemption or reentry or repossession or
to revive the validity and existence of this Lease in the event that Tenant
shall be dispossessed by a judgment or by order of any court having
jurisdiction over the Demised Premises or the interpretation of this Lease or
in case of entry, reentry or repossession by Landlord or in case of any
expiration or termination of this Lease.
ARTICLE XIII
DESTRUCTION AND RESTORATION
Section 13.1 Destruction and Restoration. Tenant covenants and agrees
that in case of damage to or destruction of the Improvements after the
Commencement Date of the term of this Lease, by fire or otherwise, Tenant, at
its sole cost and expense, shall promptly restore, repair, replace and rebuild
the same as nearly as possible to the condition that the same were in
immediately prior to such damage or destruction with such changes or
alterations (made in conformity with Article XIX hereof) as may be reasonably
acceptable to Landlord or required by law. Tenant shall forthwith give Landlord
written notice of such damage or destruction upon the occurrence thereof and
specify in such notice, in reasonable detail, the extent thereof. Such
restoration, repairs, replacements, rebuilding, changes and alternations,
including the cost of temporary repairs for the protection of the Demised
Premises, or any portion thereof, pending completion thereof are sometimes
hereinafter referred to as the "Restoration." The Restoration shall be carried
on and completed in accordance with the provisions and conditions of Section
13.2 and Article XIX hereof. If the net amount of the insurance proceeds (after
deduction of all costs, expenses and fees related to recovery of the insurance
proceeds) recovered by Landlord and held by Landlord and Tenant as co-trustees
is reasonably deemed insufficient by Landlord to complete the Restoration of
such improvements (exclusive of Tenant's personal property and trade fixtures
which shall be restored, repaired or rebuilt out of Tenant's separate funds),
Tenant shall, upon request of Landlord, deposit with Landlord and Tenant, as
co-trustees a cash deposit equal to the reasonable estimate of the amount
necessary to complete the Restoration of such improvements less the amount of
such insurance proceeds available.
Section 13.2 Application of Insurance Proceeds. All insurance moneys
recovered by Landlord and held by Landlord and Tenant as co-trustees on account
of such damage or destruction, less the costs, if any, to Landlord and Tenant
of such recovery, shall be applied to the payment of the costs of the
Restoration and shall be paid out from time to time as the Restoration
progresses upon the written request of Tenant, accompanied by a certificate of
the architect or a qualified professional engineer in charge of the Restoration
stating that as of the date of such certificate (a) the sum requested is justly
due to the contractors, subcontractors, materialmen, laborers, engineers,
architects, or persons, firms or corporations furnishing or supplying work,
labor, services or materials for such Restoration, or is justly required to
reimburse Tenant for any expenditures made by Tenant in connection with such
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Restoration, and when added to all sums previously paid out by Landlord does
not exceed the value of the Restoration performed to the date of such
certificate by all of said parties; (b) except for the amount, if any, stated
in such certificates to be due for work, labor, services or materials, there is
no outstanding indebtedness known to the person signing such certificate, after
due inquiry, which is then due for work, labor, services or materials in
connection with such Restoration, which, if unpaid, might become the basis of a
mechanic's lien or similar lien with respect to the Restoration or a lien upon
the Demised Premises, or any portion thereof; and (c) the costs, as estimated
by the person signing such certificate, of the completion of the Restoration
required to be done subsequent to the date of such certificate in order to
complete the Restoration do not exceed the sum of the remaining insurance
moneys, plus the amount deposited by Tenant, if any, remaining in the hands of
Landlord after payment of the sum requested in such certificate.
Tenant shall furnish Landlord at the time of any such payment with
evidence reasonably satisfactory to Landlord that there are no unpaid bills in
respect to any work, labor, services or materials performed, furnished or
supplied in connection with such Restoration. Landlord and Tenant as
co-trustees shall not be required to pay out any insurance moneys where Tenant
fails to supply satisfactory evidence of the payment of work, labor, services
or materials performed, furnished or supplied, as aforesaid. If the insurance
moneys in the hands of Landlord and Tenant as co-trustees, and such other sums,
if any, deposited with Landlord and Tenant as co-trustees pursuant to Section
13.1 hereof, shall be insufficient to pay the entire costs of the Restoration,
Tenant agrees to pay any deficiency promptly upon demand. Upon completion of
the Restoration and payment in full thereof by Tenant, Landlord shall within a
reasonable period of time thereafter, turn over to Tenant all insurance moneys
or other moneys then remaining upon submission of proof reasonably satisfactory
to Landlord that the Restoration has been paid for in full and the damaged or
destroyed Building and other improvements repaired, restored or rebuilt as
nearly as possible to the condition they were in immediately prior to such
damage or destruction, or with such changes or alterations as may be made in
conformity with Section 13.1 and Article XIX hereof.
Section 13.3 Continuance of Tenant's Obligations. Except as provided
for in Section 13.6, no destruction of or damage to the Demised Premises, or
any portion thereof, by fire, casualty or otherwise shall permit Tenant to
surrender this Lease or shall relieve Tenant from its liability to pay to
Landlord the Basic Rent and Additional Rent payable under this Lease or from
any of its other obligations under this Lease, and Tenant waives any rights now
or hereafter conferred upon Tenant by present or future law or otherwise to
quit or surrender this Lease or the Demised Premises, or any portion thereof,
to Landlord or to any suspension, diminution, abatement or reduction of rent on
account of any such damage or destruction.
Section 13.4 Availability of Insurance Proceeds. To the extent that
any insurance moneys which would otherwise be payable to Landlord and used in
the Restoration of the damaged or destroyed improvements are paid to any
mortgagee of Landlord and applied in payment of or reduction of the sum or sums
secured by any such mortgage or mortgages made by Landlord on the Demised
Premises, Landlord may make available, for the purpose of Restoration of such
improvements, an amount equal to the amount payable to its mortgage out of such
proceeds and in such event, such sum shall be applied in the manner provided in
Section 13.2 hereof. To the extent insurance moneys which otherwise would be
available for Restoration are applied in payment or reduction of the sum(s)
secured by any mortgage and Landlord does not make available an amount for
Restoration, this Lease shall terminate as of the date that the insurance
moneys are applied to reduce or pay the sum(s)
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secured by such mortgage.
Section 13.5 Completion of Restoration. The foregoing provisions of
this Article XIII apply only to damage or destruction of the Improvements by
fire, casualty or other cause occurring after the Commencement Date. Any such
damage or destruction occurring prior to such time shall be restored, repaired,
replaced and rebuilt by Landlord and during such period of construction
Landlord shall obtain and maintain the builder's risk insurance coverage
referred to in Section 6.1 hereof. All moneys received by Landlord under its
builder's risk insurance coverage shall be applied by Landlord to complete the
Restoration of such damage or destruction and if such insurance proceeds are
insufficient Landlord shall provide all additional funds necessary to complete
the Restoration of the Improvements.
Section 13.6 Termination of Lease. If, within twelve (12) months
prior to the expiration of the term of this Lease, the Improvements shall be
destroyed or damaged to such an extent that, Tenant cannot conduct its business
in the Demised Premises during the remainder of the term of the Lease, Tenant,
by notice in writing delivered to Landlord within thirty (30) days from the
date of such damage or destruction, may terminate this Lease. Upon the giving
of such notice and the payment of the amounts specified below, the term of this
Lease shall cease and come to an end on a day to be specified in Tenant's
notice, which date shall not be more than 30 days after the date of delivery of
such notice by Tenant to Landlord. Tenant shall accompany such notice with its
payment of all Basic Rent and Additional Rent reserved for the balance of the
term of the Lease (assuming the Lease had not been so terminated) and other
charges payable by Tenant hereunder, justly apportioned to the date of such
termination that are not paid to Landlord under the rent loss insurance policy
required to be maintained for Landlord's benefit in accordance with the
provisions of Section 6.8 hereof, together with the dollar amount of Landlord's
reasonable estimate of the difference, if any, between the cost of the
Restoration and the amount of net insurance proceeds to be made available for
the Restoration. In such event Landlord shall be entitled to the proceeds of
all insurance required to be carried by Tenant hereunder and Tenant shall
execute all documents reasonably requested by Landlord to allow such proceeds
to be paid to Landlord.
ARTICLE XIV
CONDEMNATION
Section 14.1 Condemnation of Entire Demised Premises. If, during the
term of this Lease, the entire Demised Premises shall be taken as the result of
the exercise of the power of eminent domain (hereinafter referred to as the
"Proceedings"), this Lease and all right, title and interest of Tenant
hereunder shall cease and come to an end on the date of vesting of title
pursuant to such Proceedings and Landlord shall be entitled to and shall
receive the total award made in such Proceedings, Tenant hereby assigning any
interest in such award, damages, consequential damages and compensation to
Landlord and Tenant hereby waiving any right Tenant has now or may have under
present or future law to receive any separate award of damages for its interest
in the Demised Premises, or any portion thereof, or its interest in this Lease.
In any taking of the Demised Premises, or any portion thereof, whether
or not this Lease is terminated as in this Article provided, Tenant shall not
be entitled to any portion of the award for the taking of the Demised Premises
or damage to the Improvements, except as otherwise provided for in Section 14.3
with respect to the restoration of the Improvements, or for the estate or
interest of Tenant therein, all such award, damages, consequential damages and
compensation being hereby assigned to Landlord, and Tenant hereby waives any
right it now has or may have
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under present or future law to receive any separate award of damages for its
interest in the Demised Premises, or any portion thereof, or its interest in
this Lease, except that Tenant shall have, nevertheless, the limited right to
prive in the Proceedings and to receive any award which may be made for damages
to or condemnation of Tenant's movable trade fixtures and equipment, and for
Tenant's relocation costs in connection therewith.
Section 14.2 Partial Condemnation/Termination of Lease. If, during the
Initial Term of this Lease, or any extension or renewal thereof, less than the
entire Demised Premises, but more than 15% of the floor area of the Building,
or more than 25% of the land area of the Demised Premises, shall be taken in
any such Proceedings, this Lease shall, upon vesting of title in the
Proceedings, terminate as to the portion of the Demised Premises so taken, and
Tenant may, at its option, terminate this Lease as to the remainder of the
Demised Premises. Tenant shall not have the right to terminate this Lease
pursuant to the preceding of the Demised Premises taken cannot reasonably be
carried on with substantially the same utility and efficiency in the remainder
of the Demised Premises (or any substitute space securable by Tenant pursuant
to clause (b) hereof) and (b) Tenant cannot construct or secure substantially
similar space to the space so taken, on the Demised Premises. Such termination
as to the remainder of the Demised Premises shall be effected by notice in
writing given not more than 60 days after the date of vesting of title in such
Proceedings, and shall specify a date not more than 60 days after the giving of
such notice as the date for such termination. Upon the date specified in such
notice, the term of this Lease, and all right, title and interest of Tenant
hereunder, shall cease and come to an end. If this Lease is terminated as in
this Section 14.2 provided, Landlord shall be entitled to and shall receive the
total award made in such Proceedings, Tenant hereby assigning any interest in
such award, damages, consequential damages and compensation to Landlord, and
Tenant hereby waiving any right Tenant has now or may have under present or
future law to receive any separate award of damages for its interest in the
Demised Premises, or any portion thereof, or its interest in this Lease except
as otherwise provided in Section 14.1 and Section 14.6. The right of Tenant to
terminate this Lease, as in this Section 14.2 provided, shall be exercisable
only upon condition that Tenant is not then in default in the performance of
any of the terms, convenants or conditions of this Lease on its part to be
performed, and such termination upon Tenant's part shall become effective only
upon compliance by Tenant with all such terms, convenats and conditions to the
date of such termination. In the event that Tenant elects not to terminate this
Lease as to the remainder of the Demised Premises, the rights and obligations
of Landlord and Tenant shall be governed by the provisions of Section 14.3
hereof.
Section 14.3 Partial Condemnation/Continuation of Lease. If 15%, or
less, of the floor area of the Building, or 25%, or less, of the land area of
the Demised Premises, shall be taken in such Proceedings, or if more than 15% of
the floor area of the Building or more than 25% of the land area of the Demised
Premises is taken (but less than the entire Demised Premises), and this Lease is
not terminated as in Section 14.2 hereof provided, this Lease shall, upon
vesting of title in the Proceedings, terminate as to the parts so taken, and
Tenant shall have no claim or interest in the award, damages, consequential
damages and compensation, or any part thereof except as otherwise provided in
Section 14.1. Landlord shall be entitled to and shall receive the total award
made in such Proceedings, Tenant hereby assigning any interest in such award,
damages, consequential damages and compensation to Landlord, and Tenant hereby
waiving any right Tenant has now or may have under present or future law to
receive any separate award of damages for its interest in the Demised Premises,
or any portion thereof, or its interest in this Lease except as otherwise
provided in Section 14.1. The net amount of the award after deduction of all
costs
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and expenses, including attorney's fees), shall be held by Landlord and Tenant
as co-trustees and applied as hereinafter provided. Tenant, in such case,
covenants and agrees, at Tenant's sole cost and expense (subject to
reimbursement to the extent hereinafter provided), promptly to restore that
portion of the Improvements on the Demised Premises not so taken to a complete
architectural and mechanical unit for the use and occupancy of Tenant as in
this Lease provided. In the event that the net amount of the award (after
deduction of all costs and expenses, including attorney's fees) that may be
received by Landlord and held by Landlord and Tenant as co-trustees in any such
Proceedings for physical damage to the Improvements as a result of such taking
is insufficient to pay all costs of such restoration work, Tenant shall deposit
with Landlord and Tenant as co-trustees such additional sum as may be required
upon the written request of Landlord. The provisions and conditions in Article
XIX applicable to changes and alterations shall apply to Tenant's obligations
to restore that portion of the Improvements to a complete architectural and
mechanical unit. Landlord and Tenant as co-trustees agree in connection with
such restoration work to apply so much of the net amount of any award (after
deduction of all costs and expenses, including attorney's fees) that may be
received by Landlord and held by Landlord and Tenant as co-trustees in any such
Proceedings for damage to the Improvements as a result of such taking to the
costs of such restoration work thereof and the said net award for damage to the
Improvements as a result of such taking shall be paid out from time to time to
Tenant, or on behalf of Tenant, as such restoration work progresses upon the
written request of Tenant, which shall be accompanied by a certificate of the
architect or the registered professional engineer in charge of the restoration
work stating that (a) the sum requested is justly due to the contractors,
subcontractors, materialmen, laborers, engineers, architects or other persons,
firms or corporations furnishing or supplying work, labor, services or
materials for such restoration work or as is justly required to reimburse
Tenant for expenditures made by Tenant in connection with such restoration
work, and when added to all sums previously paid out by Landlord and Tenant as
co-trustees does not exceed the value of the restoration work performed to the
date of such certificate; and (b) the net amount of any such award for damage
to the Improvements as a result of such taking remaining in the hands of
Landlord, together with the sums, if any, deposited by Tenant with Landlord and
Tenant as co-trustees pursuant to the provisions hereof, will be sufficient
upon the completion of such restoration work to pay for the same in full. If
payment of the award for damage to the Improvements as a result of such taking,
as aforesaid, shall not be received by Landlord in time to permit payments as
the restoration work progresses (except in the event of an appeal of the award
by Landlord), Tenant shall, nevertheless, perform and fully pay for such work
without delay (except such delays as are referred to in Article XIX hereof),
and payment of the amount to which Tenant may be entitled shall thereafter be
made by Landlord out of the net award for damage to the Improvements as a
result of such taking as and when payment of such award is received by
Landlord. If Landlord appeals an award and payment of the award is delayed
pending appeal Tenant shall, nevertheless, perform and fully pay for such work
without delay (except such delays as are referred to in Article XIX hereof), and
payment of the amount to which Tenant would have been entitled had Landlord not
appealed the award (in an amount not to exceed the net award prior to such
appeal) shall be made by Landlord to Tenant as restoration progresses pursuant
to this Section 14.3, in which event Landlord shall be entitled to retain an
amount equal to the sum disbursed to Tenant out of the net award as and when
payment of such award is received by Landlord. Tenant shall also furnish
Landlord and Tenant as co-trustees with each certificate hereinabove referred
to, together with evidence reasonably satisfactory to Landlord that there are
no unpaid bills in espect to any work, labor, services or materials performed,
furnished or supplied, or claimed to have been performed, furnished or
supplied, in connection with such restoration work, and that no liens have
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been filed against the Demised Premises, or any portion thereof. Landlord and
Tenant as co-trustees shall not be required to pay out any funds when there are
unpaid bills for work, labor, services or materials performed, furnished or
supplied in connection with such restoration work, or where a lien for work,
labor, services or materials performed, furnished or supplied has been placed
against the Demised Premises, or any portion thereof. Upon completion of the
restoration work and payment in full therefor by Tenant, and upon submission of
proof reasonably satisfactory to Landlord that the restoration work has been
paid for in full and that the Improvements have been restored or rebuilt to a
complete architectural and mechanical unit for the use and occupancy of Tenant
as provided in this Lease, Landlord and Tenant as co-trustees shall pay over to
Tenant any portion of the cash deposit furnished by Tenant then remaining. To
the extent that any award, damages or compensation which would otherwise be
payable to Landlord and applied to the payment of the cost of restoration of
the Improvements is paid to any mortgagee of Landlord and applied in payment or
reduction of the sum or sums secured by any such mortgage or mortgages made by
Landlord on the Demised Premises, Landlord shall make available for the use of
Tenant, in connection with the payment of the cost of restoring the
Improvements an amount equal to the amount of such net award payable to the
mortgagee. From and after the date of delivery of possession to the condemning
authority pursuant to the Proceedings, the Basic Rent shall be adjusted in the
manner provided in Section 14.5. In the event the cost of restoration work is
reasonably expected to exceed the amount of the award, Tenant shall have the
right to participate in the Proceedings (but not the award except as otherwise
provided herein) provided Tenant pays all costs and expenses related to such
participation and provided Tenant participates only to the extent necessary to
assure that the award is sufficient to pay the cost of restoration as
reasonably determined by Landlord and provided Tenant first provides Landlord
with reasonable security against loss or prejudice to Landlord by reason of
Tenant's participation reasonably acceptable to Landlord. Landlord shall at all
times have the right to control the conduct of such Proceedings, except subject
to the above, Tenant may control as to the portion in which it has the
principal interest.
Section 14.4 Continuance of Obligations. In the event of any termination
of this Lease, or any part thereof, as a result of any such Proceedings, Tenant
shall pay to Landlord all Basic Rent and all Additional Rent and other charges
payable hereunder with respect to that portion of the Demised Premises so taken
in such Proceedings with respect to which this Lease shall have terminated
justly apportioned to the date of such termination. From and after the date of
vesting of title in such Proceedings, Tenant shall continue to pay the Basic
Rent and Additional Rent and other charges payable hereunder, as in this Lease
provided, to be paid by Tenant, subject to an abatement of the Basic Rent as
provided for in Sections 14.3 and 14.5 hereof in respect to the Demised
Premises remaining after such taking.
Section 14.5 Adjustment of Rent. In the event of a partial taking of the
Demised Premises under Section 14.3 hereof, or a partial taking of the Demised
Premises under Section 14.2 hereof, followed by Tenant's election not to
terminate this Lease, the fixed Basic Rent payable hereunder during the period
from and after the date of vesting of title in such Proceedings to the
termination of this Lease shall be equitably adjusted with due consideration of
the size, location, type and quality of the improvements remaining following
such partial taking and the land area of the Demised Premises remaining
following such partial taking.
Section 14.6 Tenant's Interest in Alterations. Anything contained in
this Article XIV to the contrary, Tenant shall have the limited right to prove
in the Proceedings and to receive any separate award which may be made for the
unamortized portion of any improvements or alterations to the Improvements made
by Tenant
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pursuant to Article XIX which have increased the fair market value of the
Improvements by an amount in excess of $25,000.00 (as measured by the
condemning authority); provided, however, in no event shall any portion of such
separate award exceed the lesser of (i) that portion of the award reasonably
attributable to improvements or alterations made by Tenant pursuant to Article
XIX and (ii) the actual expenditures incurred by Tenant with respect to any
such alterations or improvements, and provided further in no event shall such
claims by Tenant reduce Landlord's award below what it would otherwise be
absent such claim (such increase in valuation to be determined in accordance
with the following formula: The unamortized portion of any increase in the
valuation of the Improvements attributable to expenditures incurred by Tenant
for improving or altering the Improvements shall be determined by multiplying
the amount of such increase in valuation by a fraction, the numerator of which
shall be the number of months of the remaining term of the Lease Agreement at
the time of the taking, and the denominator of which shall be the number of
months constituting the useful life of said improvements or alterations
measured at the time of the taking using generally acceptable accounting
principles consistently applied).
ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
Section 15.1 Restriction on Transfer. Tenant shall not sublet the
Demised Premises, or any portion thereof, nor assign, mortgage, pledge,
transfer or otherwise encumber or dispose of this Lease, or any interest
therein, or in any manner assign, mortgage, pledge, transfer or otherwise
encumber or dispose of its interest or estate in the Demised Premises, or any
portion thereof, without obtaining Landlord's prior written consent in each and
every instance, which consent shall not be unreasonably withheld or delayed,
provided the following conditions are complied with:
(a) Any assignment of this Lease shall transfer to the assignee all of
Tenant's right, title and interest in this Lease and all of
Tenant's estate or interest in the Demised Premises.
(b) At the time of any assignment or subletting, and at the time when
Tenant requests Landlord's written consent thereto, this Lease
must be in full force and effect, without any breach or default
thereunder on the part of Tenant.
(c) Any such assignee shall assume, by written, recordable instrument,
in form and content satisfactory to Landlord, the due performance
of all of Tenant's obligations under this Lease, including any
accrued obligations at the time of the effective date of the
assignment, and such assumption agreement shall state that the same
is made by the assignee for the express benefit of Landlord as a
third party beneficiary thereof. A copy of the assignment and
assumption agreement, both in form and content satisfactory to
Landlord, fully executed and acknowledged by assignee, together
with a certified copy of a property executed corporate resolution
(if the assignee be a corporation) authorizing the execution and
delivery of such assumption agreement, shall be sent to Landlord
ten days prior to the effective date of such assignment.
(d) In the case of a subletting, a copy of any sublease fully executed
and acknowledged by Tenant and the sublessee shall be mailed to
Landlord ten days prior to the effective date of such subletting,
which sublease shall be in form and content acceptable to Landlord.
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(e) Such assignment or subletting shall be subject to all the
provisions, terms, covenants and conditions of this Lease, and
Tenant-assignor (and the guarantor or guarantors of this Lease, if
any) and the assignee or assignees shall continue to be and remain
liable under this Lease, as it may be amended from time to time
without notice to any assignor of Tenant's interest or to any
guarantor.
(f) Each sublease permitted under this Section 15.1 shall contain
provisions to the effect that (i) such sublease is only for actual
use and occupancy by the sublessee; (ii) such sublease is subject
and subordinate to all of the terms, covenants and conditions of
this Lease and to all of the rights of Landlord thereunder; and
(iii) in the event this Lease shall terminate before the
expiration of such sublease, the sublessee thereunder will, at
Landlord's option, attorn to Landlord and waive any rights the
sublessee may have to terminate the sublease or to surrender
possession thereunder, as a result of the termination of this
Lease.
(g) Tenant agrees to pay on behalf of Landlord any and all reasonable
attorney's fees paid or payable to outside counsel occasioned by
such assignment or subletting.
Section 15.2 Restriction From Further Assignment. Notwithstanding
anything contained in this Lease to the contrary and notwithstanding any
consent by Landlord to any sublease of the Demised Premises, or any portion
thereof, or to any assignment of this Lease or of Tenant's interest or estate
in the Demised Premises, no sublessee shall assign its sublease nor further
sublease the Demised Premises, or any portion thereof, and no assignee shall
further assign its interest in this Lease or its interest or estate in the
Demised Premises, or any portion thereof, nor sublease the Demised Premises, or
any portion thereof, without Landlord's prior written consent in each and every
instance which consent shall not be unreasonably withheld or unduly delayed. No
such assignment or subleasing shall relieve Tenant from any of Tenant's
obligations in this Lease contained.
Section 15.3 Landlord's Termination Right. Notwithstanding anything
contained in this Lease to the contrary, should Tenant desire to assign this
Lease, or its interest or estate in the Demised Premises, or sublet the Demised
Premises, or any portion thereof, it shall give written notice of its intention
to do so to Landlord 60 days or more before the effective date of such proposed
assignment or subletting and Landlord may, at any time within 30 days after the
receipt of such notice from Tenant, cancel this Lease with respect to the space
therein described by giving Tenant written notice of its intention to do so, in
which event such cancellation shall become effective upon the date specified by
Landlord, but not less than 30 days nor more than 90 days after its receipt by
Tenant, with the same force and effect as if said cancellation date were the
date originally set forth as the expiration date of the Initial Term of this
Lease, or any extension or renewal thereof. If Tenant's notice shall cover all
of the Demised Premises, and Landlord shall have exercised its foregoing
cancellation right, the term of this Lease shall expire and end on the
effective date of the assignment of subletting stated in Tenant's notice as
fully and completely as if that date had been herein definitely fixed for the
expiration of the term of this Lease. If, however, this Lease be cancelled with
respect to less than the entire Demised Premises, the Basic Rent and Additional
Rent shall be equitably adjusted on a square foot basis from and after the
termination date for said portion, and this Lease as so amended shall continue
thereafter in full force and effect. The rent adjustments provided for herein
shall be evidenced by an amendment to this Lease executed by Landlord and
Tenant. If this Lease shall be terminated in the manner aforesaid, either as to
the
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entire Demised Premises or only a portion thereof, to such extent the term of
this Lease shall and upon the appropriate effective date of the proposed
sublease or assignment as if that date had been originally fixed in this Lease
for such expiration, and in the event of a termination affecting less than the
entire Demised Premises, Tenant shall comply with Section 20.18 of this Lease
with respect to such portion of the Demised Premises affected thereby. Landlord
may enter into a direct lease with the proposed sublessee of assignee or with
any other persons as Landlord may desire without obligation or liability to
Tenant, its assignees, sublessees or their respective successors, assigns,
agents or brokers.
Section 15.4 Tenant's Failure to Comply. Tenant's failure to comply
with all of the foregoing provisions and conditions of this Article XV shall
(whether or not Landlord's consent is required under this Article), at
Landlord's option, render any purported assignment or subletting null and void
and of no force and effect.
Section 15.5 Sharing of Excess Rent. If Landlord consents to Tenant
assigning its interest under this Lease or subletting all or any portion of the
Demised Premises, Tenant shall pay to Landlord (in addition to Rent and all
other amounts payable by Tenant under this Lease) 50% of the rents and other
considerations payable by such assignee or subtenant (after deducting amounts
paid by Tenant for (i) reasonable and customary advertising expenses incurred
in connection with such assignment or sublease, (ii) leasing commissions paid
by Tenant for such assignment or sublease (iii) tenant improvement allowances
granted to such assignee or subtenant and (iv) attorney's fees incurred by
Tenant for such assignment or sublease, not to exceed $1,000.00) in excess of
the Rent otherwise payable by Tenant from time to time under this Lease. For
the purposes of this computation, the additional amount payable by Tenant shall
be determined by application of the rental rate per square foot for the Demised
Premises or any portion thereof sublet. Said additional amount shall be paid to
Landlord immediately upon receipt by Tenant of such Rent or other
considerations from the assignee or subtenant.
ARTICLE XVI
SUBORDINATION, NONDISTURBANCE,
NOTICE TO MORTGAGEE AND ATTORNMENT
Section 16.1 Subordination by Tenant. This Lease and all rights of
Tenant therein, and all interest or estate of Tenant in the Demised Premises, or
any portion thereof, shall be subject and subordinate to the lien of any
mortgage, deed of trust, security instrument or other document of like nature
("Mortgage"), which at any time may be placed upon the Demised Premises, or any
portion thereof, by Landlord, and to any replacements, renewals, amendments,
modifications, extensions or refinancing thereof, and to each and every advance
made under any Mortgage. Tenant agrees at any time hereafter, and from time to
time on demand of Landlord, to execute and deliver to Landlord any instruments,
releases or other documents that may be reasonably required for the purpose of
subjecting and subordinating this Lease to the lien of any such Mortgage. It is
agreed, nevertheless, that so long as Tenant is not in default in the payment
of Basic Rent and Additional Rent and the performance and observance of all
covenants, conditions, provisions, terms and agreements to be performed and
observed by Tenant under this Lease, that such subordination agreement or other
instrument, release or document shall not interfere with, hinder or molest
Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to
continue to occupy the Demised Premises, and all portions thereof, and to
conduct its business thereon in accordance with the covenants, conditions,
provisions, terms and agreements of this Lease. The lien of any such Mortgage
shall not cover Tenant's trade fixtures or other personal property located
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in or on the Demised Premises.
Section 16.2 Landlord's default. In the event of any act or omission
of Landlord constituting a default by Landlord, Tenant shall not exercise any
remedy until Tenant has given Landlord prior written notice of such act or
omission and until a 30-day period of time to allow Landlord or the mortgages
to remedy such act or omission shall have elapsed following the giving of such
notice; provided, however, if such act or omission cannot, with due diligence
and in good faith, be remedied within such 30-day period, the Landlord and/or
mortgagee shall be allowed such further period of time as may be reasonably
necessary provided that it shall have commenced remedying the same with due
diligence and in good faith within said 30-day period. In the event Landlord's
act or omission which constitutes a Landlord's default hereunder results in an
immediate threat of bodily harm to Tenant's employees, agents or invitees, or
damage to Tenant's property Tenant may proceed to cure the default without
prior notice to Landlord; provided, however, in that event Tenant shall give
written notice to Landlord as soon as possible after commencement of such cure.
Landlord shall reimburse Tenant for its reasonable out-of-pocket expenditures
incurred in curing such default within thirty (30) days following receipt by
Landlord of invoices in detail reasonably acceptable to Landlord with interest
thereon at the Maximum Rate of Interest from the date of expenditure by Tenant
(provided such date is not prior to expiration of any applicable grace or cure
period) to the date of reimbursement by Landlord. Nothing herein contained
shall be construed or interpreted as permitting Tenant to offset rent or any
other payments due hereunder. Further, nothing herein contained shall be
construed or interpreted as requiring any mortgagee to remedy such act or
omission.
Section 16.3 Attornment. If any mortgagee shall succeed to the rights
of Landlord under this Lease or to ownership of the Demised Premises, whether
through possession or foreclosure or the delivery of a deed to the Demised
Premises, then, Tenant shall attorn to and recognize such mortgagee as
Tenant's landlord under this Lease, and shall promptly execute and deliver any
instrument that such mortgagee may reasonably request to evidence such
attornment (whether before or after making of the mortgage) provided that so
long as Tenant is not in default in the payment of Basic Rent and Additional
Rent and the performance and observance of all covenants, conditions,
provisions, terms and agreements to be performed and observed by Tenant under
this Lease, such mortgagee as landlord shall not interfere with, hinder or
molest Tenant's right to quiet enjoyment under this Lease, nor the right of
Tenant to continue to occupy the Demised Premises, and all portions thereof,
and to conduct its business therein in accordance with the covenants,
conditions, provisions, terms and agreements of this Lease. In the event of any
other transfer of Landlord's interest hereunder, upon the written request of
the transferee and Landlord, Tenant shall attorn to and recognize such
transferee as Tenant's landlord under this Lease and shall promptly execute and
deliver any instrument that such transferee and Landlord may reasonably request
to evidence such attornment provided that so long as Tenant is not in default
in the payment of Basic Rent and Additional Rent and the performance and
observance of all covenants, conditions, provisions, terms and agreements to be
performed and observed by Tenant under this Lease, such mortgagee as landlord
shall not interfere with, hinder or molest Tenant's right to quiet enjoyment
under this Lease, nor the right of Tenant to continue to occupy the Demised
Premises, and all portions thereof, and to conduct its business therein in
accordance with the covenants, conditions, provisions, terms and agreements of
this Lease.
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ARTICLE XVII
SIGNS
Section 17.1 Tenants Signs. Tenant may erect signs on the exterior or
interior of the Building or on the landscaped area adjacent thereto, provided
that such sign or signs (a) do not cause any structural damage or other damage
to the Building; (b) do not violate applicable governmental laws, ordinances,
rules or regulations; (c) do not violate any existing restrictions affecting
the Demised Premises; and (d) are compatible with the architecture of the
Building and the landscaped area adjacent thereto.
ARTICLE XVIII
REPORTS BY TENANT
Section 18.1 Annual Statements. Upon request by Landlord at any time
after 135 days after the end of the applicable fiscal year of Tenant, Tenant
shall deliver to Landlord (within 15 days after receipt of written request) a
copy of its audited financial statement, including the certification of its
auditor, and similar financial statement of any guarantor of Tenant's
obligations under this Lease.
ARTICLE XIX
CHANGES AND ALTERATIONS
Section 19.1 Tenant's Changes and Alterations. Tenant shall have the
right at any time, and from time to time during the term of this Lease, to make
such changes and alterations, structural or otherwise, to the Building,
improvements and fixtures hereafter erected on the Demised Premises as Tenant
shall deem necessary or desirable in connection with the requirements of its
business, which such changes and alterations (other than changes or alterations
of Tenant's movable trade fixtures and equipment) shall be made in all cases
subject to the following conditions, which Tenant covenants to observe and
perform:
(a) Permits. No change or alteration shall be undertaken until Tenant
shall have procured and paid for, so far as the same may be
required from time to time, all municipal, state and federal
permits and authorizations of the various governmental bodies and
departments having jurisdiction thereof, and Landlord agrees to
join in the application for such permits or authorizations whenever
such action is necessary, all at Tenant's sole cost and expense,
provided such applications do not cause Landlord to become liable
for any cost, fees or expenses.
(b) Compliance with Plans and Specifications. Before commencement of
any change, alteration, restoration or construction (hereinafter
sometimes referred to as "Work") involving in the aggregate an
estimated cost of more than Ten Thousand and no/100 Dollars
($10,000.00) or which in Landlord's reasonable judgment would
materially alter the mechanical, structural, or electrical systems
of the Improvements, Tenant shall (i) furnish Landlord with
detailed plans and specifications of the proposed change or
alteration; (ii) obtain Landlord's prior written consent, which
consent shall not be unreasonably withheld (but such consent may
be withheld if the change or alteration would, in the reasonable
judgment of Landlord, impair the value or usefulness of the Land or
Improvements, or any substantial part thereof to Landlord); (iii)
obtain Landlord's prior written approval, not to be unreasonably
withheld, of a licensed architect or licensed
<PAGE> 45
professional engineer selected and paid for by Tenant, who shall
supervise any such work (hereinafter referred to as "Alterations
Architect or Engineer"); (iv) obtain Landlord's prior written
approval of detailed plans and specifications, which approval shall
not be unreasonably withheld with respect to plans and
specifications covering work not affecting the structural,
electrical or mechanical systems of the Improvements (but which
approval may be withheld in Landlord's sole and absolute direction
with respect to plans and specifications covering Work affecting
the structural, electrical or mechanical systems of the
Improvements) prepared and approved in writing by said Alterations
Architect or Engineer, and of each amendment and change thereto;
and (v) furnish to Landlord a surety company performance bond
issued by a surety company licensed to do business in the state in
which the Demised Premises are located and reasonably acceptable to
Landlord in an amount equal to the estimated cost of such work
guaranteeing the completion thereof within a reasonable time
thereafter (1) free and clear of all mechanic's liens or other
liens, encumbrances, security interests and charges, and (2) in
accordance with the plans and specifications approved by Landlord;
provided, however, so long as Tenant maintains a financial net
worth of at least $15,000,000.00 as evidenced by audited financial
statements prepared by an independent certified public accountant
and delivered to Landlord at the time of Tenant's request for Work
requiring Landlord's consent and approval hereunder, Tenant shall
not be required to furnish the aforesaid surety company performance
bond.
(c) Value Maintained. Any change or alteration shall, when completed,
be of such character as not to reduce the value or utility of the
Demised Premises or the Building to which such change or alteration
is made below its value or utility to Landlord immediately before
such change or alteration, nor shall such change or alteration
reduce the area or cubic content of the Building, nor change the
character of the Demised Premises or the Building as to use without
Landlord's express written consent.
(d) Compliance with Laws. All Work done in connection with any change
or alteration shall be done promptly and in a good and workmanlike
manner and in compliance with all building and zoning laws of the
place in which the Demised Premises are situated, and with all
laws, ordinances, orders, rules, regulations and requirements of
all federal, state and municipal governments and appropriate
departments, commissions, boards and officers thereof, and in
accordance with the orders, rules and regulations of the Board of
Fire Underwriters where the Demised Premises are located, or any
other body exercising similar functions. The cost of any such
change or alteration shall be paid in cash so that the Demised
Premises and all portions thereof shall at all times be free of
liens for labor and materials supplied to the Demised Premises, or
any portion thereof. The Work of any change or alteration shall be
prosecuted with reasonable dispatch, delays due to strikes,
lockouts, acts of God, inability to obtain labor or materials,
governmental restrictions or similar causes beyond the control of
Tenant excepted. Tenant shall obtain and maintain, at its sole cost
and expense, during the performance of the Work, workers'
compensation insurance covering all persons employed in connection
with the Work and with respect to which death or injury claims
could be asserted against Landlord or Tenant or against the Demised
Premises or any interest therein, together with
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comprehensive general liability insurance for the mutual benefit of
Landlord and Tenant with limits of not less than One Million Dollars
($1,000,000.00) in the event of injury to one person, Three Million Dollars
($3,000,000.00) in respect to any one accident or occurrence, and Five
Hundred Thousand Dollars ($500,000.00) for property damage, and the fire
insurance with "extended coverage" endorsement required by Section 6.1
hereof shall be supplemented with "builder's risk" insurance on a completed
value form or other comparable coverage on the Work. All such insurance
shall be in a company or companies authorized to do business in the state in
which the Demised Premises are located and reasonably satisfactory to
Landlord, and all such policies of insurance or certificates of insurance
shall be delivered to Landlord endorsed "Premium Paid" by the company or
agency issuing the same, or with other evidence of payment of the premium
satisfactory to Landlord.
(e) Property of Landlord. Subject to the terms of paragraph (g) below, all
improvements and alterations (other than Tenant's movable trade fixtures and
equipment) made or installed by Tenant shall immediately, upon completion or
installation thereof, become the property of Landlord without payment
therefor by Landlord, and shall be surrendered to Landlord on the expiration
of the term of this Lease.
(f) Location of Improvements. No change, alteration, restoration or new
construction shall be in or connect the Improvements with any property,
building or other improvement located outside the boundaries of the parcel
of land described in Exhibit "A" attached, nor shall the same obstruct or
interfere with any existing easement.
(g) Removal of Improvements. As a condition to granting approval for any
changes or alterations, Landlord may require Tenant to remove any
improvements, additions or installations installed by Tenant in the Demised
Premises at Tenant's sole cost and expense, and repair and restore any
damage caused by the installation and removal of such improvements,
additions, or installations; provided, however, the only improvements,
additions or installations which Tenant shall remove shall be those
specified in such notice. If Landlord does not require Tenant to remove such
improvements, additions or installations thereof, Tenant shall not be
required to remove such improvements, additions or installations. All
improvements, additions or installations installed by Tenant which did not
require Landlord's prior approval shall be removed by Tenant as provided for
in this Section 19.1(g), unless Tenant has obtained a written waiver of such
condition from Landlord prior to installation thereof.
(h) Written Notification Required. Tenant shall notify Landlord in writing 30
days prior to commencing any alterations, additions or improvements to the
Demised Premises which have been approved by Landlord so that Landlord shall
have the right to record and post notices of non-responsibility on the
Demised Premises.
ARTICLE XX
MISCELLANEOUS PROVISIONS
Section 20.1 Entry by Landlord. Tenant agrees to permit Landlord and
authorized representatives of Landlord to enter upon
<PAGE> 47
the Demised Premises at all reasonable times upon reasonable notice (except in
case of an emergency in which event Landlord or its agents may enter at any
time with or without notice) during ordinary business hours for the purpose of
inspecting the same and making any necessary repairs to comply with any laws,
ordinances, rules, regulations or requirements of any public body, or the Board
of Fire Underwriters, or any similar body. Nothing herein contained shall imply
any duty upon the part of Landlord to do any such work which, under any
provision of this Lease, Tenant may be required to perform and the performance
thereof by Landlord shall not constitute a waiver of Tenant's default in
failing to perform the same. Landlord may, during the progress of any work,
keep and store upon the Demised Premises all necessary materials, tools and
equipment. Landlord shall not in any event be liable for inconvenience,
annoyance, disturbance, loss of business or other damage to Tenant by reason of
making repairs or the performance of any work in or about the Demised Premises,
or on account of bringing material, supplies and equipment into, upon or
through the Demised Premises during the course thereof, and the obligations of
Tenant under this Lease shall not be thereby affected in any manner whatsoever;
provided, however, in the exercise of its rights hereunder Landlord shall use
reasonable efforts to interfere with the business of Tenant as little as
reasonably possible under the circumstances; provided, however, nothing herein
shall require Landlord to perform any necessary work during other than normal
business hours.
Section 20.2 Exhibition of Demised Premises. Landlord is hereby given
the right during usual business hours at any time during the term of this Lease
upon reasonable notice to enter upon the Demised Premises and to exhibit the
same for the purpose of mortgaging or selling the same; provided, however, in
the exercise of its rights hereunder Landlord shall use reasonable efforts to
interfere with the business of Tenant as little as reasonably possible under
the circumstances. During the final year of the term, Landlord shall be
entitled to display on the Demised Premises, in such manner as to not
unreasonably interfere with Tenant's business, signs indicating that the
Demised Premises are for rent or sale and suitably identifying Landlord or its
agent. Tenant agrees that such signs may remain unmolested upon the Demised
Premises and that Landlord may exhibit said premises to prospective tenants
during said period.
Section 20.3 Indemnification by Tenant. To the fullest extent allowed
by law, Tenant shall at all times indemnify, defend and hold Landlord and
Landlord's shareholders, employees and managing agent harmless against and from
any and all claims, costs, liabilities, actions and damages (including, without
limitation, attorneys' fees and costs) by or on behalf of any person or
persons, firm or firms, corporation or corporations, arising from the conduct
or management, or from any work or things whatsoever done in or about the
Demised Premises other than the construction and installation of the Landlord's
Improvements, and will further indemnify, defend and hold Landlord harmless
against and from any and all claims arising during the term of this Lease, from
any condition of the Improvements or any street, curb or sidewalk forming a
part of the Demised Premises, or of any passageways or space therein or
appurtenant thereto, or arising from any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of Tenant to
be performed, pursuant to the terms of this Lease, or arising from any act or
negligence of Tenant, its agents, servants, employees or licensees, or arising
from any accident, injury or damage whatsoever caused to any person, firm or
corporation occurring during the term of this Lease, in or about the Demised
Premises, or upon the sidewalk and the land forming a part of the Demised
Premises, and from and against all costs, attorney's fees, expenses and
liabilities incurred in or about any such claim or action or proceeding brought
thereon; and in case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant, upon notice from
<PAGE> 48
Landlord, covenants to defend such action or proceeding by counsel reasonably
satisfactory to Landlord. Tenant's obligations under this Section 20.3 shall be
insured by contractual liability endorsement on Tenant's policies of insurance
required under the provisions of Section 6.2 hereof.
Section 20.4 Notices. All notices, demands and requests which may be
or are required to be given, demanded or requested by either party to the other
shall be in writing. All notices, demands and requests shall be sent by United
States registered or certified mail, postage prepaid or by an independent
overnight courier service, addressed as follows:
To Landlord: Opus North Corporation
9700 West Higgins Road, Suite 900
Rosemont, Illinois 60018
Attention: President
With a copy to: Opus U.S. Corporation
P.O. Box 59110
Minneapolis, Minnesota 55440
Attention: Legal Department
To Tenant: ERO Industries, Inc.
585 Slawin Court
Mount Prospect, IL 60056
Attention: Senior Vice President
Finance
With a copy to: Sachnoff & Weaver
30 South Wacker, Suite 2900
Chicago, Illinois 60606
Attention: Barry S. Cain
or at such other place as Landlord may from time to time designate by written
notice to Tenant. Notices, demands and requests which shall be served upon
Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall
be deemed to be sufficiently served or given for all purposes hereunder at the
time such notice, demand or request shall be mailed or delivered to a courier.
Section 20.5 Quiet Enjoyment. Landlord covenants and agrees that
Tenant, upon paying the Basic Rent and Additional Rent, and upon observing and
keeping the covenants, agreements and conditions of this Lease on its part to
be kept, observed and performed, shall lawfully and quietly hold, occupy and
enjoy the Demised Premises (subject to the provisions of this Lease) during the
term of this Lease without hindrance or molestation by Landlord or by any
person or persons claiming under Landlord.
Section 20.6 Landlord's Continuing Obligations. The term "Landlord,"
as used in this Lease so far as covenants or obligations on the part of
Landlord are concerned, shall be limited to mean and include only the owner or
owners at the time in question of the fee of the Demised Premises, and in the
event of any transfer or transfers or conveyance the then grantor shall be
automatically freed and relieved from and after the date of such transfer or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, provided that any funds in the hands of such landlord or the then
grantor at the time of such transfer, in which Tenant has an interest, shall be
turned over to the grantee, and any amount then due and payable to Tenant by
Landlord or the then grantor under any provision of this Lease shall be paid to
Tenant. The covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the aforesaid, be binding on Landlord's successors
and assigns, during and in respect of their respective successive periods of
ownership. Nothing herein contained shall be construed as relieving Landlord
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of its obligations under Article II of this Lease, or releasing Landlord from
any obligation to complete the cure of any breach by Landlord during the period
of its ownership of the Demised Premises.
Section 20.7 Estoppel. Landlord and Tenant shall each without charge
at any time and from time to time, within twenty days after written request by
the other party, certify by written instrument, duly executed, acknowledged
and delivered to any mortgagee, assignee of a mortgagee, proposed mortgagee, or
to any purchaser or proposed purchaser, or to any other person dealing with
Landlord, Tenant or the Demised Premises:
(a) That this Lease (and all guaranties, if any) is unmodified and in
full force and effect (or, if there have been modifications, that
the same is in full force and effect, as modified, and stating the
modifications);
(b) The dates to which the Basic Rent or Additional Rent have been
paid in advance;
(c) Whether or not there are then existing any breaches or defaults by
such party or the other party known by such party under any of the
covenants, conditions, provisions, terms or agreements of this
Lease, and specifying such breach or default, if any, or any
setoffs or defenses against the enforcement of any covenant,
condition, provision, term or agreement of this Lease (or of any
guaranties) upon the part of Landlord or Tenant (or any guarantor),
as the case may be, to be performed or complied with (and, if so,
specifying the same and the steps being taken to remedy the same);
and
(d) Such other statements or certificates as Landlord or any mortgagee
may reasonably request.
It is the intention of the parties hereto that any statement delivered
pursuant to this Section 20.7 may be relied upon by any of such parties dealing
with Landlord, Tenant or the Demised Premises. If Tenant does not deliver such
statement to Landlord within such 20 day period, Landlord, and any prospective
purchaser or encumbrancer of the Demised Premises or the Building, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated and is
in full force and effect, except as otherwise represented by Landlord; that the
current amounts of the Basic Rent and Security Deposit are as represented by
Landlord; that any changes made against the Security Deposit are uncontested
and valid; that there have been no subleases or assignments of the Lease; (iii)
that not more than one month's Basic Rent or other charges have been paid in
advance; and (iv) that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such facts.
Section 20.8 Delivery of Corporate Documents. In the event that
Tenant is a corporation, Tenant shall, without charge to Landlord, at any time
and from time to time within ten days after the written request by Landlord,
deliver to Landlord, in connection with any proposed sale or mortgage of the
Demised Premises, the following instruments and documents:
(a) Certificate of Good Standing in the state of incorporation of
Tenant and in the state in which the Demised Premises are located
issued by the appropriate state authority and bearing a current
date;
(b) A copy of Tenant's articles of incorporation and by-laws, and any
amendments or modifications
<PAGE> 50
thereof certified by the secretary or assistant secretary of
Tenant;
(c) An opinion of Tenant's counsel that (i) this Lease has been duly
authorized by all necessary corporate action and is a valid and
binding agreement enforceable in accordance with its terms; and
(ii) Tenant is a duly organized and validly existing corporation
under the laws of its state of incorporation, is duly authorized to
carry on its business, and is in good standing under the laws of
the state in which the Demised Premises are located, if different
from the state of incorporation, and has all necessary licenses and
permits to carry on its business.
Landlord, at any time and from time to time within ten days after
written request from Tenant, shall deliver to Tenant an opinion of Landlord's
counsel that (a) this Lease has been duly authorized by all necessary corporate
action and is a valid and binding agreement enforceable in accordance with its
terms, and (b) Landlord is a duly organized and validly existing corporation
under the laws of its state of incorporation, is duly authorized to carry on
its business, and is in good standing under the laws of the state in which the
Demised Premises are located, if different from the state of incorporation,
and has all necessary licenses and permits to carry on its business.
Section 20.9 Memorandum of Lease. Upon not less than ten days prior
written request by either party, the parties hereto agree to execute and
deliver to each other a Memorandum Lease, in recordable form, setting forth the
following:
(a) The date of this Lease;
(b) The parties to this Lease;
(c) The term of this Lease;
(d) The legal description of the Demised Premises; and
(e) Such other matters reasonably requested by Landlord to be stated
therein.
Section 20.10 Severability. If any covenant, condition, provision,
term or agreement of this Lease shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law. This Lease shall be construed and
be enforceable in accordance with the laws of the state in which the Demised
Premises are located.
Section 20.11 Successors and Assigns. The covenants and agreements
herein contained shall bind and inure to the benefit of Landlord, its
successors and assigns, and Tenant and its permitted successors and assigns.
Section 20.12 Captions. The caption of each article of this Lease is
for convenience and reference only, and in no way defines, limits or describes
the scope or intent of such article or of this Lease.
Section 20.13 Relationship of Parties. This Lease does not create the
relationship of principal and agent, or of partnership, joint venture, or of
any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant.
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Section 20.14 Entire Agreement. All preliminary and contemporaneous
negotiations are merged into and incorporated in this Lease. This Lease
together with the Exhibits contains the entire agreement between the parties
and shall not be modified or amended in any manner except by an instrument in
writing executed by the parties thereto.
Section 20.15 No Merger. There shall be no merger of this Lease or the
leasehold estate created by this Lease with any other estate or interest in the
Demised Premises by reason of the fact that the same person, firm, corporation
or other entity may acquire, hold or own directly or indirectly, (a) this Lease
or the leasehold interest created by this Lease or any interest therein, and
(b) any such other estate or interest in the Demised Premises, or any portion
thereof. No such merger shall occur unless and until all persons, firms,
corporations or other entities having an interest (including a security
interest) in (1) this Lease or the leasehold estate created thereby, and (2) any
such other estate or interest in the Demised Premises, or any portion thereof,
shall join in a written instrument expressly affecting such merger and shall
duly record the same.
Section 20.16 Possession and Use. Tenant acknowledges that the Demised
Premises are the property of Landlord and that Tenant has only the right to
possession and use thereof upon the covenants, conditions, provisions, terms
and agreements set forth in this Lease.
Section 20.17 No Surrender During Lease Term. No surrender to Landlord
of this Lease or of the Demised Premises, or any portion thereof, or any
interest therein, prior to the expiration of the term of this Lease shall be
valid or effective unless agreed to and accepted in writing by Landlord and
consented to in writing by all contract vendors and mortgagees, and no act or
omission by Landlord or any representative or agent of Landlord, other than
such a written acceptance by Landlord consented to by all contract vendors and
the mortgagees, as aforesaid, shall constitute an acceptance of any such
surrender.
Section 20.18 Surrender of Demised Premises. At the expiration of the
term of this Lease, Tenant shall surrender the Demised Premises in the same
condition as the same were in upon delivery of possession thereto at the
Commencement Date of the term of this Lease, reasonable wear and tear (and
approved alterations) excepted, and shall surrender all keys to the Demised
Premises to Landlord at the place then fixed for the payment of Basic Rent and
shall inform Landlord of all combinations on locks, safes and vaults, if any.
Tenant shall at such time remove all of its property therefrom and all
alterations and improvements placed thereon by Tenant which are required to be
removed pursuant to Article XIX hereof. Tenant shall repair any damage to the
Demised Premises caused by such removal, and any and all such property not so
removed shall, at Landlord's option, become the exclusive property of Landlord
or be disposed of by Landlord, at Tenant's cost and expense, without further
notice to or demand upon Tenant. If the Demised Premises be not surrendered as
above set forth, Tenant shall indemnify, defend and hold Landlord harmless
against loss or liability resulting from the delay by Tenant in so surrendering
the Demised Premises, including, without limitation any claim made by any
succeeding occupant founded on such delay. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
Lease.
All property of Tenant not removed within 30 days after the last day of
the term of this Lease shall be deemed abandoned. Tenant hereby appoints
Landlord its agent to remove all property of Tenant from the Demised Premises
upon termination of this Lease and to cause its transportation and storage for
Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall
not be
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liable for damage, theft, misappropriation or loss thereof and Landlord shall
not be liable in any manner in respect thereto. Tenant shall pay all costs and
expenses of such removal transportation and storage. Tenant shall reimburse
Landlord upon demand for any expenses incurred by Landlord with respect to
removal or storage of abandoned property and with respect to restoring said
Demised Premises to good order, condition and repair.
Section 20.19 Holding Over. In the event Tenant remains in possession
of the Demised Premises after expiration of this Lease, and without the
execution of a new lease, it shall be deemed to be occupying the Demised
Premises as a tenant from month to month, subject to all the provisions,
conditions and obligations of this Lease insofar as the same can be applicable
to a month-to-month tenancy, except that the Basic Rent shall be escalated to
150% of the then current Basic Rent for the Demised Premises.
Section 20.20 Landlord Approval. Any approval by Landlord or
Landlord's architects and/or engineers of any of Tenant's drawings, plans and
specifications which are prepared in connection with any construction of
improvements respecting the Demised Premises shall not in any way be construed
or operate to bind Landlord or to constitute a representation or warranty of
Landlord as to the adequacy or sufficiency of such drawings, plans and
specifications, or the improvements to which they relate, for any reason,
purpose or condition, but such approval shall merely be the consent of
Landlord, as may be required hereunder, in connection with Tenant's
construction of improvements relating to the Demised Premises in accordance
with such drawings, plans and specifications.
Section 20.21 Survival. All obligations (together with interest or
money obligations at the Maximum Rate of Interest) accruing prior to expiration
of the term of this Lease shall survive the expiration or other termination of
this Lease.
Section 20.22 Attorney's Fees. In the event of any litigation or
judicial action in connection with this Lease or the enforcement thereof, the
prevailing party in any such litigation or judicial action shall be entitled to
recover all costs and expenses of any such judicial action or litigation
(including, but not limited to, reasonable attorneys' fees and paralegals'
fees) from the other party.
Section 20.23 Landlord's Limited Liability. Tenant agrees to look
solely to Landlord's interest in the Demised Premises for recovery of any
judgment from Landlord, it being agreed that Landlord (and if Landlord is a
partnership, its partners, whether general or limited, and if Landlord is a
corporation, its directors, officers or shareholders) shall never be personally
liable for any personal judgment or deficiency decree or judgment against it.
Section 20.24 Broker. Tenant represents that it has dealt directly
with and only with Grubb & Ellis Company and CB Commercial Real Estate Group,
Inc. in connection with this Lease and that no other broker has negotiated or
participated in negotiations of this Lease or is entitled to any commission in
connection therewith. Tenant shall indemnify and hold Landlord harmless from
and against any and all commissions, fees and expenses and all claims therefor
by any broker, salesman or other party in connection with or arising out of
Tenant's action in entering into this Lease, except for the commissions of the
aforesaid brokers, which commissions Landlord shall be obligated to pay.
Landlord shall indemnify and hold Tenant harmless from and against any and all
commissions, fees and expenses and all claims therefor by any broker, salesman
or other party in connection with or arising out of Landlord's action in
entering into this Lease. In respect to any claim indemnified against herein,
the indemnifying party shall be given prompt notice of such claims and
opportunity to defend with counsel of its
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selection.
Section 20.25 Governing Law. This Lease shall be governed by the laws
of the State of Illinois. All covenants, conditions and agreements of Tenant
arising hereunder shall be performable in the country wherein the Demised
Premises are located. Any suit arising from or relating to this Lease shall be
brought in the country wherein the Demised Premises are located, and the
parties hereto waive the right to be sued elsewhere.
Section 20.26 Joint and Several Liability. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 20.27 Time is of the Essence. Time is of the essence with
respect to the performance of every provision of this Lease in which time of
performance is a factor.
ARTICLE XXI
MOVING EXPENSES ALLOWANCE
Landlord shall reimburse Tenant Fifty Thousand and 00/100 Dollars
($50,000.00) for Tenant's moving expenses incurred as a result of Tenant's
relocation to the Demised Premises, such reimbursement to be payable by
Landlord within ten (10) days from the date Tenant commences occupancy of the
Demised Premises and requests such reimbursement.
ARTICLE XXII
REIMBURSEMENT OF COST OF
PREPARING THE WORKING DRAWINGS
Landlord shall reimburse Tenant an amount equal to the cost (not to
exceed $76,300.00) of the architectural and engineering services of Tenant's
Consultants for the preparation of the Working Drawings by Tenant's
Consultants, such reimbursement to be payable by Landlord within ten (10) days
from the date Tenant commences occupancy of the Demised Premises and Tenant has
submitted an invoice therefor in detail reasonably acceptable to Landlord.
ARTICLE XXIII
OPPORTUNITY TO NEGOTIATE EXTENSION TERM
In the event Tenant desires to negotiate to extend the Initial Term of
this Lease for one (1) period of five (5) years ("Proposed Extension Term") and
provided Tenant is not then in default in the performance of the terms,
covenants and conditions of this Lease or in the payment of Basic Rent,
Additional Rent or any other charges payable by Tenant hereunder, Tenant shall
so notify Landlord on or before the date which is 270 days prior to the
expiration of the Initial Term. In the event Tenant notifies Landlord as above
provided, Tenant and Landlord shall negotiate in good faith as to the terms and
conditions of the Proposed Extension Term. In the event Tenant and Landlord are
not able to agree upon the terms and conditions of the Proposed Extension Term
on or before the date 180 days prior to the expiration of the Initial Term,
Tenant and Landlord shall have no further obligation to negotiate or enter into
any agreement respecting the Proposed Extension Term, and there shall be no
Proposed Extension Term. Landlord shall not negotiate with any other tenant
relative to the Demised Premises before the date 270 days prior to the
expiration of the Initial Term or during the period Landlord and Tenant are
required to negotiate in good faith with respect to the Proposed Extension
Term. In the event Tenant and Landlord are able to agree upon the terms and
conditions of the Proposed Extension Term on or before the date 180 days prior
to the expiration of the Initial
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Term, Tenant and Landlord shall execute an amendment to this Lease prepared by
Landlord and reasonably acceptable to tenant and Landlord, evidencing the terms
and conditions of the proposed Extension Term, in which event the terms of this
Lease as so amended shall continue in full force and effect. The purpose of
this paragraph is to ensure that Landlord and Tenant shall negotiate with
respect to the Proposed Extension Term but nothing herein contained shall be
deemed to be an option or right of first refusal and nothing shall preclude
Landlord from negotiating with other tenants at any time except as provided
herein relative to the Demised Premises.
ARTICLE XXIV
ASSIGNMENT AND SUBLETTING TO WHOLLY OWNED SUBSIDIARY
Anything in Article XV to the contrary notwithstanding, Tenant may
transfer, sublet or assign Tenant's interest in this Lease to an affiliate of
subsidiary eighty percent (80%) of the voting stock of which is owned directly
or indirectly by Tenant (without Landlord's consent, upon prior written notice
to Landlord); provided, however, no such transfer, assignment or subletting
shall release Tenant from its obligations under this Lease and nothing herein
shall abrogate the requirement of the written assumption by such affiliate or
subsidiary.
ARTICLE XXV
FAILURE TO DELIVER POSSESSION
Notwithstanding anything to the contrary in Article II of this Lease,
in the event Landlord fails to deliver possession of the Demised Premises to
Tenant with the Landlord's Improvements substantially completed by September 1,
1992, Tenant, as its sole remedy, shall be entitled to a credit in the amount
of $2,000.00 for each day of delay until possession of the Demised Premises
with the Landlord's Improvements substantially completed is delivered to
Tenant, such credit to be applied against Basic Rent first coming due hereunder
until such credit is exhausted; provided, however, the date September 1, 1992,
provided for herein shall be extended for the period that Landlord is unable to
deliver possession by reason of the occurrence of an Excused Delay. Further and
notwithstanding anything to the contrary in Article II of this Lease, in the
event Landlord fails to deliver possession of the Demised Premises to Tenant
with the Landlord's Improvements substantially completed on or before December
31, 1992, then Tenant shall have the option, as its sole remedy, to terminate
this Lease upon notice to Landlord given subsequent to such date and prior to
the date that Landlord delivers possession of the Demised Premises to Tenant
with the Landlord's Improvements substantially complete; provided, however, the
date December 31, 1992, shall be extended for the period that Landlord is
unable to deliver possession by reason of the occurrence of an Excused Delay,
and provided further, in the event Landlord notifies Tenant that Landlord will
not be able to deliver possession of the Demised Premises by December 31, 1992,
as such date may be extended as provided above, Tenant may not terminate this
lease under the provisions hereof unless it does so within ten (10) days of
receipt by Tenant of such notice. Further, and notwithstanding anything to the
contrary in Article II of this Lease, in the event Landlord fails to deliver
possession of the Demised Premises to Tenant with the Landlord's Improvements
substantially completed on or before February 28, 1993, then Tenant shall have
the option, as its sole remedy, to terminate this Lease upon notice to
Landlord given subsequent to such date and prior to the date that Landlord
delivers possession of the Demised Premises to Tenant with the Landlord's
Improvements substantially complete; provided, however, the date February 28,
1993, shall be extended for the period that Landlord is unable to deliver
possession by reason of the occurrence of a Tenant Delay, and provided further,
in the event Landlord notifies Tenant that Landlord will not be
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able to deliver possession of the Demised Premises by February 28, 1993, as
such date may be extended as provided above, Tenant may not terminate this
Lease under the provisions hereof unless it does so within ten (10) days of
receipt by Tenant of such notice. Further, Tenant shall not have the option to
terminate this Lease pursuant to this Article if Tenant has taken possession of
any part of the Demised Premises or commenced to install its equipment, trade
fixtures or furniture therein.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be
duly executed as of the day and year first above written.
LANDLORD:
OPUS NORTH CORPORATION
By: [Illegible]
-------------------
Its: President
------------------
TENANT:
ERO INDUSTRIES, INC.
By: [Illegible]
-------------------
Its: Senior Vice President
------------------
By: [Illegible]
-------------------
Its: Secretary
------------------
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EXHIBIT "A"
The parcel of land referred to in the attached Lease, sometimes referred to
therein as a part of the "Demised Premises," is a tract of land of
approximately 3.7097 acres, more or less, situated in the Village of Mount
Prospect, County of Cook, State of Illinois, and legally described as follows,
to-wit:
Lot 302-C in Kensington Center-Resubdivision 20, being a Resubdivision
of Lots 302-B and 302-C in Kensington Center-Resubdivision 16 a subdivision of
Lots 302-B and 302-C in Kensington Center-Phase 3B and Lot 309 in Kensington
Center-Resubdivision 18 in part of the North West 1/4 of Section 35, Township
42 North, Range 11 East of the Third Principal Meridian according to the Plat
thereof recorded December 15, 1986 as Document No. 8660187, in Cook County,
Illinois.
Permitted Encumbrances:
1. Annual maintenance assessment of Feehanville Drainage District under
Law Docket Number 5001400.
2. Note: A letter from the Illinois Department of Transportation states
that Lot 302-C is subject to flood risk.
3. Easement in favor of the Feehanville Drainage Ditch as granted by
Knesington Center Phase Three B recorded November 17, 1982 as Document
26415042.
(Affects the southerly portions of Lots 302-C).
4. Easement in, upon, under, over and along the northeasterly 10 feet of
Lot 302-C to install and maintain all equipment for the purpose of
serving the land and other property with telephone, electric service and
cable service, together with right of access to said equipment as
created by Plat to the Commonwealth Edison Company and Central Telephone
and Cablenet, Inc. recorded November 17, 1982 as Document 26415042.
5. Note: The Plat of Kensington Center Resubdivision Twenty recorded
December 15, 1986 as Document 86600187 and the Plat of Kensington Center
Resubdivision Sixteen recorded March 29, 1985 as Document 27493606 and
filed as Document LR3427339 and the Plat of Kensington Center Phase
Three-B recorded November 17, 1982 as Document 26415042 states that this
subdivision is located within 500 feet of a surface drain or water
course.
6. A 20 foot easement to the Village of Mt. Prospect for ingress and
egress as granted by the Kensington Resubdivision Twenty recorded
December 15, 1986 as Document 86600187.
(Affects the northerly 20 feet of the southerly 60 feet, and the
easterly 20 feet of the westerly 160 feet of Lot 302-C)
7. Easement in favor of the Village of Mt. Prospect, its successors and
assigns, in all platted easement area, for the installation, operation,
maintenance, relocation, renewal or removal of underground water main
appurtenances, underground storm sewers and swales, and underground
sanitary sewers for the purpose of serving the land as granted on the
Plat of Kensington Resubdivision Twenty recorded December 15, 1986 as
Document 86600187 and the Plat of Kensington Center Resubdivision
Sixteen recorded March 29, 1985 as Document 27493606 and filed as
Document LR3427339.
(Affects the westerly 20 feet of the easterly 30 feet and the northerly
part of the northwesterly 10 feet of Lot 302-C)
<PAGE> 58
8. Easement in favor of Opus Designers, Builders, Developers, Inc. for the
construction, operation, maintenance, repair and replacement of storm
water detention ponds and related ancillary facilities, together with
right of access over, across, upon, under and through all areas platted
as granted on Plat of Kensington Resubdivision Twenty recorded December
15, 1986 as Document 86600187 and as granted on Plat of Kensington
Center Resubdivision Sixteen recorded March 29, 1985 as Document
27493606 and filed as document LR3427339 and granted on Plat of
Kensington Center Phase Three B recorded November 17, 1982 as Document
26415042.
(Affects the northeasterly portion of Lot 302-C)
9. Easement in, upon, under, over and along the southeasterly 10 feet of
the northeasterly 20 feet of lot 302-C of the land to install and
maintain all equipment for the purpose of serving the land and other
property with gas service, together with right of access to said
equipment, as created by grant to Northern Illinois Gas Company recorded
December 23, 1982 as Document 26447681, and as shown on Plat of
Kensington Center Resubdivision Twenty recorded December 15, 1986 as
Document 86600187 and as shown on Plat of Kensington Center
Resubdivision Sixteen recorded March 29, 1986 as Document 27493606 and
filed as Document LR3427339.
10. Drainage, Recreation and Access Easement Agreement dated December 17,
1982 and recorded March 7, 1983 as Document 26526919, and filed as
Document LR3427339 made by and among Opus Corporation, American National
Bank and Trust Company of Chicago as Trustee under Trust Agreement dated
February 10, 1979 and known as Trust Number 45771, Northern Illinois Gas
Company and the Village of Mt. Prospect.
Also shown on Plat of Kensington Center Resubdivision Twenty recorded
December 15, 1986 as Document 86600187.
(Affects the southerly and east lines of the land).
11. Declaration of Industrial Standards and Protective Covenants dated
December 30, 1987 and recorded December 30, 1987 as Document 87681752.
12. Appended to the Pat of Survey made by Albert O. Schmidt, dated August 6,
1990 Order Number 9007-302-C is a certification by the surveyor that
based upon an examination of the Federal Emergency Management Agency
Flood Insurance Rate Map Community Panel Number 1700540070B on file in
the Office of the Mt. Prospect Village Engineer, the area of the
property surveyed lying within the banks of the Feehanville Drainage
District lies in Zone B, the balance of the property surveyed lies in
Zone C. Effective Date of Map is April 15, 1981.
13. Any other matter that does not materially and adversely affect the
operation of Tenant's business at the Demised Premises.
<PAGE> 59
EXHIBIT "B"
PRELIMINARY CONTRACT DOCUMENTS
1. Revised specification for interior improvements dated May 7, 1992, prepared
by Tilton consisting of eight (8) pages with the exception to Note 1(a)
that two (2) 55-ton HVAC rooftop units are included and the substitution of
PVC for cast iron sewer and vent piping as allowed by applicable codes.
2. Memorandum regarding site lighting dated April 27, 1992, prepared by
Tilton.
3. Proposal letter from Landlord to Tenant dated May 1, 1992.
4. Drawings prepared by Tilton dated April 23, 1992, constituting of sheets
A-1, A-2, A-4, A-5, F-1, M-1, M-2, E-1, E-2 and E-3.
5. Allowance items set forth on Exhibit "D."
<PAGE> 60
EXHIBIT "C"
WORKING DRAWINGS
(To be attached pursuant to the
provisions of Article II of the Lease.)
<PAGE> 61
EXHIBIT "D"
ALLOWANCES
ERO Industries, Inc.
585 Slawin Court
1. Carpeting (III I.1.) $20,000/SY x 3050 SY = $61,000.00
2. Millwork (III L.1-11.) including hardwood sills = $25,000.00
3. Building signage (III A.1.) = $ 3,000.00
4. Landscape lighting (III A.2.) = $ 4,380.00
5. Outdoor patio (III A.3.) = $12,800.00
6. Vinyl wallcovering (III J.4.) = $ 1,050.00
7. Transparency light wall (III M.4.) = $ 4,000.00
8. Stone borders (III N.2.) = $ 2,000.00
9. Preaction fire protection system = $10,000.00
10. Overhead panel door with automatic operator = $ 1,200.00
11. Glass entry door and enclosure (III D.2.) = $ 3,780.00
12. Glass lights (III E.2.) = $10,350.00
13. Aluminum frame windows (III E.3.) = $ 6,400.00
14. Finish hardware (III F.1.) = $15,000.00
15. Closet door hardware (III F.2.) = $ 560.00
16. Ceramic tile flooring (III I.3.) = $ 3,840.00
17. Access floor (III I.4.) = $ 7,250.00
18. Ceramic wall tile (III J.4.) = $ 2,040.00
19. Miniblinds (III K.1.) = $ 5,070.00
20. Telephone and data wiring = $20,000.00
In the event the Working Drawings to be prepared and furnished by Tenant
pursuant to Article II of this Lease Agreement reflect items not contemplated
by (or are inconsistent with) the Preliminary Contract Documents and such items
cause the aggregate price allowances set forth above to be exceeded or result
in any other increase in cost to Landlord, Landlord shall not proceed with
construction and installation of Landlord's Improvements unless and until
Landlord has notified Tenant thereof and Tenant has approved such excess price
or increased cost. If Tenant does not approve such excess price or increased
cost, Landlord shall construct and install Landlord's Improvements in
substantial accordance with the Preliminary Contract Documents and the
provisions of Article II of this Lease Agreement. If Tenant does approve such
excess price increased cost, Landlord shall construct and install Landlord's
Improvements in substantial accordance with the Working Drawings and the
provisions of Article II of the Lease Agreement and Tenant shall reimburse
Landlord in the manner provided in the last paragraph of Section 2.1 of the
Lease Agreement. Any delay occasioned by Tenant's approval or disapproval of
such excess price or increased cost shall constitute an Excused Delay.
<PAGE> 1
EXHIBIT 12.1
Hedstrom Holdings, Inc.
Computation of Ratio of Earnings to Fixed Charges
(In Thousands, Except Ratio)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Consolidated net income (loss) $ 96 $(1,916) $(2,961) $ 745 $ (8,116)
Loss from discontinued operations $ 0 $ 0 $ 3,180 $ 585 $ 0
Consolidated provision (benefit) for income taxes $ 257 $ 103 $ (663) $ 1,440 $ (3,857)
Fixed charges $ 2,728 $ 2,982 $ 2,512 $ 4,573 $ 5,896
TOTAL $ 3,081 $ (67) $ 3,304 $ 7,343 $ (6,077)
FIXED CHARGES $ 2,728 $ 2,512 $ 2,982 $ 4,573 $ 5,896
interest on debt and capitalized leases $ 2,728 $ 2,512 $ 2,982 $ 4,573 $ 5,896
TOTAL
RATIO (DEFICIENCY) OF EARNINGS TO FIXED CHARGES(A) 1.1x $(2,579) 1.1x 1.6x $(11,973)
<CAPTION>
Proforma Proforma
Five Months Ended Year Ended Six Months Ended
DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------------- ---------------- -----------------
1995 1996 1996 1997
<S> <C> <C> <C> <C>
Consolidated net income (loss) $ (8,160) $(4,771) $ 428 $ (26)
Loss from discontinued operations $ 0 $ 0 $ 0
Consolidated provision (benefit) for income taxes $ (4,488) $(2,869) $ 1,056 $ 573
Fixed charges $ 1,773 $ 2,115 $28,493 $14,260
TOTAL $(10,875) $(5,525) $29,977 $14,807
FIXED CHARGES $ 1,773 $ 2,115 $28,493 $14,260
interest on debt and capitalized leases $ 1,773 $ 2,115 $28,493 $14,260
TOTAL
RATIO (DEFICIENCY) OF EARNINGS TO FIXED CHARGES(A) $(12,648) $(7,640) 1.1x 1.0x
</TABLE>
(A) If the ratio is less than 1.0x, the deficiency is shown
<PAGE> 1
EXHIBIT 12.2
Hedstrom Holdings, Inc.
Computation of Ratio of Earnings to Fixed Charges
(In Thousands, Except Ratio)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31
------------------------------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Consolidated net income (loss) $ 96 $(1,916) $(2,916) $ 745 $ (8,116)
Loss from discontinued operations $ 0 $ 0 $ 3,180 $ 585 $ 0
Consolidated provision (benefit) for income taxes $ 257 $ (663) $ 103 $1,440 $ (3,857)
Fixed charges $2,728 $ 2,512 $ 2,982 $4,573 $ 5,896
TOTAL $3,081 $ (67) $ 3,304 $7,343 $ (6,077)
FIXED CHARGES
Interest on debt and capitalized leases $2,728 $ 2,512 $ 2,982 $4,573 $ 5,896
TOTAL $2,728 $ 2,512 $ 2,982 $4,573 $ 5,896
Ratio (deficiency) of Earnings to Fixed Charges (A) 1.1x $(2,579) 1.1x 1.6x $(11,973)
<CAPTION>
Proforma Proforma
Five Months Ended Year Ended Six Months Ended
DECEMBER 31, DECEMBER 31, JUNE 30,
---------------------------- ------------ -----------
1995 1996 1996 1997
<S> <C> <C> <C> <C>
Consolidated net income (loss) $ (8,160) $(4,771) $ 428 $ (26)
Loss from discontinued operations $ 0 $ 0 $ 0
Consolidated provision (benefit) for income taxes $ (4,488) $(2,869) $ 1,056 $ 573
Fixed charges $ 1,773 $ 2,115 $28,493 $14,260
TOTAL $(10,875) $(5,525) $29,977 $14,807
FIXED CHARGES
Interest on debt and capitalized leases $ 1,773 $ 2,115 $28,493 $14,260
TOTAL $ 1,773 $ 2,115 $28,493 $14,260
Ratio (deficiency) of Earnings to Fixed Charges (A) $(12,648) $(7,640) 1.1x 1.0x
</TABLE>
(A) If the ratio is less than 1.0x, the deficiency is shown
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation Business Names
- ---------- ----------------------------- --------------
<S> <C> <C>
Guarantors
- ----------
ERO, Inc. Delaware N/A
ERO Industries, Inc. Delaware N/A
ERO Marketing, Inc. Illinois N/A
Priss Prints, Inc. Delaware N/A
Impact, Inc. Delaware N/A
ERO Canada, Inc. Delaware N/A
Amav Industries, Inc. Delaware N/A
Non-Guarantors
- --------------
Hedstrom (UK) Limited United Kingdom N/A
Amav Industries Limited United Kingdom N/A
Amav Industries Ltd. New Brunswick, Canada N/A
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
Dallas, Texas,
July 29, 1997
/s/ ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 7, 1997, except
as to Note 13 which is as of June 12, 1997, relating to the financial
statements of ERO, Inc., which appears in such Prospectus. We also consent to
the references to us under the headings "Independent Auditors", "Summary
Historical Consolidated Financial Data of ERO" and "Selected Consolidated
Financial Data of ERO" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Summary Historical
Consolidated Financial Data of ERO" or "Selected Consolidated Historical
Financial Data of ERO."
PRICE WATERHOUSE LLP
Chicago, Illinois
July 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001042422
<NAME> HEDSTROM HOLDINGS INC
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 5-MOS YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUL-31-1996 DEC-31-1997
<PERIOD-START> AUG-01-1996 AUG-01-1995 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUL-31-1996 JUN-30-1997
<CASH> 533 7,988 3,165
<SECURITIES> 0 0 0
<RECEIVABLES> 14,091 23,825 71,664
<ALLOWANCES> 505 441 1,433
<INVENTORY> 23,816 21,774 47,120
<CURRENT-ASSETS> 43,652 57,103 127,706
<PP&E> 33,817 32,519 53,769
<DEPRECIATION> 12,074 10,519 11,327
<TOTAL-ASSETS> 72,075 85,024 349,912
<CURRENT-LIABILITIES> 34,066 40,302 58,118
<BONDS> 41,106 43,048 247,462
0 0 0
0 0 0
<COMMON> 329 329 676
<OTHER-SE> (3,426) 2,003 43,656
<TOTAL-LIABILITY-AND-EQUITY> 72,075 85,024 349,912
<SALES> 23,944 133,194 104,051
<TOTAL-REVENUES> 23,944 133,194 104,051
<CGS> 21,973 105,068 73,579
<TOTAL-COSTS> 21,973 105,068 73,579
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 64 0 0
<INTEREST-EXPENSE> 2,115 5,896 4,709
<INCOME-PRETAX> (7,640) (11,973) 9,521
<INCOME-TAX> (2,869) 3,857 3,536
<INCOME-CONTINUING> (4,771) (8,116) 3,536
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,771) (8,116) 5,985
<EPS-PRIMARY> (0.07) (0.12) 0.09
<EPS-DILUTED> (0.07) (0.12) 0.09
</TABLE>
