As filed with the Securities and Exchange Commission on July 19, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
FALCON PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 2599 43-0730877
(State or Other Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number
Organization)
9387 Dielman Industrial Drive, St. Louis, Missouri 63132
(314) 991-9200
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Michael J. Dreller
Chief Financial Officer
9387 Dielman Industrial Drive, St. Louis, Missouri 63132
(314) 991-9200
Fax: (314) 991-9295
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
101 South Hanley Road, 16th Floor
St. Louis, Missouri 63105
(314) 862-1200
Fax (314) 862-1219
--------------------------
Approximate Date of Commencement of Proposed Offer to the Public. As
soon as practicable after this registration statement becomes effective.
If the securities being registered are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Maximum
Title of Each Class Aggregate Amount of
of Securities to Which Amount To Be Value of Registration
Transaction Applies Registered Transaction Fee(1)
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11-3/8% Senior Subordinated $100,000,000 $100,000,000 $27,800
Notes due 2009, Series B
================================================================================
(1) Calculated pursuant to Rule 457(f) under the Securities Act.
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
-------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Subject to Completion, Dated July 19, 1999
================================================================================
Falcon Products, Inc.
Offer to Exchange
11 3/8% Senior Subordinated Notes due 2009, Series B
for any or all outstanding
11 3/8% Senior Subordinated Notes due 2009, Series A
of
Falcon Products, Inc.
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The Exchange Offer will expire at 12:00 midnight, New York City time,
on ___________, 1999, unless extended.
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The Company:
- We are a leading supplier of furniture and related products for the
office, food service, hospitality (including gaming) and national
accounts (the 100 largest restaurant chains in the United States)
segments of the commercial furniture market. We design, manufacture and
market an extensive line of products, including wood, metal and rattan
chairs, banquet and conference tables, table tops, table bases, booths,
casegoods and other related products.
The Offering:
- Offered Securities: the securities offered by this prospectus are
senior subordinated notes, which are being issued in exchange for
senior subordinated notes sold by us in our June 1999 private
placement. The New Notes are substantially identical to the Original
Notes and are governed by the same indenture governing the Original
Notes.
- Registration Rights: you will not have any exchange or registration
rights in connection with the New Notes
- Expiration of Offering: the exchange offer expires at 12:00 midnight,
New York City time, on ________, 1999, unless extended.
The Acquisition of Shelby Williams Industries, Inc.
- The Stock Tender Offer: on May 12, 1999, Falcon made an offer to
purchase all of the outstanding shares of Shelby Williams common stock.
At the expiration of the stock tender offer, shares representing
approximately 98% of the Shelby Williams common stock had been
tendered. Shortly thereafter, Falcon accepted such shares for payment.
- The Merger: on June 18, 1999, Falcon's recently formed, wholly owned
subsidiary merged into Shelby Williams. As a result, Shelby Williams
became a wholly owned subsidiary of Falcon.
- The Purchase Price: the aggregate purchase price for the acquisition of
Shelby Williams (including transaction costs) was approximately $149.3
million.
The New Notes:
- Interest Payment Dates: each June 15 and December 15, beginning on
December 15, 1999.
- Redemption: the New Notes are not redeemable by us until June 15, 2004,
except we may redeem up to 35% of the New Notes prior to June 15, 2002,
with the proceeds of a public equity offering. We are required to
redeem a portion of the New Notes at 101% of their principal amount
under certain circumstances that are described in the section
"Description of New Notes" under the heading "Repurchase at the Option
of Holders."
- Ranking of the New Notes: except as described in the section
"Description of New Notes" under the heading "Subordination," the New
Notes will be general, unsecured obligations:
- subordinated to all of our existing and future senior debt;
- equal in right of payment with our other existing and future
senior subordinated debt; and
- effectively junior to all existing and future debt of our subsidi-
aries that are not guarantors of the New Notes.
- Guarantees: substantially simultaneous with the completion of this
offering, all of our domestic subsidiaries (including Shelby Williams
and its domestic subsidiaries) have unconditionally guaranteed the New
Notes on a senior subordinated basis. Our foreign subsidiaries and any
subsidiaries we later designate as "unrestricted" under the Indenture
will not guarantee the New Notes.
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See "Risk Factors," beginning on page 18, for a discussion of certain factors
that should be considered by holders in connection with a decision to tender
Original Notes in the exchange offer.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is __________, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
Page
----
Notice to New Hampshire Residents..........................................ii
Special Note Regarding Forward-Looking Statements.........................iii
Prospectus Summary..........................................................1
Risk Factors...............................................................18
Use of Proceeds............................................................27
Capitalization.............................................................27
Selected Historical Consolidated Financial Data............................28
Unaudited Pro Forma Combined Financial Data................................30
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................38
The Exchange Offer.........................................................49
Business...................................................................58
Management.................................................................73
Security Ownership.........................................................75
Certain Transactions.......................................................77
Description of the Senior Secured Credit Facilities........................78
Description of Notes.......................................................81
Certain United States Federal Income Tax Consequences.....................119
Plan of Distribution......................................................123
Legal Matters.............................................................123
Experts...................................................................124
Where You Can Find More Information.......................................124
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NOTICE TO NEW HAMPSHIRE RESIDENTS
Neither the fact that a registration statement or an application for a
license has been filed with the State of New Hampshire nor the fact that a
security is effectively registered or a person is licensed in the State of New
Hampshire constitutes a finding by the Secretary of State that any document
filed under RSA 421-B is true, complete and not misleading. Neither any such
fact nor the fact that an exemption or exception is available for a security or
a transaction means that the Secretary of State has passed in any way upon the
merits or qualifications of, or recommended or given approval to, any person,
security or transaction. It is unlawful to make, or cause to be made, to any
prospective purchaser, customer or client any representation inconsistent with
the provisions of this paragraph.
<PAGE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended. The words "believe," "estimate," "anticipate,"
"project," "intend," "expect" and similar expressions are intended to identify
forward-looking statements. All forward-looking statements involve certain risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among other
things, the following possibilities:
- expected cost savings from our acquisition of Shelby Williams cannot be
fully realized or realized within the expected time;
- revenues following the acquisition are lower than expected;
- competitive pressures in the industry increase significantly;
- costs or difficulties related to the integration of the businesses of
Falcon and Shelby Williams are greater than expected;
- changes in the interest rate environment generally;
- general economic conditions, either internationally, nationally or in
the states in which the combined company will be doing business, are
less favorable than expected; and
- conditions in the securities market may be less favorable than
expected.
You are cautioned not to place undue reliance on forward-looking
statements as these speak only as of the date of this prospectus. All future
written and oral forward-looking statements made by us or on our behalf are also
subject to these factors. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in or incorporated into this
prospectus might not occur. For a further discussion of these and other risks
related to our business, see the section entitled "Risk Factors."
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important
to you. You should read the entire prospectus, including the financial
statements and other financial data, before making an investment decision to
tender Original Notes. Unless the context otherwise requires:
- "We," "our," "us" or the "Company" refers to Falcon Products, Inc. and
its subsidiaries on a pro forma combined basis after giving effect to
the acquisition of Shelby Williams by Falcon;
- "Falcon" refers to Falcon Products, Inc. and its subsidiaries prior to
the acquisition of Shelby Williams by Falcon;
- "Shelby Williams" refers to Shelby Williams Industries, Inc. and its
subsidiaries prior to the acquisition of Shelby Williams by Falcon; and
- "New Notes" refers to the Company's 113/8 Senior Subordinated Notes due
2009, Series B.
- "Original Notes" refers to the Company's 113/8 Senior Subordinated
Notes due 2009, Series A.
For purposes of the financial and other information set forth in this
prospectus, references to a fiscal year relate to (1) the 52- or 53-week period
ending on the Saturday closest to October 31 for Falcon or (2) the calendar year
ending December 31 for Shelby Williams. The pro forma combined financial data
included in this prospectus has been presented for the fiscal year ended October
31, 1998 and the twenty-six weeks ended May 1, 1999. The historical consolidated
statements of operations of Shelby Williams for the year ended October 31, 1998
and the twenty-six weeks ended May 1, 1999 reflect adjustments to the fiscal
year ended December 31, 1998 and the fiscal quarter ended March 31, 1999
historical financial data of Shelby Williams to conform such financial data to
the fiscal year end and most recent fiscal quarter of Falcon.
THE COMPANY
Overview
Falcon is a leading supplier of furniture and related products for the
office, food service, hospitality (including gaming) and national accounts (the
100 largest restaurant chains in the United States) segments of the commercial
furniture market. Founded in 1959, Falcon believes that it has become a
nationally recognized supplier in this market due to its:
- superior customer service;
- broad range of innovative products;
- vertically integrated manufacturing capabilities;
- strong relationships with its network of distributors and dealers; and
- high-quality products.
Falcon designs, manufactures and distributes an extensive line of
products, including table bases, table tops, metal and wood chairs, booths and
interior decor systems, all made to customer specifications in a variety of
styles and finishes. Falcon's products are marketed under its well-known brand
names, including Falcon(R), Howe(R), Johnson Tables(R), Charlotte(R) and Decor
Concepts(R). Falcon employs a geographically diverse network of direct and
independent sales representatives, independent office furniture dealers and
distributors to distribute its products, and markets its products to restaurant
supply dealers, original equipment manufacturers ("OEMs"), mass merchandisers,
chain restaurants, architectural and design firms and end-users. Major customers
of Falcon include McDonald's, Sam's Club, Burger King, Marriott International
and Price Costco.
On June 18, 1999, Falcon's recently formed, wholly owned subsidiary
merged into Shelby Williams. As a result, Shelby Williams became a wholly owned
subsidiary of Falcon. Shelby Williams is a leading supplier of seating products
for the hospitality (including gaming) and food service segments of the
commercial furniture market. Shelby Williams designs, manufactures and
distributes a broad range of seating products, including wood, metal and rattan
chairs, barstools, sofas and sleeper sofas, and stacking chairs, as well as
banquet-related products, including folding tables, food service carts and
portable dance floors. Shelby Williams' products are marketed under its
well-recognized brand names, including Shelby Williams(R), King Arthur(R),
Thonet(R) and Phillocraft(R). In addition, Shelby Williams designs and
manufactures vinyl wall coverings for the hospitality and home furnishing
segments under the Sellers & Josephson(R) brand name. Shelby Williams primarily
utilizes direct sales representatives and, to a lesser extent, independent
distributors to distribute its products and markets its products to hospitality
and food service chains, interior designers, architectural and design firms,
contract furniture, food service and office furniture dealers. Major customers
of Shelby Williams include Bass Hotels (Holiday Inn), Hilton Hotels, Marriott
International, Sheraton Hotels & Resorts, Mirage Resorts, Circus Circus and MGM
Grand.
Falcon believes that its acquisition of Shelby Williams is advantageous
for many reasons, including:
- Shelby Williams is a leading supplier of seating products, and the
acquisition will solidify the combined company's position as a premier
producer of commercial furniture;
- Shelby Williams has strengths which are complementary to those of
Falcon;
- Shelby Williams has many strong, well-recognized brand names;
- Falcon has significantly increased its size and geographic presence,
better enabling the combined company to serve its customers across the
United States and internationally as its customers expand and grow
their own operations;
- Shelby Williams has an experienced, well-established sales force with
long-standing customer relationships;
- The combined company has an opportunity to realize significant
manufacturing and operating efficiency gains; and
- The combined company has enhanced growth opportunities through the
potential for cross-selling Falcon's products with those of Shelby
Williams, and Falcon has gained access to new channels of distribution.
On a pro forma basis after giving effect to the acquisition of Shelby
Williams, our revenues for fiscal year 1998 and for the twenty-six weeks ended
May 1, 1999 would have been $306.9 million and $157.0 million, respectively, and
EBITDA for fiscal year 1998 and for the twenty-six weeks ended May 1, 1999 would
have been $37.0 million and $18.0 million, respectively. Revenues from our top
ten customers accounted for approximately 16.5% and 15.0% of pro forma revenues
in fiscal year 1998 and in the twenty-six weeks ended May 1, 1999, respectively.
In addition, no single customer accounted for greater than approximately 2.8%
and 2.6% of pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively.
The combination of Falcon and Shelby Williams strengthens our position
as a leading supplier of furniture and related products in the highly fragmented
commercial furniture market. We are a stronger competitor in our markets due to
the combination of Shelby Williams' strong brand names and long-standing
customer relationships with Falcon's vertically integrated manufacturing
capabilities and reputation for reliability, integrity and customer service. In
addition, the acquisition of Shelby Williams gives us the size, market presence
and reputation to make us an attractive acquiror to many of the small,
privately-held companies in the commercial furniture market.
As a result of the acquisition, we have significant opportunities to
leverage and strengthen our distribution capabilities to further penetrate
targeted markets. For example, Shelby Williams' strong relationships with the
architectural and design community and its hospitality segment customers
supplement Falcon's strong relationships with the office furniture dealer
community. We intend to utilize these relationships to aggressively market our
products to increase revenues.
The acquisition also allows us to leverage excess manufacturing
capacity to rationalize the combined company's facilities and increase
company-wide efficiency. We expect that by increasing capacity utilization at
fewer manufacturing facilities we will benefit from reduced per unit costs
generated by spreading fixed manufacturing overhead costs over larger production
volumes. In addition, we will use our excess manufacturing capacity to
manufacture some components which were previously purchased by Shelby Williams
from third-party suppliers. We anticipate that we will benefit from increased
margins due to savings from eliminating the mark-ups currently being paid to
these third-party suppliers, as well as improving operating margins through
increased production volumes. For example, Falcon can utilize excess
manufacturing capacity at its Mimon, Czech Republic facility to produce wood
chairs which Shelby Williams currently imports from Europe from third-party
suppliers.
Industry Overview
We compete primarily in four segments of the commercial furniture
market, which represent only a portion of the overall retail and commercial
furniture market. These four segments are office, food service, hospitality
(including gaming) and national accounts (the 100 largest restaurant chains in
the United States). We estimate the market size of these segments totaled
approximately $4.0 billion in 1998.
<PAGE>
The following table provides an overview of each of the four primary
market segments in which we compete.
Estimated Size
Segment (In millions) Description
- ------- -------------- -----------
Office............. $ 1,400 Tables and seating products with primary
end use markets, including corporate
offices, education, and conference and
training centers. Excludes panel systems,
filing systems and executive desks/
credenzas, which we do not produce.
Food service....... 1,400 Table tops and table bases, metal and wood
chairs, booths, barstools and benches for
use by traditional "mom & pop" restaurants
to institutions serving food as an adjunct
to other core activities (e.g., school and
office cafeterias, prisons, nursing homes,
etc.).
Hospitality........ 700 Focuses on the furniture needs of
independent and chain hotels, motels,
conference resorts and casinos. Products
we manufacture for this segment include
table tops, table bases, metal and wood
chairs, millwork, folding tables, metal
and wood barstools, benches and booths.
These products can be found throughout a
customer's establishment (e.g., lounge,
bar area, restaurant, banquet/conference/
guest rooms).
National accounts.. 450 We define the national accounts segment as
the 100 largest restaurant chains in the
United States. The national accounts
segment includes quick service (i.e., fast
food) chains (e.g., McDonald's and Burger
King), casual dining restaurants (e.g.,
T.G.I. Friday's and Red Lobster) and quick
service lite restaurants (e.g., airport
Pizza Huts and Dunkin' Donuts).
Total.............. $ 3,950
=======
In addition to the four market segments above, approximately 21.5% and
18.0% of our pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively, were derived from the healthcare, university,
OEM and retail segments, as well as vinyl wall covering sales.
Competitive Strengths
We believe that we have the following competitive strengths:
Market Leader. We are a leading supplier of seating and table-related
products in the office, food service, hospitality (including gaming) and
national accounts segments of the commercial furniture market. We believe that,
as a result of consolidation within the segments in which we compete, our
customers and potential new customers want to deal with a smaller number of
larger, established suppliers with the ability to serve them at all of their
locations. Our leading market position will be a competitive advantage in
attracting and retaining these customers.
Diverse Product Lines with Strong Brand Names. We offer a diverse range
of products, including both standard and customized seating and table products,
thereby allowing customers to select the specific products which best fulfill
their needs and can be produced and distributed to meet their timing
requirements. We also enjoy strong name recognition through our well-established
brands, including Falcon(R), Howe(R), Johnson Tables(R), Charlotte(R), Decor
Concepts(R), Shelby Williams(R), King Arthur(R), Thonet(R), Sellers &
Josephson(R) and Phillocrafts (R). We believe that our broad product line, as
well as the strength of our brands, are important factors in maintaining
existing customers and attracting new customers.
Vertically Integrated Manufacturing Capabilities. We are vertically
integrated, which means that we control all aspects of our production process
from design to manufacture to distribution. By being vertically integrated, we
are able to lower our costs by manufacturing the products we sell as compared to
those competitors who may only be resellers or assemblers of products and, as a
result, must purchase certain of their components from third-party suppliers,
incurring a mark-up cost which we do not incur. By being vertically integrated,
we are also able to manufacture certain key materials that are specifically
designed to meet our customer's specifications. In addition, we believe that
being vertically integrated allows us to better serve our customers since we are
not dependent on third-party suppliers to provide needed components.
Accordingly, we are better equipped to respond quickly to changes in customer
orders or to rush a particular order for a valued customer.
Superior Customer Service. Customer service is an essential element of
our marketing and operating philosophy. We are committed to attracting new
customers and retaining existing customers by providing consistently superior
customer service. As part of our customer service program, we employ
approximately 130 dedicated customer service representatives. Using an on-line
computer system, our customer service representatives are able to provide our
customers with up-to-date information on the status of their orders. We intend
to maintain and enhance our high level of customer service to strengthen our
relationships with our customers. We believe that continued high levels of
customer service will further increase sales to existing customers and attract
new ones. We believe that superior customer service is essential to competing in
our targeted market segments.
Diverse and Established Customer Base. Over the past four decades, we
have built a reputation for high-quality products, reliability and superior
customer service. Our customers represent major companies in the various market
segments of the commercial furniture market, including McDonald's, Marriott
International, Sam's Club, Burger King and Hilton Hotels. Revenues from our top
ten customers accounted for approximately 16.5% and 15.0% of pro forma revenues
in fiscal year 1998 and in the twenty-six weeks ended May 1, 1999, respectively.
In addition, no single customer accounted for greater than approximately 2.8%
and 2.6% of pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively.
Strength of Distribution and Sales Network. We distribute our products
through a geographically diverse network of direct and independent sales
representatives, independent office furniture dealers and distributors, and
market our products to hospitality and food service chains, restaurant supply
dealers, mass merchandisers, OEMs and chain restaurants. Shelby Williams' strong
relationships with the architectural and design community and its hospitality
segment customers supplement Falcon's strong relationships with the office
furniture dealer community, giving us strong relationships with the major
distribution channels within the commercial furniture market. In addition,
Shelby Williams' sales force complements that of Falcon's as there is not any
significant overlap between them. To ensure stability and continuity in Shelby
Williams' sales force, we have entered into long-term employment contracts with
Shelby Williams' national sales manager and regional vice presidents of sales as
part of our acquisition of Shelby Williams. We intend to maintain and leverage
the strengths of each company's sales force following the acquisition of Shelby
Williams. Our sales and marketing staff consists of approximately 260 full-time
employees, of which 120 are field sales personnel. In addition, we utilize
approximately 140 independent sales organizations. We maintain 16 showrooms and
sales offices in the United States and have approximately 40 distributors that
market our products internationally.
Diversified Market Segments and Revenue Stability. We market our
products to the office, food service, hospitality (including gaming), national
accounts, university, healthcare and other institutional segments of the
commercial furniture market. Our revenues are balanced among the various
segments, with no segment accounting for a disproportionate percentage of total
revenues. This balance in our revenues provides stability and helps protect us
against economic downturns. In addition, we maintain relative revenue stability
and are not significantly subject to economic cycles due to our diverse customer
base and because a substantial portion of our sales are from refurbishment
projects rather than new construction sales. As a general matter, refurbishment
sales tend to be less cyclical than new construction sales, which are generally
more affected by economic downturns because new construction projects (and
accordingly furniture sales for new construction) are often put on hold or
delayed in economic downturns, as new construction expenditures are often
considered discretionary by customers.
Experienced Management Team with Significant Equity Ownership Interest.
We are led by Franklin A. Jacobs, Chairman and CEO, who founded Falcon in 1959.
Our seasoned and respected management team has built their professional careers
primarily in the commercial furniture industry. These individuals possess a
detailed knowledge of each of our target market segments, and are well respected
in the industry for design, quality and customer service. Their knowledge and
depth of experience enables us to continue to provide innovative and
high-quality products and services.
Our senior management team also has a strong track record of
integrating acquisitions into the organization profitably and efficiently. Since
1992, Falcon's management team has successfully completed the acquisition of
four companies, including Charlotte Company in 1994, Decor Concepts in 1995, The
Chair Source in 1996 and most recently, Howe Furniture Corporation in 1998. Paul
N. Steinfeld, Shelby Williams' Chairman and CEO, and Manfred Steinfeld, a board
member of Shelby Williams, will also help manage the integration of the combined
company. In addition, certain key members of Shelby Williams' senior management
team have entered into long term employment agreements or consulting agreements
with the Company to facilitate the integration of Falcon and Shelby Williams.
Mr. Jacobs beneficially owns approximately 22.0% of the Company's
outstanding common stock. Including Mr. Jacobs' ownership interest, the
Company's directors and executive officers beneficially own approximately 35.6%
of the Company's outstanding common stock. Falcon's senior management team has
been awarded, and we intend to award certain key members of Shelby Williams'
management team, options and other equity rights, subject to certain
performance-based and other vesting provisions.
<PAGE>
Shelby Williams Integration Plan
We have adopted a plan to integrate the operations of Falcon and Shelby
Williams, the principal components of which are:
- eliminating redundant administrative costs and expenses, including such
"public company" costs for Shelby Williams as board of directors' fees,
annual report costs and New York Stock Exchange listing fees;
- realizing cost savings on raw materials and freight from the greater
purchasing power of the combined company;
- consolidating and improving certain functions, including accounting,
tax, information systems, human resources and legal;
- utilizing Falcon's production capabilities to manufacture certain
Shelby Williams products currently purchased from third-party
suppliers;
- improving the combined sales, marketing and distribution
infrastructures of Falcon and Shelby Williams; and
- reducing excess manufacturing capacity by consolidating and improving
the utilization of manufacturing facilities.
As a result of the acquisition, we have excess manufacturing capacity,
creating opportunities to rationalize facilities and increase efficiencies.
Among other things, we anticipate that we can improve capacity utilization by
manufacturing several products which Shelby Williams previously purchased from
third-party suppliers, such as wood chairs, table tops and booths. By increasing
capacity utilization at fewer manufacturing facilities, we expect to decrease
per unit costs resulting from allocating our total fixed manufacturing overhead
costs over greater production volumes. In addition, since Falcon and Shelby
Williams manufacture similar products, opportunities exist to share best
manufacturing practices and techniques to further increase operating
efficiencies.
Business Strategy
We have adopted a comprehensive business strategy which includes the
following:
Capitalize on the Acquisition of Shelby Williams. The fundamental
strategy underlying the Falcon-Shelby Williams combination is to leverage the
strengths of both businesses by adopting the best practices of each across the
Company as a whole and to capitalize on the opportunities inherent in the
combination. We believe that the Falcon-Shelby Williams combination presents
numerous cost savings and revenue enhancement opportunities.
Maintain Customer Service Leadership. Over the past four decades, we
have built a reputation for superior customer service. We intend to aggressively
maintain our leadership position in customer service. We believe that our
superior customer service, as well as our reliability and high-quality products,
are important factors in maintaining existing customers and attracting new
customers.
Maximize Operating Efficiencies. We intend to improve our productivity
through a number of initiatives, including selective upgrades to production,
plant and equipment and optimizing manufacturing capacity. We plan to leverage
our excess manufacturing capacity to improve manufacturing productivity and
increase company-wide efficiency. We expect to recognize significant economic
benefits as a result of savings from eliminating mark-ups paid to third-party
suppliers and improving our operating margins through increased production
volumes.
Grow Through Strategic Acquisitions. Our business strategy is to grow
through strategic acquisitions. We plan to regularly evaluate potential
acquisition opportunities to support and strengthen our business. We have a
strategic acquisition plan which clearly identifies the criteria a potential
acquisition candidate must generally meet in order to be considered a viable
acquisition candidate. Among other criteria, we look for acquisition candidates
that are in our own industry, are profitable, have leading brand names and
well-established sales forces, and can be acquired at purchase prices that
produce earnings accretion. We anticipate realizing cost savings by increasing
production volumes at our existing manufacturing facilities and enhancing
revenues by increasing cross-selling opportunities. We believe that our broad
product line, extensive distribution network and strong brand name recognition
make us an attractive acquiror to many of the small, privately-held commercial
furniture manufacturers in our industry.
It is our intention to spend the short to medium term focusing on
successfully integrating the operations of Falcon and Shelby Williams. As a
result, we do not currently anticipate making any additional acquisitions for a
period of time, but will remain opportunistic as potential acquisitions present
themselves. We are not currently in discussions with any potential acquisition
candidates.
<PAGE>
THE TRANSACTIONS
This exchange offer is being made in conjunction with a series of
transactions, consisting of Falcon's issuance of the Original Notes, Falcon's
entering into the Senior Secured Credit Facilities (as defined below) and the
refinancing of certain existing indebtedness of Falcon and Shelby Williams
(collectively, the "Transactions") to finance its acquisition of Shelby Williams
(the "Acquisition").
The Acquisition
Stock Tender Offer. Pursuant to an Agreement and Plan of Merger dated
May 5, 1999, Falcon and its recently formed, wholly owned subsidiary made an
offer to purchase all of the outstanding shares of common stock of Shelby
Williams at $16.50 per share in cash, upon the terms and subject to the
conditions set forth in the offer to purchase (the "Stock Tender Offer"). At the
expiration of the Stock Tender Offer, which occurred at 12:00 midnight, New York
City time, on June 14, 1999, shares representing approximately 98% of Shelby
Williams common stock had been tendered. Shortly thereafter, Falcon, through its
acquisition subsidiary, accepted for payment these tendered shares.
Merger. On June 18, 1999, Falcon's acquisition subsidiary merged into
Shelby Williams. Shelby Williams remained the surviving company after the merger
as our wholly owned subsidiary.
Purchase Price. The aggregate purchase price for the Acquisition of
Shelby Williams (including transaction costs) was approximately $149.3 million.
In connection with the merger, Paul Steinfeld, Shelby Williams'
Chairman and Chief Executive Officer, and Manfred Steinfeld, Shelby Williams'
founder, agreed to help manage the integration of Falcon and Shelby Williams. In
addition, certain key members of Shelby Williams' senior management team,
including the chief operating officer, national sales manager and regional vice
presidents of sales, entered into long-term employment contracts or consulting
agreements with Falcon.
The Financings
In order to finance the Acquisition of Shelby Williams and to pay
related fees and expenses, Falcon conducted a private placement of the Original
Notes and entered into certain other financing transactions, as described below:
Senior Secured Credit Facilities. Falcon and its subsidiaries entered
into a credit agreement with DLJ Capital Funding, Inc. and certain lenders. The
credit agreement provides for an aggregate of up to $70.0 million under an
amortizing term loan facility and up to $50.0 million under a revolving credit
facility. In connection with the Transactions, we received a total of $70
million under the term loan facility. We did not draw any funds under the
revolving credit facility. The term loan and the revolving credit facility are
sometimes referred to in this prospectus collectively as the "Senior Secured
Credit Facilities." See "Description of the Senior Secured Credit Facilities."
Repayment of Existing Indebtedness. In connection with consummation of
the Acquisition of Shelby Williams, certain existing indebtedness of Falcon in
the aggregate principal amount of approximately $19.2 million, plus accrued and
unpaid interest, and certain existing indebtedness of Shelby Williams in the
aggregate principal amount of approximately $1.0 million, plus accrued and
unpaid interest, was refinanced with the proceeds of the Senior Secured Credit
Facilities.
<PAGE>
THE EXCHANGE OFFER
Expiration Date..................... 12:00 midnight, New York City time, on
______, 1999, unless we extend the
exchange offer.
Exchange and Registration Rights.... Pursuant to a registration rights
agreement dated June 14, 1999, the holders
of the Original Notes were granted certain
exchange and registration rights. This
exchange offer is intended to satisfy
these rights. You have the right to
exchange the Original Notes that you hold
for New Notes with substantially identical
terms. Once the exchange offer is
complete, you will no longer be entitled
to any exchange or registration rights
with respect to your Original Notes.
Accrued Interest on the New Notes
and Original Notes................ The New Notes will bear interest from June
17, 1999. Holders of Original Notes which
are accepted for exchange will be deemed
to have waived the right to receive any
payment in respect of interest on such
Original Notes accrued to the date of
issuance of the New Notes.
Conditions to the Exchange Offer.... The exchange offer is conditioned upon
certain customary conditions which we may
waive and upon compliance with securities
laws.
Procedures for Tendering Original
Notes............................ Each holder of Original Notes wishing to
accept the exchange offer must:
- complete, sign and date the letter of
transmittal, or a facsimile of the
letter of transmittal; or
- arrange for the Depository Trust Company
to transmit certain required information
to the exchange agent in connection with
a book-entry transfer.
You must mail or otherwise deliver such
documentation together with the Original
Notes to the exchange agent.
Special Procedures for Beneficial
Holders........................... If you beneficially own Original Notes
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and you wish to tender your
Original Notes in the exchange offer, you
should contact such registered holder
promptly and instruct them to tender on
your behalf. If you wish to tender on your
own behalf, you must, before completing
and executing the letter of transmittal
for the exchange offer and delivering your
Original Notes, either arrange to have
your Original Notes registered in your
name or obtain a properly completed bond
power from the registered holder. The
transfer of registered ownership may take
considerable time.
Guaranteed Delivery Procedures...... You must comply with the applicable
procedures for tendering if you wish to
tender your Original Notes and:
- time will not permit your required
documents to reach the exchange agent by
the expiration date of the exchange
offer; or
- you cannot complete the procedure for
book-entry transfer on time; or
- your Original Notes are not immediately
available.
<PAGE>
Withdrawal Rights................... You may withdraw your tender of Original
Notes at any time prior to 12:00 midnight,
New York City time, on the date the
exchange offer expires.
Failure to Exchange Will Affect You
Adversely...................... If you are eligible to participate in the
exchange offer and you do not tender your
Original Notes, you will not have further
exchange or registration rights and your
Original Notes will continue to be subject
to some restrictions on transfer.
Accordingly, the liquidity of the Original
Notes will be adversely affected.
Certain Federal Tax
Considerations................. We believe that the exchange of Original
Notes for New Notes pursuant to the
exchange offer will not be a taxable event
for United States federal income tax
purposes. A holder's holding period for
New Notes will include the holding period
for Original Notes. See "Certain United
States Federal Income Tax Consequences."
Exchange Agent...................... IBJ Whitehall Bank & Trust Company is
serving as exchange agent. The Bank of New
York, trustee under the Indenture under
which the New Notes will be issued,
recently announced the signing of a
definitive agreement providing for its
acquisition of IBJ Whitehall Bank & Trust
Company.
Use of Proceeds..................... We will not receive any proceeds from the
exchange offer.
<PAGE>
SUMMARY TERMS OF NEW NOTES
Issuer.............................. Falcon Products, Inc.
Securities Offered.................. The form and terms of the New Notes will
be the same as the form and terms of the
Original Notes except that:
- the New Notes will bear a different
CUSIP number from the Original Notes;
- the New Notes will have been registered
under the Securities Act of 1933 and,
therefore, will not bear legends
restricting their transfer; and
- you will not be entitled to any exchange
or registrations rights with respect to
the New Notes
The New Notes will evidence the same debt
as the Original Notes. They will be
entitled to the benefits of the Indenture
governing the Original Notes and will be
treated under the Indenture as a single
class with the Original Notes.
Maturity............................ June 15, 2009.
Issue Price......................... Par plus accrued interest from June 17,
1999.
Interest............................ Annual rate--11 3/8%.
Payment frequency--every six months on
June 15 and December 15.
First payment--December 15, 1999.
Ranking............................. The New Notes will be general unsecured
obligations of the Company and will rank:
- equally with all of our future senior
subordinated indebtedness;
- senior in right of payment to future
obligations expressly subordinated in
right of payment to the New Notes; and
- junior to all existing and future senior
debt, as defined in the indenture
governing the New Notes (the
"Indenture"). See "Description of New
Notes--Subordination."
Guarantees.......................... The New Notes will be unconditionally
guaranteed by our domestic subsidiaries
(collectively, the "Guarantors"). Our
foreign subsidiaries, and any subsidiaries
we later designate as "unrestricted" under
the Indenture will not be Guarantors.
These guarantees will be general
obligations of each Guarantor (the
"Subsidiary Guarantees") and will be
subordinate in right of payment to all
existing and future senior indebtedness of
the Guarantors. These Subsidiary
Guarantees will rank equal to other
existing and future senior subordinated
indebtedness of the Guarantors and senior
in right of payment to all of the existing
and future obligations of the Guarantors
that are expressly subordinated in right
of payment to the Subsidiary Guarantees.
Optional Redemption................. On or after June 15, 2004, we may redeem
some or all of the New Notes at any time
at the redemption prices listed in the
section "Description of New Notes" under
the heading "Optional Redemption."
Before June 15, 2002, we may redeem up to
35% of the New Notes with the proceeds of
certain public offerings of common stock
in our Company at the price listed in the
section "Description of New Notes" under
the heading "Optional Redemption."
<PAGE>
Mandatory Offer to Repurchase....... If we sell all, or almost all, of our
assets or experience specific kinds of
changes of control, we must offer to
repurchase the New Notes at the prices
listed in the section "Description of New
Notes" under the heading "Repurchase at
the Option of Holders."
Basic Covenants of Indenture........ We will issue the New Notes under an
Indenture with The Bank of New York. The
Indenture, among other things, restricts
our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase
stock;
- allow the imposition of dividend
restrictions on certain subsidiaries;
- sell certain assets;
- create certain liens;
- use assets as security in other
transactions; and
- sell all, or almost all, of our assets
or merge with or into other companies.
For more details, see the section
"Description of New Notes" under the
heading "Certain Covenants."
Exchange Offer; Registration
Rights............................. You have the right to exchange the
Original Notes for notes with
substantially identical terms. This
exchange offer is intended to satisfy that
right. The New Notes will not provide you
with any further exchange or registration
rights.
Resales Without Further
Registration...................... We believe that the New Notes issued
pursuant to the exchange offer in exchange
for Original Notes may be offered for
resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act of 1933,
provided that:
- you are acquiring the New Notes issued
in the exchange offer in the ordinary
course of your business;
- you have not engaged in, do not intend
to engage in, and have no arrangement or
understanding with any person to
participate in the distribution of the
New Notes issued to you in the exchange
offer; and
- you are not our "affiliate," as defined
under Rule 405 of the Securities Act.
Each of the participating broker-dealers
that receives New Notes for its own
account in exchange for Original Notes
that were acquired by such broker or
dealer as a result of market-making or
other activities must acknowledge that it
will deliver a prospectus in connection
with the resale of the New Notes. We do
not intend to list the New Notes on any
securities exchange.
Our principal executive offices are located at 9387 Dielman Industrial
Drive, St. Louis, Missouri 63132, and our telephone number is (314) 991-9200.
<PAGE>
RECENT EVENT
On Monday, June 7, 1999, we were advised of the death of Sam Ferrell,
the Chief Financial Officer of Shelby Williams. Because of circumstances
suggesting that Mr. Ferrell's death could have been self-inflicted, we undertook
a supplemental due diligence review of Shelby Williams' financial books and
records, which review was comprised primarily of interviews with employees of
Shelby Williams responsible for accounting matters and a review of certain
internal accounting controls and procedures. Based on our review, we did not
become aware of any irregularities in the financial books and records of Shelby
Williams.
RISK FACTORS
See the section entitled "Risk Factors" immediately following this
Prospectus Summary for a discussion of certain factors you should consider in
connection with your decision to tender Original Notes in exchange for the New
Notes.
<PAGE>
SUMMARY PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
Below is summary unaudited pro forma financial data for the Company and
summary historical consolidated financial data for each of Falcon and Shelby
Williams. The information in the following tables is qualified by reference to,
and should be read in conjunction with, the sections "Unaudited Pro Forma
Combined Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the respective consolidated financial statements of Falcon and
Shelby Williams and the related notes thereto, included elsewhere or
incorporated by reference in this prospectus.
EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense, (2) income tax expense, (3) depreciation expense, (4) amortization
expense and (5) special one-time charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
such special one-time charges. We consider EBITDA to be a widely accepted
financial indicator of a company's ability to service debt, fund capital
expenditures and expand its business; however, EBITDA is not calculated in the
same way by all companies and is neither a measurement required, nor represents
cash flow from operations as defined, by generally accepted accounting
principles. EBITDA should not be considered by you as an alternative to net
income, as an indicator of operating performance or as an alternative to cash
flow as a measure of liquidity. The calculation of EBITDA for purposes of the
financial information presented herein is calculated differently than for
purposes of the covenants under the Indenture and the Senior Secured Credit
Facilities. See "--The Transactions--The Acquisition," "Description of the
Senior Secured Credit Facilities" and "Description of New Notes."
The Company--Pro Forma
The summary unaudited pro forma financial data for the Company set
forth below has been derived from the unaudited pro forma financial data
included elsewhere in this prospectus and gives effect to the Transactions,
including the Acquisition of all of the outstanding common stock of Shelby
Williams, the issuance of the Original Notes and the initial borrowings under
the Senior Secured Credit Facilities and the other matters described under
"Unaudited Pro Forma Combined Financial Data." The pro forma statement of
operations data and other data give effect to the Transactions as if they had
occurred on November 2, 1997 and the pro forma balance sheet data give effect to
the Transactions as if they had occurred on May 1, 1999. The unaudited pro forma
financial data does not purport to represent what our financial position and
results of operations would have been if the Transactions had actually been
completed as of the dates indicated and is not intended to project our financial
position or results of operations for any future period.
The historical consolidated statements of operations of Shelby Williams
for the year ended October 31, 1998 and the twenty-six weeks ended May 1, 1999
reflect adjustments to the fiscal year ended December 31, 1998 and fiscal
quarter ended March 31, 1999 historical financial data of Shelby Williams to
conform such financial data to the fiscal year end and most recent fiscal
quarter of Falcon.
<PAGE>
<TABLE>
<CAPTION>
The Company--Pro Forma (Continued)
Twenty-six
Fiscal year weeks Latest twelve
ended ended months ended
October 31, May 1, May 1,
1998 1999 1999
----------- --------- -----------
(In thousands)
(Unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................................ $ 306,923 $ 157,013 $ 323,554
Cost of sales........................................ 227,812 116,865 237,011
----------- ----------- ----------
Gross margin......................................... 79,111 40,148 86,543
Selling, general and administrative expenses......... 53,879 26,271 60,004
----------- ----------- ----------
Operating profit..................................... 25,232 13,877 26,539
Interest income (expense), net....................... (17,442) (8,721) (17,442)
Minority interest in consolidated subsidiary......... 64 14 45
----------- ----------- ----------
Earnings before income taxes......................... 7,854 5,170 9,142
Income tax expense................................... 3,506 2,220 3,885
---------- ---------- ----------
Earnings from continuing operations.................. $ 4,348 $ 2,950 $ 5,257
========== ========== ==========
Twenty-six
Fiscal year weeks Latest twelve
ended ended months ended
October 31, May 1, May 1,
1998 1999 1999
----------- ---------- -------------
(In thousands, except ratios)
(Unaudited)
Other Data:
EBITDA............................................... $ 36,972 $ 17,978 $ 38,728
Depreciation and amortization........................ 8,219 4,101 8,668
Capital expenditures................................. 10,566 2,997 7,157
Selected Ratios:
Ratio of EBITDA to interest expense.................................................. 2.2x
Ratio of senior debt to EBITDA....................................................... 1.8x
Ratio of total debt to EBITDA........................................................ 4.4x
Ratio of earnings to fixed charges(1)................................................ 1.5x
As of
May 1, 1999
-------------
(In thousands)
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents............................................................... $ 3,906
Working capital......................................................................... 70,236
Total assets............................................................................ 295,733
Long-term debt (including current portion).............................................. 172,079
Stockholders' equity.................................................................... 72,426
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include net earnings plus fixed charges. Fixed charges consist of interest
expense, a portion of rental expense (deemed by management to be
representative of the interest factor of rental payments) and amortization
of debt issuance costs.
</FN>
</TABLE>
<PAGE>
Falcon--Historical
The following table sets forth certain summary historical consolidated
financial data of Falcon. The statement of operations data and other data for
the fiscal years ended November 2, 1996, November 1, 1997 and October 31, 1998
have been derived from the audited consolidated financial statements of Falcon
included elsewhere in this prospectus. The statement of operations data and
other data for the twenty-six weeks ended May 2, 1998 and May 1, 1999 and the
balance sheet data as of May 1, 1999 have been derived from Falcon's unaudited
consolidated financial statements that have been prepared on the same basis as
Falcon's audited consolidated financial statements and, in the opinion of
Falcon's management, include all adjustments, consisting only of normal
recurring adjustments, which Falcon considers necessary for a fair presentation
of its financial position and results of operations for these interim periods.
The results of operations for the twenty-six weeks ended May 1, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending October 30, 1999 or for any other interim period.
<TABLE>
<CAPTION>
Twenty-six weeks
Fiscal year ended ended
----------------- ----------------
November 2, November 1, October 31, May 2, May 1,
1996 1997 1998 1998 1999
---------------------------------------- ----------------------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................................... $ 100,702 $ 113,010 $ 143,426 $ 61,711 $ 71,064
Cost of sales, including nonrecurring items.. 69,125 79,507 103,067 44,052 50,490
Special and nonrecurring items............... -- 3,700 271 -- --
---------- ---------- --------- ---------- ---------
Gross margin................................. 31,577 29,803 40,088 17,659 20,574
Selling, general and administrative expenses. 20,469 22,044 29,482 11,813 13,833
---------- ---------- --------- ---------- ---------
Operating profit............................. 11,108 7,759 10,606 5,846 6,741
Interest income (expense), net............... 95 139 (619) 7 (596)
Minority interest in consolidated subsidiary. 89 47 64 34 14
---------- ---------- --------- ---------- ---------
Earnings from continuing operations before
income taxes.............................. 11,292 7,945 10,051 5,887 6,159
Income tax expense........................... 4,291 3,019 3,701 2,267 2,325
---------- ---------- --------- ---------- ---------
Net earnings from continuing operations...... 7,001 4,926 6,350 3,620 3,834
Discontinued operations, net of tax.......... 1,432 938 -- -- --
Gain on sale of discontinued operations,
net of tax................................ -- 6,770 -- -- --
---------- ---------- ---------- ---------- ---------
Net earnings................................. $ 8,433 $ 12,634 $ 6,350 $ 3,620 $ 3,834
========== ========== ========= ========== =========
Other Data (Unaudited):
EBITDA....................................... $ 14,924 $ 15,689 $ 17,880 $ 7,669 $ 8,462
Depreciation and amortization................ 3,816 4,230 3,753 1,823 1,721
Capital expenditures......................... 4,449 3,807 6,594 3,931 1,503
Ratio of Earnings to Fixed Charges(1) 236.1x 109.0x 14.4x 232.6x 10.9x
As of
May 1, 1999
-------------
(In thousands)
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents............................................................... $ 1,162
Working capital......................................................................... 35,286
Total assets............................................................................ 111,731
Long-term debt (including current portion).............................................. 21,328
Stockholders' equity.................................................................... 72,426
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include net earnings plus fixed charges. Fixed charges consist of interest
expense, a portion of rental expense (deemed by management to be
representative of the interest factor of rental payments) and amortization
of debt issuance costs.
</FN>
</TABLE>
<PAGE>
Shelby Williams--Historical
The following table sets forth certain summary historical consolidated
financial data of Shelby Williams. The statement of operations data and other
data for the fiscal years ended December 31, 1996, 1997 and 1998 have been
derived from the audited consolidated financial statements of Shelby Williams
included elsewhere in this prospectus. The statement of operations data and
other data for the three months ended March 31, 1998 and 1999 and the balance
sheet data as of March 31, 1999 have been derived from Shelby Williams'
unaudited consolidated financial statements that have been prepared on the same
basis as Shelby Williams' audited consolidated financial statements and, in the
opinion of Shelby Williams' management as expressed in Shelby Williams'
Quarterly Report on Form 10-Q for the period ending March 31, 1999, include all
adjustments, consisting only of normal recurring adjustments, which Shelby
Williams considers necessary for a fair presentation of its financial position
and results of operations for these interim periods. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the entire year ending December 31, 1999
or for any other interim period.
<TABLE>
<CAPTION>
Fiscal year end Three months ended
----------------------------------------- -----------------------
December 31, December 31, December 31, March 31, March 31,
1996 1997 1998 1998 1999
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................................... $ 149,481 $ 157,779 $ 165,937 $ 38,484 $ 43,128
Cost of goods sold........................... 114,998 120,849 126,388 29,929 34,081
--------- --------- --------- --------- ---------
Gross margin................................. 34,483 36,930 39,549 8,555 9,047
Selling, general and administrative expenses. 22,100 22,268 22,994 5,302 5,548
--------- ---------- --------- --------- ---------
Operating profit............................. 12,383 14,662 16,555 3,253 3,499
Interest income (expense), net............... (951) (8) 148 63 61
Miscellaneous income (expense), net.......... 44 89 102 (18) (22)
--------- --------- ---------- --------- ---------
Income from continuing operations before
income taxes.............................. 11,476 14,743 16,805 3,298 3,538
Income tax expense........................... 3,720 5,066 6,191 1,220 1,274
--------- --------- --------- --------- ---------
Income from continuing operations............ 7,756 9,677 10,614 2,078 2,264
Income (loss) from discontinued operations,
net of taxes.............................. 661 915 (48) 36 --
Loss on disposal of discontinued
operations, net of taxes.................. -- -- (7,081) -- --
---------- ---------- --------- ---------- ---------
Net income................................... $ 8,417 $ 10,592 $ 3,485 $ 2,114 $ 2,264
========= ========= ========= ========= =========
Other Data (Unaudited):
EBITDA....................................... $ 14,840 $ 16,960 $ 19,033 $ 3,864 $ 4,180
Depreciation and amortization................ 2,457 2,298 2,478 611 681
Capital expenditures......................... 1,189 3,557 3,919 1,608 623
Ratio of Earnings to Fixed Charges(1) 11.8x 21.5x 35.6x 23.2x 51.5x
As of
March 31, 1999
--------------
(In thousands)
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents............................................................... $ 6,282
Working capital......................................................................... 39,805
Total assets............................................................................ 88,645
Long-term debt (including current portion).............................................. 2,000
Stockholders' equity.................................................................... 65,024
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include net earnings plus fixed charges. Fixed charges consist of interest
expense, a portion of rental expense (deemed by management to be
representative of the interest factor of rental payments) and amortization
of debt issuance costs.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
In addition to the other information set forth or incorporated by
reference in this prospectus, you should carefully consider the following
factors before tendering Original Notes in exchange for the New Notes.
The Substantial Amount of Debt Incurred to Finance Our Acquisition of
Shelby Williams could have a Material Adverse Effect on our Financial Health and
Prevent us from Fulfilling our Obligations under the New Notes
We have a substantial amount of debt. As of May 1, 1999, after giving
pro forma effect to the Transactions:
- our total debt would have been approximately $172.1 million;
- our total stockholders' equity would have been approximately $72.4
million; and
- the sufficiency of our earnings available to cover fixed charges
for the twenty-six weeks ended May 1, 1999 would have been approxi-
mately 1.6 to 1.
Our high level of debt could have important consequences for you and
us. For example, it could:
- make it more difficult for us to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or
other purposes;
- require us to dedicate a large portion of our cash flow to pay
principal and interest on our indebtedness, including the New Notes,
thereby reducing the amount of cash flow available to fund working
capital, capital investments, acquisitions and other business
activities;
- increase our vulnerability to general adverse economic and industry
conditions, including increases in interest rates;
- place us at a competitive disadvantage compared to our competitors
that have proportionately less debt; and
- limit our flexibility in planning for, or reacting to, changes in our
business and the commercial furniture industry generally.
We anticipate that our cash flow from operations, together with
borrowings under the Senior Secured Credit Facilities, will be sufficient to
service our debt obligations as they become due. Our ability to meet these
requirements depends on our future financial performance, which will be affected
by financial, business, economic, competitive and other factors. We will not be
able to control many of these factors, such as economic conditions in the
markets in which we operate and competitive initiatives undertaken by
competitors. We cannot be certain that our cash flow from operations will be
sufficient to allow us to pay principal and interest on our debt, including the
New Notes, and meet our other obligations. If we cannot generate sufficient cash
flow from operations, we may be required to adopt one or more alternative
financing plans, such as refinancing or restructuring all or part of our
existing debt, including the New Notes, selling assets, reducing or delaying
investments in our business or seeking to raise additional debt or equity
capital. We cannot assure you that we will be able to effect any of these
actions on commercially reasonable terms, or at all, or that these actions would
enable us to continue to satisfy our cash requirements. In addition, the terms
of existing or future debt agreements, including the Senior Secured Credit
Facilities and the Indenture, may restrict us from adopting any of these
alternatives.
Covenant Restrictions may Limit our Ability to Operate our Business
The Senior Secured Credit Facilities and the Indenture contain, and
certain of our other indebtedness agreements may contain, covenants that
restrict our ability to make distributions or other payments to our investors
and creditors unless certain financial tests or other criteria are satisfied. We
must also comply with certain specified financial ratios and tests. In some
cases our subsidiaries are subject to similar restrictions which may restrict
their ability to make distributions to us. If we do not comply with these or
other covenants and restrictions contained in the Senior Secured Credit
Facilities or the Indenture, we could default under those agreements and the
debt, together with accrued interest, could then be declared immediately due and
payable. Our ability to comply with these provisions of the Senior Secured
Credit Facilities and the Indenture may be affected by changes in economic or
business conditions or other events beyond our control.
The Senior Secured Credit Facilities contain, and certain other
indebtedness agreements may contain, additional affirmative and negative
covenants, including limitations on our ability to incur additional indebtedness
and to make acquisitions and capital expenditures which could affect our ability
to operate our business. The Indenture for the New Notes restricts, among other
things, our ability to incur additional debt, sell assets, create liens or other
encumbrances, make certain payments and dividends or merge or consolidate, all
of which could affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise. A
failure to comply with these covenants and restrictions could result in an event
of default under either the Senior Secured Credit Facilities or the Indenture
which could lead to an acceleration of the related debt and the acceleration of
debt under other debt instruments that may contain cross-acceleration or
cross-default provisions.
Your Right to Receive Payments on the New Notes is Junior to our Bank
and other Unsubordinated Indebtedness and Possibly all of our Future Borrowings,
and the Guarantees of the New Notes are Junior to all the Guarantors' Existing
Senior Indebtedness and Possibly to all of their Future Borrowings
The New Notes are subordinated to all of our existing and future senior
indebtedness, including indebtedness under the Senior Secured Credit Facilities,
other than trade payables and future indebtedness that expressly provides that
it is equal to or subordinated in right of payment to the New Notes. Similarly,
payments by a Guarantor on its Subsidiary Guarantee of the New Notes are
subordinated to all of that Guarantor's existing and future senior indebtedness,
other than trade payables and future indebtedness that expressly provides that
it is equal to or subordinated in right of payment to its guarantee. The New
Notes also are effectively subordinated to all of our and our subsidiaries'
secured indebtedness to the extent of the assets securing such indebtedness. In
addition, if a default occurs with respect to senior indebtedness, such as the
Senior Secured Credit Facilities, the subordination provisions of such senior
indebtedness would likely restrict payments to the holders of the New Notes. If
the indebtedness under the Senior Secured Credit Facilities were to be
accelerated, there can be no assurance that our assets would be sufficient to
repay in full such indebtedness and our other indebtedness, including the New
Notes.
After giving pro forma effect to the Transactions as of May 1, 1999, we
would have had approximately $70.0 million of senior indebtedness and our
Guarantors would have had no senior indebtedness (excluding guarantees under the
Senior Secured Credit Facilities). In addition, approximately $50.0 million
would have been available for borrowing as additional senior indebtedness under
the Senior Secured Credit Facilities. The Indenture permits us and the
Guarantors to borrow substantial additional indebtedness, including senior debt,
in the future.
If we or the Guarantors are declared bankrupt or insolvent, or if there
is a payment default under any senior indebtedness, we are required to pay the
lenders under the Senior Secured Credit Facilities and any other creditors who
are holders of senior indebtedness in full before we pay you. Accordingly, we
may not have enough assets remaining after payments to holders of such senior
indebtedness to pay you. In addition, under certain circumstances, we may not
pay any amount on the New Notes if certain senior indebtedness, including debt
under the Senior Secured Credit Facilities, is not paid when due or any other
default on such senior indebtedness exists.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the Guarantors, holders of the New Notes will
participate on an equal basis with trade creditors and all other holders of
senior subordinated indebtedness of our Company and the Guarantors, as the case
may be. However, because the Indenture requires that amounts otherwise payable
to holders of the New Notes in a bankruptcy or similar proceeding be paid
instead to holders of senior debt until they are paid in full, holders of the
New Notes may receive less, ratably, than holders of trade payables in any such
proceeding. In addition, any acceleration of the indebtedness under the Senior
Secured Credit Facilities will, and acceleration of our other indebtedness may,
constitute an event of default under the Indenture. If an event of default
exists under the Senior Secured Credit Facilities or certain other senior
indebtedness, the Indenture may restrict payments on the New Notes until holders
of such other indebtedness are paid in full or such default is cured or waived
or has otherwise ceased to exist. In any of these cases, we and the Guarantors
may not have sufficient funds to pay all of our creditors and holders of the New
Notes may receive less, ratably, than the holders of trade payables.
Further, the Senior Secured Credit Facilities limit our ability to
purchase New Notes prior to maturity, even though the Indenture requires us to
offer to repurchase New Notes in certain circumstances. If we or the Guarantors
make certain asset sales or if a change of control occurs when we are prohibited
from repurchasing New Notes, we could ask the lenders under the Senior Secured
Credit Facilities if we may repurchase the New Notes or we could attempt to
refinance the borrowings that contain such prohibitions. If we do not obtain
such a consent or repay such borrowings, we would be unable to repurchase the
New Notes. Our failure to repurchase tendered New Notes at a time when such
repurchase is required by the Indenture would constitute an event of default
under the Indenture which, in turn, would constitute a default under the Senior
Secured Credit Facilities. In such circumstances, the subordination provisions
in the Indenture would restrict payments to you.
<PAGE>
Our Assets Are Encumbered to Secure the Senior Secured Credit Facilities
The New Notes are not secured by any of our assets. Our obligations
under the Senior Secured Credit Facilities, however, are secured by a first
priority pledge of and security interest in the stock of all our present and
future domestic subsidiaries and 66% of the stock of all our present and future
foreign subsidiaries, and substantially all of our assets and the assets of our
domestic subsidiaries. If we were to become insolvent or liquidated, or if
payment under the Senior Secured Credit Facilities were accelerated, the lenders
under the Senior Secured Credit Facilities would be entitled to exercise the
remedies available to a secured lender under applicable law. Accordingly, all
secured lenders would be effectively senior to the holders of New Notes in right
of payment to the extent of the assets securing the indebtedness owed to the
secured lenders.
<PAGE>
Our Ability to Repay the New Notes and other Debt Depends on Cash Flow from our
Subsidiaries
We conduct a substantial amount of our business through our
subsidiaries. As a result, we depend, in part, on dividends, loans or advances,
or payments from our subsidiaries to satisfy our financial obligations and make
payments to our investors.
The ability of our subsidiaries to pay dividends and make other
payments to us may be restricted by, among other things:
- their earnings;
- covenants contained in their debt agreements;
- covenants contained in other agreements to which our subsidiaries are
or may become a party;
- business and tax considerations; and
- applicable corporate and other laws and regulations.
Although the Indenture limits the ability of such subsidiaries to enter
into consensual encumbrances and restrictions on their ability to pay dividends
and make other payments, this limitation is subject to a number of significant
exceptions and qualifications.
Not all Subsidiaries are Guarantors; Assets of the Non-Guarantor Subsidiaries
may not be Available to make Payments on the New Notes
Our present and future foreign subsidiaries will not be Guarantors of
the New Notes. Payments on the New Notes are only required to be made by us and
the Guarantors. As a result, no payments are required to be made from assets of
subsidiaries which do not guarantee the New Notes unless those assets are
transferred, by dividend or otherwise, to us or a Guarantor.
In the event of a bankruptcy, liquidation or reorganization of any of
the non-guarantor restricted subsidiaries, holders of their indebtedness,
including their trade creditors, will generally be entitled to payment of their
claims from the assets of those subsidiaries before any assets are made
available for distribution to us. After giving pro forma effect to the
Transactions as of May 1, 1999, the total liabilities, including trade payables,
of our non-guarantor restricted subsidiaries would have been approximately $10.3
million.
Our non-guarantor restricted subsidiaries generated approximately 2.5%
of our pro forma combined revenues in fiscal year 1998. Our non-guarantor
restricted subsidiaries generated approximately 2.1% of our pro forma combined
revenues in the twenty-six weeks ended May 1, 1999, and held approximately 6.1%
of our pro forma combined assets as of May 1, 1999.
We may not be able to Purchase the New Notes upon a Change of Control as
Required by the Indenture
Upon the occurrence of specific change of control events described in
the Indenture, we will be required to offer to purchase all outstanding New
Notes from the holders thereof at 101% of their principal amount, plus accrued
interest to the date of repurchase. However, a change of control will also
constitute an event of default under the Senior Secured Credit Facilities. A
default under the Senior Secured Credit Facilities would result in an event of
default under the Indenture if the lenders were to accelerate the debt under the
Senior Secured Credit Facilities, in which case the subordination provisions of
the New Notes would require payment in full of the Senior Secured Credit
Facilities before repurchase of the New Notes. Any future credit agreements or
other agreements to which we become a party may contain similar restrictions and
provisions. In the event a change of control occurs at a time when such other
agreements prohibit us from purchasing the New Notes, the terms of the New Notes
permit us to seek the consent of our lenders to purchase the New Notes or we
could attempt to refinance the borrowings that contain such prohibition. If we
do not obtain such a consent or repay such borrowings, we will remain prohibited
from purchasing the New Notes. Our failure to purchase the tendered New Notes
would constitute an event of default under the Indenture, which would result in
an event of default under the Senior Secured Credit Facilities.
The source of funds for any purchase of the New Notes would be our
available cash or cash generated from other sources, including borrowings, sales
of assets, sales of equity or funds provided by an existing or new controlling
person. We cannot assure you that any of these sources will be available. Upon
the occurrence of a change of control event, we may seek to refinance the
indebtedness outstanding under the Senior Secured Credit Facilities and the New
Notes. However, it is possible that we will not be able to complete such
refinancing on commercially reasonable terms or at all. In such event, we would
not have the funds necessary to finance the required change of control offer.
The provisions relating to a change of control included in the Indenture may
increase the difficulty of a potential acquiror obtaining control of the
Company.
<PAGE>
Risks Related to the Integration of Shelby Williams
On June 18, 1999, Falcon's recently formed, wholly owned subsidiary
merged into Shelby Williams. As a result, Shelby Williams became a wholly owned
subsidiary of Falcon. Prior to this merger, Falcon and Shelby Williams operated
independently, and our success as a combined company will depend in large
measure on our ability to successfully integrate the operations of these
companies. The combination of Falcon and Shelby Williams will entail the
reorganization of certain functions to achieve cost savings and to realize the
full potential of the business opportunities management believes are available
to us. We can give no assurance, however, that we will be able to successfully
integrate Shelby Williams or achieve such cost savings or that we will not
encounter delays or incur unanticipated costs in such integration.
We may not be Successful in Implementing our Business Strategy
Our strategic objectives are to steadily grow our business and improve
our operations and cost structure. In order to achieve these objectives, our
business strategy consists of the following key elements:
- capitalize on the Acquisition of Shelby Williams;
- maintain customer service leadership;
- maximize operating efficiencies; and
- grow through strategic acquisitions.
We can give no assurance that the implementation of our business
strategy will be successful or will improve operating results. Other conditions
may exist, such as unforeseen costs and expenses or an economic downturn, that
may offset any improved operating results that are attributable to such business
strategy. In addition, after gaining experience in implementing our business
strategy, we may decide to alter or discontinue certain aspects of our strategy.
Any failure to implement our business strategy may adversely affect our ability
to service our indebtedness, including the New Notes.
Further, in order to expand our markets and to complement our product
portfolio, our business strategy includes making additional acquisitions. From
time to time we investigate opportunities for acquisitions. We can give no
assurance, however, that we will be able to identify suitable acquisition
candidates, that future acquisitions can be consummated on acceptable terms or
that any acquired companies can be successfully integrated into our operations.
Our ability to make future acquisitions may also be constrained by our ability
to obtain financing and the restrictions set forth in the Indenture and the
Senior Secured Credit Facilities. We can give no assurance that businesses
acquired in the future will achieve sales and profitability that justify the
investment in such businesses. In addition, to the extent that consolidation
becomes more prevalent in the commercial furniture industry, the prices for
attractive acquisition candidates may increase to unacceptable levels.
Our operations and those of any new acquisitions may require additional
personnel, assets and cash expenditures. We can give no assurance that we will
be able to successfully expand and operate such acquisitions profitably. We may
not be able to anticipate and respond effectively to all of the changing demands
that our expanding operations will have on our management information and
operating systems. In addition, we may experience delays, disruptions and
unanticipated expenses in connection with any acquisitions. Our failure to meet
challenges of any such expansion could have a material adverse effect on our
business, financial condition and results of operations.
Risks Related to Pro Forma Financial Data and Limited Relevance of Historical
Financial Data
The unaudited pro forma combined financial data set forth in this
prospectus is based upon a number of assumptions and estimates related to, among
other things, the integration of Shelby Williams. Any cost savings anticipated
by management are inherently subject to significant business, economic and
competitive uncertainties and contingencies, any of which are beyond our
control, and are based upon assumptions with respect to future business
decisions that are subject to change. Such uncertainties and contingencies
include the risks described herein including, among others, the risks related to
the Acquisition and integration of Shelby Williams. Any additional costs or
expenses which may result from such risks are not taken into account in the
presentation of the unaudited pro forma combined financial data. It can be
expected that some or all of the assumptions of the unaudited pro forma combined
financial data, and some or all of the assumptions underlying the other
estimates, will not materialize.
As a result of the Acquisition of Shelby Williams, the historical
consolidated financial data of Falcon and Shelby Williams presented in this
prospectus is of limited relevance in understanding what our results of
operations, financial position or cash flows would have been for the historical
periods presented had the Acquisition of Shelby Williams been completed at the
beginning of the period.
Limitations of Market Share Information
Within the commercial furniture market, we compete primarily in the
office, food service, hospitality (including gaming) and national accounts
segments. Quantitative industry data on these four market segments is limited
because the commercial furniture market is highly fragmented and includes
hundreds of producers. We are not aware of any industry group that exists which
independently monitors these relatively small market segments. The Business and
Institutional Furniture Manufacturer's Association ("BIFMA") does, however,
provide information for the United States office furniture market, the largest
part of the commercial furniture market. Of this market, we estimate that the
segments in which we compete represent approximately 10% of the total United
States office furniture market as calculated by BIFMA. Although the BIFMA
research is narrowly focused, we believe it is the best available data to
evaluate general trends in the industry as a whole.
Because each segment has relatively few large industry leaders, and
these leaders tend to specialize within only one or two of the four market
segments in which we compete, we face difficulty providing any more precise
information regarding our competitive market share than that which is provided
in this prospectus. Moreover, market data used throughout this prospectus,
including information relating to our relative position in the commercial
furniture industry, is based upon the good faith estimates of management, which
estimates are based upon their review and knowledge of internal surveys,
independent industry publications and other publicly available information.
Although we believe that these sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified.
Competition
The office, food service, hospitality (including gaming), national
accounts, university, healthcare and other institutional segments of the
commercial furniture industry are fragmented and highly competitive with respect
to each of the products we sell. We believe that the principal bases of
competition are design, quality, customer service, product pricing and speed of
delivery. We compete for sales of each of our products with numerous domestic
and foreign manufacturers, many of which have financial and other resources
greater than we do. We can give no assurance that our competitors will not offer
a greater range of high-quality products, or that new entrants with greater
financial resources than us will not enter the market, or that results of
operations will not be adversely affected by increased competition.
We may be Adversely Impacted by Work Stoppages and other Labor Matters
Approximately 2,300 of our employees are unionized. Of these,
approximately 1,100 unionized employees are represented by separate bargaining
agreements with contracts expiring in November 1999 and November 2000. Although
we have experienced only one work stoppage or labor strike, we can give no
assurance that we will not encounter strikes, slowdowns, or other types of
conflicts with labor unions or our other employees in the future. In the event
that we experience strikes or other types of conflicts with our employees, such
strikes or other conflicts would adversely impact our business.
In addition, on several occasions, attempts were made to unionize more
of our manufacturing facilities. We can give no assurance that further
unionization efforts will not be made at our manufacturing facilities in the
future, nor can we give assurance whether such unionization efforts will be
successful. In the event that such unionization efforts are successful, our
business could be adversely effected.
Environmental Matters
We are subject to numerous environmental laws and regulations in the
various jurisdictions in which we operate that (1) govern operations that may
have adverse environmental effects, such as discharges into air and water, as
well as handling and disposal practices for solid and hazardous wastes, and (2)
impose liability for response costs and certain damages resulting from past and
current spills, disposals or other releases of hazardous materials. Our
operations may result in noncompliance with or liability for remediation under
the environmental laws. Environmental laws have changed rapidly in recent years,
and we may be subject to more stringent environmental laws in the future.
Although environmental matters have not to date had a material adverse effect on
the results of operations or financial condition of either Falcon or Shelby
Williams, we can give no assurance that such matters will not have a material
adverse effect on our results of operations or financial condition or that more
stringent environmental laws will not be enacted which could have a material
adverse effect on our results of operations or financial condition.
We may be Adversely Effected if our Year 2000 Remediation Efforts are not
Successful
Our business could be adversely impacted by information technology
issues related to the year 2000. We use software and related computer
technologies essential to our operations that use two digits rather than four to
specify the year, which could result in a date recognition problem with the
transition to the year 2000. We have established a plan to identify and
remediate potential year 2000 problems in our business information systems,
infrastructure and production and manufacturing sites. We have substantially
completed an inventory of potentially date-sensitive systems, and we are
currently focused on the remediation and testing phases of our year 2000
program. We have also begun surveying our suppliers and service providers for
year 2000 compliance.
We currently believe that the most reasonably likely worst case
scenario is that there will be some localized disruptions of systems that will
affect individual business processes, facilities or suppliers for a short time
rather than systemic or long-term problems affecting our business operations as
a whole. Our contingency planning will continue to identify systems, or other
aspects of our business or that of our suppliers, that we believe would be most
likely to experience year 2000 problems, as well as those business operations in
which a localized disruption could have the potential for causing a wider
problem by interrupting the flow of products, materials or data to other
operations. Because there is uncertainty as to which activities may be affected
and the exact nature of the problems that may arise, our contingency planning
will focus on minimizing the scope and duration of any disruptions by having
sufficient personnel, inventory and other resources in place to permit a
flexible, real-time response to specific problems as they may arise at
individual locations around the world.
There is still uncertainty about the broader scope of the year 2000
issue as it may affect us and third parties, including our suppliers and
customers, that are critical to our operations. For example, lack of readiness
by electrical and water utilities, financial institutions, governmental agencies
or other providers of general infrastructure could, in some geographic areas,
pose significant impediments to our ability to carry on our normal operations in
the area or areas so affected. In the event that we are unable to complete our
remedial actions and are unable to implement adequate contingency plans in the
event that problems are encountered, there could be a material adverse effect on
our business, results of operations or financial condition. For more information
regarding our year 2000 program, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness."
An Active Trading Market may not Develop for the New Notes
There is not an established trading market for the New Notes. We do not
intend to apply for listing of the New Notes on any United States or other
securities exchange or for quotation through any inter-dealer automated
securities market. The liquidity of any market for the New Notes will depend
upon many factors including:
- the number of holders of the New Notes;
- our results of operations and financial condition;
- the market for similar securities; and
- the interest of securities dealers in making a market in the New
Notes.
There can be no assurance as to the development or liquidity of any
market which may develop for the New Notes. If a trading market does not develop
or is not maintained, you may experience difficulty in reselling the New Notes,
or you may be unable to sell them at all.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused volatility in prices. It is possible that the
market for the New Notes will be subject to disruptions. Any such disruptions
may have a negative effect on you as a holder of the New Notes regardless of our
prospects and financial performance.
If You Fail to Exchange Your Original Notes, Your Original Notes will Remain
subject to Restrictions on Transfer
Holders of Original Notes who do not exchange their Original Notes for
New Notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the Original Notes described in the legend on those
notes. The restrictions result from the issuance of the Original Notes in
reliance on exemptions from registration under the Securities Act and applicable
state securities laws. In general, the Original Notes may not be transferred or
resold except in a transaction registered in accordance with, or exempt from,
these registration requirements. If we complete this exchange offer, we will not
be required to register the Original Notes, and we do not anticipate that we
will register the Original Notes, under the Securities Act. Additionally, to the
extent that Original Notes are tendered and accepted in the exchange offer, the
aggregate principal amount of the Original Notes outstanding will decrease, with
a resulting decrease in the liquidity of the market for the Original Notes.
<PAGE>
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations
under the exchange and registration rights agreement entered into in connection
with the offering of the Original Notes. We will not receive any proceeds from
the exchange offer. In consideration for issuing the New Notes, we will receive
Original Notes with like original principal amount at maturity. The form and
terms of the Original Notes are the same as the form and terms of the New Notes,
except as otherwise described in this prospectus. The Original Notes surrendered
in exchange for New Notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the New Notes will not result in any increase in
our outstanding debt.
We received net proceeds totaling approximately 96.0 million from the
private placement of the Original Notes. Discounts and commissions and other
expenses payable by us totaled approximately 4.0 million. The net proceeds were
used to complete the Stock Tender Offer.
CAPITALIZATION
The following table sets forth Falcon's cash position and total
capitalization as of May 1, 1999 (1) on an actual, historical basis; and (2) as
adjusted, to give pro forma effect to the Transactions. You should read this
information in conjunction with the "Use of Proceeds," "Selected Historical
Consolidated Financial Data," "Unaudited Pro Forma Combined Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections and the respective consolidated financial statements of
Falcon and Shelby Williams and the related notes thereto, included elsewhere or
incorporated by reference in this prospectus.
As of May 1, 1999
Actual As Adjusted
(In thousands)
(Unaudited)
Cash and cash equivalents........................... $ 1,162 $ 3,906
========= =========
Long-term debt, including current portion:
Existing revolving credit facility............. $ 19,249 $ --
Existing notes payable to a foreign bank....... 1,806 1,806
Capital lease obligations...................... 273 273
New Term Loan due 2005......................... -- 70,000
New Revolving Credit Facility.................. -- --
Original Notes................................. -- 100,000
--------- ---------
Total long-term debt........................... 21,328 172,079
--------- ---------
Minority interest in consolidated subsidiary........ 796 796
Total stockholders' equity.......................... 72,426 72,426
--------- ---------
Total capitalization........................... $ 94,550 $ 245,301
========= =========
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Falcon
You should read Falcon's selected historical consolidated financial
data set forth below in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the consolidated financial
statements and the notes thereto, and the other financial information included
or incorporated by reference herein. The selected historical consolidated
financial data for the fiscal years ended October 29, 1994, October 28, 1995,
November 2, 1996, November 1, 1997 and October 31, 1998 and have been derived
from Falcon's audited consolidated financial statements. The selected
consolidated financial data for the twenty-six weeks ended May 2, 1998 and May
1, 1999 have been derived from Falcon's unaudited consolidated financial
statements and, in the opinion of Falcon's management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of its results of operations for such periods and financial
condition as for the dates presented. The results of operations for any interim
period are not necessarily indicative of the results of operations for a full
year.
<TABLE>
<CAPTION>
Twenty-six
Fiscal year ended weeks
---------------------------------------------------------- -----------------
October 29, October 28, November 2, November 1, October 31, May 2, May 1,
1994 1995 1996 1997 1998 1998 1999
(In thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................... $ 67,957 $ 79,647 $100,702 $113,010 $143,426 $ 61,711 $ 71,064
Cost of sales, including nonrecurring 45,318 52,883 69,125 79,507 103,067 44,052 50,490
items...................................
Special and nonrecurring items.......... -- -- -- 3,700 271 -- --
-------- -------- -------- -------- -------- -------- --------
Gross margin............................ 22,639 26,764 31,577 29,803 40,088 17,659 20,574
Selling, general and administrative
expenses............................. 14,354 16,992 20,469 22,044 29,482 11,813 13,833
-------- -------- -------- -------- -------- -------- --------
Operating profit........................ 8,285 9,772 11,108 7,759 10,606 5,846 6,741
Interest income (expense), net.......... 145 141 95 139 (619) 7 (596)
Minority interest in consolidated
subsidiary........................... 4 (44) 89 47 64 34 14
-------- --------- -------- -------- -------- -------- --------
Earnings from continuing operations
before income taxes.................. 8,434 9,869 11,292 7,945 10,051 5,887 6,159
Income tax expense...................... 3,121 3,693 4,291 3,019 3,701 2,267 2,325
-------- -------- -------- -------- -------- -------- --------
Net earnings from continuing operations. 5,313 6,176 7,001 4,926 6,350 3,620 3,834
Discontinued operations, net of tax..... 864 1,281 1,432 938 -- -- --
Gain on sale of discontinued
operations, net of tax ................. -- -- -- 6,770 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings............................ $ 6,177 $ 7,457 $ 8,433 $ 12,634 $ 6,350 $ 3,620 $ 3,834
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(1)... 287.2x 310.3x 236.1x 109.0x 14.4x 232.6x 10.9x
Earnings Per Share Data--Diluted(2):
Continuing operations................... $ 0.55 $ 0.64 $ 0.71 $ 0.50 $ 0.68 $ 0.38 $ 0.43
Discontinued operations................. 0.09 0.13 0.15 0.09 -- -- --
Gain on sale of discontinued operations. -- -- -- 0.69 -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings per share.................. $ 0.64 $ 0.77 $ 0.86 $ 1.28 $ 0.68 $ 0.38 $ 0.43
======== ======= ======= ======= ======= ======= =======
As of As of
----------------------------------------------------------- -----------------
October 29, October 28, November 2, November 1, October 31, May 2, May 1,
1994 1995 1996 1997 1998 1998 1999
(In thousands) (Unaudited)
Balance Sheet Data:
Cash and cash equivalents............... $ 7,312 $ 6,970 $ 5,714 $ 16,294 $ 5,186 $ 2,057 $ 1,162
Working capital......................... 25,658 29,927 34,531 38,691 35,756 33,109 35,286
Property, plant and equipment, net...... 18,467 21,529 24,485 25,211 27,498 28,915 28,354
Total assets............................ 64,905 74,884 84,388 99,357 111,974 108,769 111,731
Long-term debt (including current 1,787 1,889 1,405 1,794 18,815 19,189 21,328
portion)................................
Stockholders' equity.................... 50,556 58,307 68,476 73,264 71,946 70,427 72,426
<PAGE>
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include net earnings plus fixed charges. Fixed charges consist of interest
expense, a portion of rental expense (deemed by management to be
representative of the interest factor of rental payments) and amortization
of debt issuance costs.
(2) Per share data reflects adjustments related to the December 1995 10% stock
dividend.
</FN>
</TABLE>
<PAGE>
Shelby Williams
You should read Shelby Williams' selected historical consolidated
financial data set forth below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and the notes thereto, and the other financial information
included or incorporated by reference herein. The selected historical
consolidated financial data for the years ended December 31, 1994, 1995, 1996,
1997 and 1998 have been derived from Shelby Williams' audited consolidated
financial statements. Shelby Williams' selected consolidated financial data for
the quarters ended March 31, 1998 and 1999 have been derived from Shelby
William's unaudited consolidated financial statements and, in the opinion of
Shelby Williams' management, as expressed in Shelby Williams' Quarterly Report
on Form 10-Q for the period ending March 31, 1999, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of its results of operations for such periods and financial
condition as of the dates presented. The results of operations for any interim
period are not necessarily indicative of the results of operations for a full
year.
<TABLE>
<CAPTION>
Three months
Fiscal years ended December 31, ended March 31,
-------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
(In thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................................. $135,011 $144,525 $149,481 $157,779 $165,937 $38,484 $43,128
Cost of goods sold......................... 107,635 112,412 114,998 120,849 126,388 29,929 34,081
-------- -------- -------- -------- -------- ------- -------
Gross margin............................... 27,376 32,113 34,483 36,930 39,549 8,555 9,047
Restructuring charge....................... 5,575 -- -- -- -- -- --
Selling, general and administrative expenses 21,683 22,301 22,100 22,268 22,994 5,302 5,548
-------- -------- -------- -------- -------- ------- -------
Operating profit........................... 118 9,812 12,383 14,662 16,555 3,253 3,499
Interest expense........................... 1,207 1,257 969 622 391 125 46
Interest income............................ -- (9) (18) (614) (539) (188) (107)
Miscellaneous expense (income)............. 106 37 (44) (89) (102) 18 22
-------- -------- -------- -------- -------- ------- -------
Income (loss) from continuing operations
before income taxes........................ (1,195) 8,527 11,476 14,743 16,805 3,298 3,538
Income tax (benefit)....................... (575) 2,330 3,720 5,066 6,191 1,220 1,274
--------- -------- -------- -------- -------- ------- -------
Income (loss) from continuing operations... (620) 6,197 7,756 9,677 10,614 2,078 2,264
Discontinued operations, net of tax........ 985 583 661 915 (7,129) 36 --
-------- -------- -------- -------- -------- ------- ------
Net income................................. $ 365 $ 6,780 $ 8,417 $ 10,592 $ 3,485 $ 2,114 $ 2,264
======== ======== ======== ======== ======== ======= =======
Ratio of earnings to fixed charges(1) 0.1x 7.3x 11.8x 21.5x 35.6x 23.2x 51.5x
Per Share Data--Diluted:
Income (loss) from continuing operations... $ (0.07) $ 0.69 $ 0.88 $ 1.05 $ 1.17 $ 0.22 $ 0.26
Income (loss) from discontinued operations,
net of taxes............................... 0.11 0.06 0.07 0.10 (0.01) 0.01 --
Loss on disposal of discontinued
operations, net of taxes................... -- -- -- -- (0.78) -- --
-------- -------- -------- -------- ------- ------- ------
Net income................................. $ 0.04 $ 0.75 $ 0.95 $ 1.15 $ 0.38 $ 0.23 $ 0.26
======== ======== ======== ======== ======== ======= =======
As of December 31, As of March 31,
------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
(In thousands) (Unaudited)
Balance Sheet Data:
Cash and cash equivalents.................. $ 1,633 $ 2,376 $1,039 $11,124 $ 6,355 $12,582 $ 6,282
Working capital............................ 28,092 32,016 37,606 48,494 39,164 45,233 39,805
Property, plant and equipment, net......... 26,989 26,547 23,476 24,611 25,985 27,895 25,926
Total assets............................... 86,306 87,613 83,213 97,238 89,633 100,180 88,645
Long-term debt (including current portion). 8,944 8,895 8,000 7,000 3,000 6,000 2,000
Stockholders' equity....................... 48,658 51,724 55,970 71,772 64,695 70,505 65,024
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include net earnings plus fixed charges. Fixed charges consist of interest
expense, a portion of rental expense (deemed by management to be
representative of the interest factor of rental payments) and amortization
of debt issuance costs.
</FN>
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data presents the
pro forma combined balance sheet of the Company as of May 1, 1999 as if the
Transactions had occurred on May 1, 1999, and presents the pro forma combined
statements of operations data of the Company for the periods presented as if the
Transactions had occurred on November 2, 1997. See "Prospectus Summary--The
Transactions." The unaudited pro forma combined financial data is based on the
historical consolidated financial statements of Falcon and the adjusted
historical consolidated financial statements of Shelby Williams, and on the
assumptions and adjustments described in the notes to such unaudited pro forma
combined financial data, including assumptions relating to the allocation of the
consideration paid for Shelby Williams to the assets and liabilities of Shelby
Williams based on preliminary estimates of their respective fair values. The
actual allocation of such consideration may differ from that reflected in the
unaudited pro forma combined financial data. Amounts allocated will be based
upon the estimated fair values at the time of the Acquisition of Shelby Williams
which could vary significantly from the amounts assumed. In addition, the
interest rates on the borrowings under the Senior Secured Credit Facilities, and
the estimated transaction fees and expenses, are assumed solely for the purpose
of presenting the unaudited pro forma combined financial data set forth below.
The actual interest rates on the borrowings under the Senior Credit Facilities
and actual transaction fees and expenses may differ from assumptions set forth
below.
The consolidated statements of operations of Shelby Williams for the
year ended October 31, 1998 and the twenty-six weeks ended May 1, 1999 reflect
adjustments to the fiscal year ended December 31, 1998 and the fiscal quarter
ended March 31, 1999 historical financial data of Shelby Williams to conform
such financial data to the fiscal year end and most recent fiscal quarter of
Falcon. As a result, the consolidated statement of operations of Shelby Williams
for the year ended October 31, 1998 was derived by adding the monthly activity
for November and December 1997 to, and subtracting the monthly activity for
November and December 1998 from, the audited consolidated statement of
operations of Shelby Williams for the fiscal year ended December 31, 1998.
Likewise, the consolidated statement of operations of Shelby Williams for the
twenty-six weeks ended May 1, 1999 was derived by adding the monthly activity
for November 1998, December 1998 and April 1999 to the unaudited consolidated
statement of operations of Shelby Williams for the fiscal quarter ended March
31, 1999. The consolidated statement of operations for the latest twelve months
ended May 1, 1999 and the consolidated balance sheet of Shelby Williams as of
May 1, 1999 were derived from unaudited monthly financial statements. Such
monthly statements do not reflect all adjustments which are customarily made at
the end of each fiscal quarter. We believe that the effect of such adjustments,
if made, would not be material.
In connection with the Acquisition of Shelby Williams, we have
identified estimated annual cost savings on a pro forma basis of approximately
$0.4 million related to duplicate public company costs, which cost savings are
reflected in the unaudited pro forma financial data as adjustments to selling,
general and administrative expenses. Management expects that the Company will
begin to realize a portion of the benefit of the cost savings described above in
the fiscal quarter after the closing of the Acquisition. Management also
believes that the Company will be able to realize additional cost savings as a
result of the Acquisition which have not been included in the pro forma combined
financial data. A significant portion of the benefit of such cost savings is not
expected to be realized until the end of fiscal year 2003. Such additional cost
savings do not qualify as pro forma adjustments under Regulation S-X promulgated
under the Securities Act.
We completed the Transactions in the third fiscal quarter of 1999. We
do not expect to record any material charges in connection with the refinancing
of existing indebtedness.
The unaudited pro forma combined financial data do not purport to
represent what our financial position and results of operations would have been
if the Transactions had actually been completed as of the dates indicated and
are not intended to project our financial position or results of operations for
any future period.
The unaudited pro forma combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the respective historical consolidated financial
statements of Falcon and Shelby Williams and the related notes thereto included
elsewhere or incorporated by reference in this prospectus.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of May 1, 1999
Historical Historical Pro forma Pro forma
Falcon Shelby Williams adjustments combined
---------- --------------- ----------- ----------
(In thousands)
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.............. $ 1,162 $ 8,793 $ (6,049)(1) $ 3,906
Accounts receivable.................... 20,567 24,839 -- 45,406
Inventories............................ 27,761 23,445 10,738(9) 61,944
Prepayments and other current assets... 3,421 4,421 -- 7,842
---------- ---------- ---------- ----------
Total current assets............... 52,911 61,498 4,689 119,098
Property, plant and equipment, net......... 28,354 25,918 -- 54,272
Goodwill, net.............................. 24,749 148 84,095(2) 108,992
Deferred financing fees.................... -- -- 6,500(4) 6,500
Other intangible assets, net............... 5,717 1,154 -- 6,871
---------- ---------- ---------- ----------
Total assets....................... $ 111,731 $ 88,718 $ 95,284 $ 295,733
========== ========== ==========- ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................... $ 8,561 $ 7,331 $ -- $ 15,892
Customer deposits on orders in process. 1,967 7,037 -- 9,004
Accrued liabilities.................... 5,018 6,572 10,000(5) 21,887
297(3)
Current maturities of long-term debt... 2,079 1,000 (1,000)(6) 2,079
---------- ---------- ---------- ----------
Total current liabilities.......... 17,625 21,940 9,297 48,862
Deferred income taxes...................... 876 2,014 -- 2,890
Minority interest in consolidated subsidiary 796 -- -- 796
Long-term debt............................. 19,249 -- 170,000(7) 170,000
(19,249)(6)
Other...................................... 759 -- -- 759
---------- ---------- ---------- ----------
Total liabilities.................. 39,305 23,954 160,048 223,307
---------- ---------- ---------- ----------
Stockholders' Equity:
Common stock........................... 198 593 (593)(8) 198
Additional paid-in-capital............. 47,376 10,135 (10,135)(8) 47,376
Treasury stock, at cost................ (15,685) (24,184) 24,184(8) (15,685)
Cumulative translation adjustments..... (196) -- -- (196)
Retained earnings...................... 40,733 78,220 (78,220)(8) 40,733
---------- ---------- ---------- ----------
Total stockholders' equity......... 72,426 64,764 (64,764) 72,426
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity........................... $ 111,731 $ 88,718 $ 95,284 $ 295,733
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)
The unaudited pro forma combined balance sheet as of May 1, 1999 has
been prepared as if the Transactions had occurred as of May 1, 1999. The
following adjustments were recorded:
(1) The following table sets forth the estimated sources and uses of
funds in connection with the Transactions:
Sources of funds:
Initial borrowings under the Senior Secured
Credit Facilities:
Revolving Credit Facility................... $ --
Term Loan................................... 70,000
Original Notes................................. 100,000
Cash on hand................................... 6,049
---------
Total sources of funds.................... $ 176,049
=========
Uses of funds:
Purchase price................................. $ 149,300
Refinancing of existing debt................... 20,249
Debt issuance costs............................ 6,500
---------
Total uses of funds....................... $ 176,049
=========
(2) The following table sets forth the purchase price for the
Acquisition of Shelby Williams and the preliminary allocation as of May 1, 1999:
Acquisition costs of Shelby Williams:
Purchase price of 100% of outstanding
common stock.................................... $ 144,563
Purchase price to acquire outstanding options*.... 737
Plus: Transaction costs........................... 4,000
---------
Total purchase price......................... $ 149,300
=========
Preliminary Allocation:
Cash and cash equivalents......................... $ 8,793
Accounts receivable, net.......................... 24,839
Inventories....................................... 34,183
Prepaid and other current assets.................. 4,421
Property, plant and equipment..................... 25,918
Other assets...................................... 1,302
Accounts payable and other current liabilities.... (32,237)
Other long-term liabilities....................... (2,014)
----------
Subtotal (fair value of net assets acquired)...... 65,205
Goodwill (excess of purchase price over fair
value of net assets acquired)................... 84,095
---------
Total purchase price......................... $ 149,300
=========
- -------------------------
*All outstanding options were purchased by Shelby Williams directly
from the optionees at a price equal to the excess, if any, of the per share
purchase price offered in the Stock Tender Offer over the exercise price of the
option in question, multiplied by the number of shares covered by the option.
We are currently in the process of allocating the purchase price among
the tangible and intangible assets to be acquired and the liabilities to be
assumed. The final purchase price and its allocation will be based on
independent appraisals, discounted cash flows, quoted market prices and
estimates by management which are expected to be completed within one year
following the Acquisition. Upon completion of the purchase price allocation
process, to the extent the purchase price exceeds the fair value of the net
identifiable tangible and intangible assets acquired, such excess will be
allocated to goodwill and amortized over approximately forty years.
<PAGE>
(3) Represents the addition of deferred taxes, at an effective tax rate
of 38.0%, at Shelby Williams due to the adjustment of assets and liabilities to
equal fair value.
(4) Represents the portion of estimated transaction fees and expenses
attributable to the Senior Secured Credit Facilities, the Original Notes and the
New Notes which will be recorded as deferred financing costs and amortized over
the life of the debt to be issued.
(5) Represents the accrual of additional costs and expenses associated
with the Acquisition of Shelby Williams, primarily related to facility
rationalization and other integration costs.
(6) Represents the repayment of revolving credit borrowings and other
debt under the existing credit facilities.
(7) Represents the issuance of the Original Notes and the long-term
portion of the term loan under the Senior Secured Credit Facilities.
(8) Represents the elimination of the historical stockholders' equity
of Shelby Williams as required by purchase accounting.
(9) Represents the inventory write-up at Shelby Williams relating to
inventory costing. Shelby Williams' inventory is stated at last-in, first-out
(LIFO) cost. This adjustment costs inventory at first-in, first-out (FIFO),
which approximates fair market value.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Last twelve months ended May 1, 1999
Historical Historical Pro forma Pro forma
Falcon Shelby Williams (1) adjustments combined
---------- ------------------- ----------- ---------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C>
Net sales....................................... $ 152,814 $ 171,788 $ (1,048)(8) $ 323,554
Cost of sales................................... 106,297 131,762 (1,048)(8) 237,011
---------- ---------- ---------- ----------
Gross margin.................................... 46,517 40,026 -- 86,543
Selling, general and administrative expenses.... 35,031 23,248 2,102(2) 60,004
(377)(7)
---------- ---------- ---------- ----------
Operating profit................................ 11,486 16,778 (1,725) 26,539
Interest income (expense)....................... (1,208) 155 (15,572)(3) (17,442)
(817)(4)
Minority interest in consolidated subsidiary.... 45 -- -- 45
---------- ---------- ---------- ----------
Earnings before income taxes.................... 10,323 16,933 (18,114) 9,142
Income tax expense.............................. 3,758 6,211 (6,084)(5) 3,885
---------- ---------- ---------- ----------
Earnings from continuing operations............. $ 6,565 $ 10,722 $ (12,030) $ 5,257
========== ========== ========== ==========
Earnings Per Share Data:
Earnings per share--Basic........................ $ 0.73 $ 0.58
========= ==========
Earnings per share--Diluted...................... $ 0.72 $ 0.58
========= ==========
Weighted average shares outstanding--Basic....... 9,032 9,032
========= ==========
Weighted average shares outstanding--Diluted..... 9,144 9,144
========= ==========
Other Data:
EBITDA(6)....................................... $ 19,008 $ 19,343 $ 377 $ 38,728
Depreciation and amortization................... 4,001 2,565 2,102 8,668
Capital expenditures............................ 4,166 2,991 -- 7,157
Selected Ratios:
Ratio of EBITDA to interest expense............. 2.2x
Ratio of senior debt to EBITDA.................. 1.8x
Ratio of total debt to EBITDA................... 4.4x
Ratio of earnings to fixed charges(9)........... 1.5x
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Twenty-six weeks ended May 1, 1999
Historical Historical Pro forma Pro forma
Falcon Shelby Williams(1) adjustments combined
---------- ------------------ ----------- ---------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C>
Net sales....................................... $ 71,064 $ 86,447 $ (498)(8) $ 157,013
Cost of sales................................... 50,490 66,873 (498)(8) 116,865
---------- ---------- ---------- ----------
Gross margin.................................... 20,574 19,574 -- 40,148
Selling, general and administrative expenses.... 13,833 11,576 1,051(2) 26,271
(189)(7)
---------- ---------- ---------- ----------
Operating profit................................ 6,741 7,998 (862) 13,877
Interest income (expense)....................... (596) 101 (7,818)(3) (8,721)
(408)(4)
Minority interest in consolidated subsidiary.... 14 -- -- 14
---------- ---------- ---------- ----------
Earnings before income taxes.................... 6,159 8,099 (9,088) 5,170
Income tax expense.............................. 2,325 2,949 (3,054)(5) 2,220
---------- ---------- ---------- ----------
Earnings from continuing operations............. $ 3,834 $ 5,150 $ (6,034) $ 2,950
========== ========== ========== ==========
Earnings Per Share Data:
Earnings per share--Basic........................ $ 0.43 $ 0.33
========= ==========
Earnings per share--Diluted...................... $ 0.43 $ 0.33
========= ==========
Weighted average shares outstanding--Basic....... 8,951 8,951
========= ==========
Weighted average shares outstanding--Diluted..... 9,000 9,000
========= ==========
Other Data:
EBITDA(6)....................................... $ 8,462 $ 9,327 $ 189 $ 17,978
Depreciation and amortization................... 1,721 1,329 1,051 4,101
Capital expenditures............................ 1,503 1,494 -- 2,997
Selected Ratios:
Ratio of EBITDA to interest expense............. 2.1x
Ratio of earnings to fixed charges(9)........... 1.6x
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Fiscal year ended October 31, 1998
Historical Historical Pro forma Pro forma
Falcon Shelby Williams(1) adjustments combined
---------- ------------------ ----------- ---------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C>
Net sales....................................... $ 143,426 $ 164,513 $ (1,016)(8) $ 306,923
Cost of sales................................... 103,338 125,490 (1,016)(8) 227,812
---------- ---------- ---------- ----------
Gross margin.................................... 40,088 39,023 -- 79,111
Selling, general and administrative expenses.... 29,482 22,672 2,102(2) 53,879
(377)(7)
Operating profit................................ 10,606 16,351 (1,725) 25,232
Interest income (expense)....................... (619) 195 (16,201)(3) (17,442)
(817)(4)
Minority interest in consolidated subsidiary.... 64 -- -- 64
---------- ---------- ---------- ----------
Earnings before income taxes.................... 10,051 16,546 (18,743) 7,854
Income tax expense.............................. 3,701 6,129 (6,324)(5) 3,506
---------- ---------- ---------- ----------
Earnings from continuing operations............. $ 6,350 $ 10,417 $ (12,419) $ 4,348
========== ========== ========== ==========
Earnings Per Share Data:
Earnings per share--Basic........................ $ 0.69 $ 0.48
========= ==========
Earnings per share--Diluted...................... $ 0.68 $ 0.47
========= ==========
Weighted average shares outstanding--Basic....... 9,156 9,156
========= ==========
Weighted average shares outstanding--Diluted..... 9,282 9,282
========= ==========
Other Data:
EBITDA(6)....................................... $ 17,880 $ 18,715 $ 377 $ 36,972
Depreciation and amortization................... 3,753 2,364 2,102 8,219
Capital expenditures............................ 6,594 3,972 -- 10,566
Selected Ratios:
Ratio of EBITDA to interest expense............. 2.1x
Ratio of senior debt to EBITDA.................. 1.9x
Ratio of total debt to EBITDA................... 4.6x
Ratio of earnings to fixed charges(9)........... 1.4x
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(In thousands)
The unaudited pro forma combined statements of operations have been
prepared as if the Transactions had occurred on November 2, 1997. The following
adjustments were recorded:
(1) Represents results of continuing operations.
(2) Represents the amortization of goodwill associated with the
Acquisition of Shelby Williams over forty years ($2,102 for the
latest twelve months ended May 1, 1999, $1,051 for the twenty-six
weeks ended May 1, 1999 and $2,102 for the fiscal year ended
October 31, 1998).
(3) Represents interest expense based on pro forma debt of $170,000,
comprised of $100,000 of New Notes and $70,000 of senior debt at a
blended interest rate of 9.8%. The effect of a 0.125% increase in
interest rates would result in an increase in interest expense of
$213 for the latest twelve months ended May 1, 1999, $106 for the
twenty-six weeks ended May 1, 1999 and $213 for the fiscal year
ended October 31, 1998.
(4) Represents the amortization of debt issuance costs associated with
the Transactions ($817 for the latest twelve months ended May 1,
1999, $408 for the twenty-six weeks ended May 1, 1999 and $817 for
the fiscal year ended October 31, 1998) over a period of six years
to the extent such deferred costs and fees relate to the Senior
Secured Credit Facilities and over ten years to the extent such
deferred costs and fees relate to the New Notes.
(5) Represents the tax effect of the adjustments at an effective tax
rate of approximately 38% (excluding goodwill amortization).
(6) EBITDA for any period is calculated as the sum of net income plus
the following to the extent deducted in calculating net income: (a)
interest expense, (b) income tax expense, (c) depreciation expense,
(d) amortization expense and (e) special one-time charges. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of such special one-time
charges. We consider EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital
expenditures and expand its business; however, EBITDA is not
calculated in the same way by all companies and is neither a
measurement required, nor represents cash flow from operations as
defined, by generally accepted accounting principles. EBITDA should
not be considered by an investor as an alternative to net income,
as an indicator of operating performance or as an alternative to
cash flow as a measure of liquidity. The calculation of EBITDA for
purposes of the financial information presented herein is
calculated differently than for purposes of the covenants under the
Indenture and the Senior Secured Credit Facilities. See "Prospectus
Summary--The Transactions--The Acquisition," "Description of the
Senior Secured Credit Facilities" and "Description of New Notes."
(7) Represents the annualized costs savings associated with combining
two public companies by eliminating duplicate costs (estimated to
be approximately $377 for the latest twelve months ended May 1,
1999, $188 for the twenty-six weeks ended May 1, 1999 and $377 for
the fiscal year ended October 31, 1998).
(8) Represents the elimination of intercompany sales between Falcon and
Shelby Williams and the related cost of sales.
(9) For purposes of computing the ratio of earnings to fixed charges,
earnings include net earnings plus fixed charges. Fixed charges
consist of interest expense, a portion of rental expense (deemed by
management to be representative of the interest factor of rental
payments) and amortization of debt issuance costs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
On June 18, 1999, Falcon's recently formed, wholly owned subsidiary
merged into Shelby Williams. As a result, Shelby Williams became a wholly owned
subsidiary of Falcon. Prior to this merger, Falcon and Shelby Williams operated
independently, and our success will depend in part on our ability to integrate
the operations of these entities. The integration of the operations of Falcon
and Shelby Williams will entail the reorganization of certain functions to
achieve the cost savings outlined in our business strategy and to realize the
full potential of the business opportunities available to the combined company.
We can give no assurance that we will be able to successfully integrate these
businesses or that we will not encounter delays or incur unanticipated costs in
such integration.
We have adopted a plan to integrate Falcon and Shelby Williams, the
principal components of which are (1) eliminating redundant administrative costs
and expenses, and (2) reducing our excess manufacturing capacity by
consolidating and improving the utilization of manufacturing facilities. The
fundamental strategy underlying the Falcon-Shelby Williams combination is to
leverage the strengths of both businesses by adopting the best practices of each
across the Company as a whole and to capitalize on the opportunities inherent in
the combination.
In addition to the improvement in our financial performance expected to
result from the integration plan, we intend to expand our product lines and
increase our sales through cross-selling opportunities, to maximize
manufacturing and operating efficiencies, and to maintain our reputation for
providing superior customer service and manufacturing high-quality products. We
expect that the implementation of these elements of our business strategy will
result in additional cost savings and enhanced revenues.
Purchase Accounting Effects. The Acquisition of Shelby Williams common
stock in the Stock Tender Offer and the subsequent merger has been accounted for
using the purchase method of accounting. The results of operations of Shelby
Williams will be included in our financial statements from the closing date of
the Acquisition. As a result, the Acquisition will prospectively affect our
results of operations in certain significant respects. The aggregate equity
purchase price for the Acquisition is estimated to be $149.3 million. The
preliminary estimate of the excess of the purchase price over the fair value of
net tangible assets acquired is approximately $84.1 million. The excess purchase
price will be allocated to the tangible and intangible assets acquired by us
based upon their respective fair values as of the Acquisition date based upon
valuations that are not yet available.
<PAGE>
Results of Operations--Falcon
During the last several years, Falcon has devoted substantial resources
to its sales and marketing efforts, developed new markets and distribution
networks for its products and implemented an aggressive program of new product
introductions. Falcon has devoted significant resources to developing and
enlarging Falcon's direct factory sales force.
The following table presents certain information relating to the
continuing operations of Falcon, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Twenty-six weeks
Fiscal year ended ended
--------------------------------------- --------------------
November 2, November 1, October 31, May 2, May 1,
1996 1997 1998 1998 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Results as a Percentage of
Net Sales:
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including nonrecurring items....... 68.6 70.3 71.8 71.4 71.0
Special and nonrecurring items.................... -- 3.3 0.2 -- --
----- ----- ------ --- ---
Gross margin...................................... 31.4 26.4 28.0 28.6 29.0
Selling, general and administrative expenses...... 20.3 19.5 20.6 19.1 19.5
------ ----- ----- ----- -----
Operating profit.................................. 11.1 6.9 7.4 9.5 9.5
Interest income (expense), net.................... 0.1 0.1 (0.4) 0.1 (0.8)
Minority interest in consolidated subsidiary...... 0.1 -- -- -- --
------ ----- ----- ----- -----
Earnings from continuing operations before
income taxes................................... 11.3 7.0 7.0 9.6 8.7
Income tax expense................................ 4.3 2.6 2.6 3.7 3.3
------ --- --- --- ---
Net earnings from continuing operations........... 7.0% 4.4% 4.4% 5.9% 5.4%
====== ====== ====== ====== ======
Supplemental Information--Before Special
and Nonrecurring Items:
Gross margin...................................... 31.4% 29.7% 30.4% 28.6% 29.0%
Operating profit.................................. 11.1 10.1 9.8 9.5 9.5
Earnings from continuing operations before
income taxes................................... 11.3 10.2 9.5 9.6 8.7
Net earnings from continuing operations........... 7.0 6.4 6.0 5.9 5.4
</TABLE>
Comparison of Twenty-Six Weeks Ending May 2, 1998 and May 1, 1999
Net Earnings. Net earnings were $3.8 million or $0.43 per share for the
twenty-six weeks ended May 1, 1999, compared to $3.6 million or $0.38 per share
for the same period in 1998, an increase in net earnings of 5.9% and an increase
in earnings per share of 13.2%.
Net Sales. Net sales for the twenty-six weeks ended May 1, 1999 were
$71.1 million, an increase of 15.2% over net sales of $61.7 million recorded for
the same period of 1998. Net sales increased due to growth in the national
accounts and office markets and the Howe acquisition which were partially offset
by lower casegoods sales. This was following Falcon's previous decision to exit
the hotel casegoods market.
Costs and Expenses. Cost of sales was $50.5 million for the twenty-six
weeks ended May 1, 1999, an increase of 14.6% from $44.1 million for the same
period in 1998. The overall increase is primarily related to the increased sales
volume. Gross margin increased to $20.6 million for the twenty-six weeks ended
May 1, 1999, a 16.5% increase from $17.7 million for the same period in 1998.
Gross margin as a percentage of net sales increased to 29.0% in 1999 from 28.6%
in 1998. The higher gross margin percentage in the twenty-six weeks ended May 1,
1999 was due primarily to the increased Howe sales and lower sales of casegoods,
which was partially offset by operating inefficiencies in the City of Industry,
California and Tijuana, Mexico facilities.
Selling, general and administrative expenses were $13.8 million for the
twenty-six weeks ended May 1, 1999, compared to $11.8 million for the same
period in 1998, a 17.1% increase. The overall increase is primarily due to the
Howe acquisition and increased selling costs, customer support costs, and
increased marketing expenditures related to the higher sales volume. Selling,
general and administrative expenses as a percentage of net sales increased to
19.5% in the twenty-six weeks ended May 1, 1999, as compared to 19.1% in the
same period of 1998. The increase in expense rate is primarily due to additional
management bonus program expense and increased telephone costs.
Net interest expense was $0.6 million for the twenty-six weeks ended
May 1, 1999, versus net interest income of $7,000 for the same period in 1998.
Financing costs associated with the Howe acquisition caused the change from
interest income to interest expense. Income tax expense was $2.3 million for the
twenty-six weeks ended May 1, 1999 and May 2, 1998, respectively.
Comparison of Fiscal Years 1996, 1997 and 1998
Net Earnings. 1998 net earnings from continuing operations increased to
$6.4 million, or $0.68 per share, from $4.9 million, or $0.50 per share in 1997,
an increase in earnings and earnings per share of 28.9% and 36.0%, respectively.
In 1998, net earnings were $6.4 million, compared to $12.6 million in 1997, a
decrease of 49.7%. Net earnings per share were $0.68 in 1998, compared with
$1.28 in 1997, a 46.9% decrease. The decrease was primarily due to the gain
recognized from the sale of the William Hodges division in 1997.
Excluding the special and nonrecurring items reported in both 1998 and
1997, net earnings from continuing operations were $8.6 million, or $0.92 per
share, compared to $7.2 million, or $0.73 per share, in 1997; an increase in
earnings of 18.8% and an increase in earnings per share of 26.0%.
Net earnings totaled $12.6 million in 1997, compared to $8.4 million in
1996, an increase of 49.8%. Earnings per share reached $1.28 in 1997, compared
with $0.86 in 1996, a 48.8% increase. The increase is due primarily to an
after-tax gain on the sale of the William Hodges division of $6.8 million, or
$0.69 per share, offset partially by an after-tax charge of $2.3 million, or
$0.23 per share, for costs associated with the strategic initiatives undertaken
in 1997. Excluding the one-time gain on the sale and the restructuring charge
for the strategic initiatives, 1997 net earnings were $7.2 million, or $0.73 per
share, compared to $7.0 million, or $0.71 per share, in 1996; increases of 3.1%
and 1.4%, respectively.
Net Sales. In 1998, net sales from continuing operations were $143.4
million, an increase of 26.9% over 1997 net sales of $113.0 million. The sales
increase over the prior year is primarily the result of acquiring Howe Furniture
Corporation and increasing sales to the hospitality market.
Net sales from continuing operations in 1997 were $113.0 million, an
increase of 12.2% over 1996 net sales of $100.7 million. The sales increase over
the prior year primarily resulted from increased sales to the hospitality
market, from strong sales of office furniture products through Falcon's Flight
network of office furniture dealers and directly to end-users and from the
acquisition of The Chair Source in late 1996. The 1997 fiscal year included 52
weeks compared with 53 weeks in 1996, which partially offset the increase in
sales.
A decline in sales from Falcon's food service market unfavorably
affected sales as several of our major customers in this market segment opened
significantly fewer new stores in 1997 than in 1996.
Falcon's continued concentration of resources on sales and marketing
programs and new product introductions favorably affected its strong sales
results for both 1998 and 1997. During 1997, Falcon increased the number of
direct sales representatives that are selling its products from 40 to 48
representatives and during 1998, to further increase the effectiveness of direct
sales representatives, efforts were redirected to have a more specialized market
focus.
Costs and Expenses. Falcon's fiscal year 1998 and 1997 reported
operating results each included special and nonrecurring items associated with
various strategic initiatives Falcon has undertaken making direct comparisons of
reported results difficult.
During 1998, Falcon recorded a $4.7 million pre-tax charge, $2.9
million after-tax or $0.32 per share, related to management's decision to
discontinue Falcon's hotel casegoods line of business. The charge entails the
writedown of assets, including inventories, equipment and goodwill, associated
with the product line located in the Tijuana, Mexico facility. Cost of sales
includes a $3.3 million pre-tax charge to write-down the carrying value of
inventory. Falcon reported remaining components of the charge in special and
nonrecurring items on the consolidated statement of earnings.
Also during 1998, Falcon recorded a $1.3 million pre-tax gain, $0.8
million after-tax or $0.09 per share, on the sale of Falcon's corporate
headquarters building. Falcon reported the gain in special and nonrecurring
items on the consolidated statement of earnings.
During 1997, Falcon recorded a pre-tax charge of $3.7 million, $2.3
million after-tax or $0.23 per share, for charges associated with the announced
consolidation of Falcon's manufacturing operations at its Anaheim, California
and Belding, Michigan facilities into its City of Industry, California facility
and the elimination of several duplicative and nonperforming wood seating
product lines. Falcon reported these charges in special and nonrecurring items
on the consolidated statement of earnings.
During the fourth quarter of 1998, Falcon recorded additional pre-tax
charges of $0.2 million, $0.1 million after-tax or $0.01 per share, related to
the consolidation of Falcon's manufacturing facilities that was announced in
1997. Falcon reported these charges in special and nonrecurring items on the
consolidated statement of earnings.
In 1998, Falcon's gross margin increased to $40.1 million from $29.8
million in 1997, a 34.5% increase which was primarily due to increased sales
volume. Gross margin as a percent of sales, excluding the special and
nonrecurring items, increased to 30.4% in 1998 from 29.7% in 1997. The increase
was primarily due to product mix and incremental sales from the Howe
acquisition, which maintained a higher gross margin percentage than Falcon's
historical business. In addition, during the first half of 1998, Falcon
consolidated the Belding, Michigan and Anaheim, California facilities into the
City of Industry, California facility to benefit from economies of scale and
further reduce its fixed overhead costs. During the fourth quarter of 1998,
Falcon began to exit the hotel casegoods market which began to have a favorable
impact on the gross margin percentage during the quarter.
Falcon's gross margin decreased to $29.8 million in 1997 from $31.6
million in 1996, a 5.6% decrease primarily due to the special and nonrecurring
items reported in 1997. Gross margin as a percentage of sales, excluding the
special and nonrecurring items, was 29.7%, a decrease from 31.4% in 1996. The
decrease was primarily due to costs associated with the development of casegood
products manufactured at Falcon's Tijuana, Mexico and Czech Republic plants.
Demand for Falcon's lodging product exceeded capacity of the Tijuana plant
causing Falcon to outsource certain product components at a higher cost. Falcon
has since more than doubled the capacity of the Tijuana facility.
Selling, general and administrative expenses were $29.5 million, $22.0
million and $20.5 million in 1998, 1997 and 1996, respectively. The overall
increase is principally related to the aforementioned acquisitions, higher level
of business and increased sales and marketing programs including salaries,
commissions, travel and literature. As a percentage of net sales, the expense
rate was 20.6% in 1998, 19.5% in 1997 and 20.3% in 1996. The increase in the
expense rate in 1998 is primarily due to the Howe acquisition which previously
maintained a higher expense rate than Falcon.
The decrease in the expense rate in 1997 is primarily due to
efficiencies of higher sales volume, the impact of cost reduction programs, and
lower expenses under Falcon's management bonus program.
Interest and Taxes. Net interest expense was $619,000 in 1998, compared
to net interest income of $139,000 in 1997 and $95,000 in 1996. The interest
expense in 1998 was due to outstanding borrowings as a result of the Howe
acquisition, while the increase in interest income during 1997 was due primarily
to interest received on the proceeds from the sale of the William Hodges
division in late 1997.
Income tax expense was $3.7 million, $3.0 million and $4.3 million in
1998, 1997 and 1996, respectively. The effective income tax rate was 36.8% in
1998, and 38.0% in 1997 and 1996.
Results of Operations--Shelby Williams
The following table presents certain information relating to the
continuing operations of Shelby Williams, expressed as a percentage of net sales
for the last three years:
<TABLE>
<CAPTION>
Fiscal year ended Three months
December 31, ended March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Results as a Percentage of
Net Sales:
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 76.9 76.6 76.2 77.8 79.0
------ ----- ---- ----- -----
Gross margin........................... 23.1 23.4 23.8 22.2 21.0
Selling, general and administrative
expenses............................. 14.8 14.1 13.8 13.8 12.9
------ ----- ----- ----- -----
Operating profit....................... 8.3 9.3 10.0 8.4 8.1
Interest income (expense), net......... (0.6) -- 0.1 0.2 0.1
------ ----- ----- ------ ------
Income from continuing operations
before income taxes.................. 7.7 9.3 10.1 8.6 8.2
Income tax expense..................... 2.5 3.2 3.7 3.2 3.0
------ ------ ------ ------ ------
Income from continuing operations...... 5.2% 6.1% 6.4% 5.4% 5.2%
====== ====== ====== ====== ======
</TABLE>
Comparison of Fiscal Quarters Ending March 31, 1998 and 1999
Net income. Net income was $2.3 million in the first quarter of 1999,
and $2.1 million in 1998. Net income per share was $0.26 in 1999, and $0.23 in
1998, an increase of 13.0%.
Net Sales. Net sales for the first quarter of 1999 were $43.1 million,
an increase of 12.1% over the 1998 first quarter net sales of $38.5 million. The
increase was primarily due to continued strong demand in the hotel and food
service market which was partially offset by reduced sales in the healthcare and
university market.
Costs and Expenses. Cost of goods sold was $34.1 million for the 1999
first quarter, an increase of 13.9% from $29.9 million in the first quarter of
1999. The overall increase was primarily due to increased sales volume. The
gross margin increased to $9.0 million for the first quarter of 1999, an
increase of 5.8% from $8.6 million in the same quarter of 1998. Gross margin as
a percentage of net sales decreased to 21.0% in 1999 from 22.2% in 1998. The
lower gross margin percentage during the first quarter of 1999 was due primarily
to increased sales of upholstered products, which carry lower gross margins, in
addition to lower sales in the healthcare and university market.
Selling, general and administrative expenses were $5.5 million in the
first quarter of 1999, compared to $5.3 million in the first quarter of 1998, a
4.6% increase. As a percentage of net sales, selling, general and administrative
expense decreased to 12.9% in 1999 from 13.8% in 1998. This decrease was
primarily due to higher sales volume and continued scrutiny of related expenses.
Comparison of Fiscal Years Ending 1997 and 1998
Gross Profit. Gross profit increased 7.1% to $39.5 million in 1998 from
$36.9 million in 1997. The gross profit margin increased to 23.8% in 1998,
compared to 23.4% in 1997, reflecting higher factory utilization rates and
improved productivity resulting from recent investments in automated machinery.
Net Sales. Net sales increased 5.2% to $165.9 million in 1998 from
$157.8 million for 1997. This increase was due almost entirely to volume
increases. Volume growth was primarily attributable to continued robust activity
in the hospitality and food service markets. Shelby Williams' products sold in
these markets include virtually all of its hotel and food service furniture,
which amounted to $126.7 million in 1998, or a 7.7% increase from the prior
year, and most of its wallcoverings, which increased 3.5% to $15.7 million.
Reflecting consolidation within the healthcare industry in 1998, sales of
healthcare and university furniture declined 5.6% to $23.5 million.
Even though there were ongoing economic difficulties in the export
markets served by Shelby Williams, its overall business remains strong. In 1998,
export sales decreased $2.7 million, or 16.1%, from 1997. Shelby Williams'
position as market leader abroad leaves management confident that it will garner
a significant share of export business as the international situation
normalizes, although there can be no assurance in this regard. Shelby Williams'
backlog of unshipped orders at December 31, 1998 increased 7.5%, to a year-end
record of $34.2 million, compared to $31.8 million a year earlier.
Costs and Expenses. Selling, general and administrative expenses
increased 3.3% to $23.0 million in 1998 from $22.3 million in 1997. As a
percentage of net sales, selling, general and administrative expenses decreased
to 13.9% in 1998 from 14.1% in 1997, principally due to function of volume.
As a result of the factors described above, operating profit increased
12.9% to $16.6 million in 1998 from $14.7 million in 1997. The operating margin
improved to 10.0% in 1998 compared to 9.3% in 1997.
Net interest income of $0.1 million in 1998, contrasted to net interest
expense of almost nil in 1997, reflects the reduction in outstanding
indebtedness to $3.0 million at December 31, 1998 from $7.0 million at December
31, 1997.
The effective tax rate increased to 36.8% in 1998 from 34.4% in 1997
primarily due to increased state income taxes resulting, in part, from the
effect of reduced export sales and loss of federal income tax benefits also
related to export sales.
As a result of the foregoing, income from continuing operations
increased 9.7% to $10.6 million in 1998, or $1.17 per share, compared to $9.7
million, or $1.05 per share in 1997.
During the second quarter of 1998, Shelby Williams recorded a loss on
the disposition of the discontinued operations of $9.7 million, or $7.1 million
after taxes. These operations did not make a contribution to profits in 1998,
and management believed they offered limited upside potential. The losses
recorded on the disposition of these operations were not materially different
from those incurred on the actual amounts realized in the sale and liquidation
process. See Note to Shelby Williams' Consolidated Financial Statements
captioned "Discontinued Operations 1997 Compared to 1996." This comparison
reflects restatement for operations discontinued in 1998.
Comparison of Fiscal Years Ending 1996 and 1997
Gross Profit. Gross profit increased 7.1% to $36.9 million in 1997 from
$34.5 million in 1996. The gross profit margin increased to 23.4% in 1997,
compared to 23.1% in 1996, reflecting higher capacity utilization and favorable
product mix.
Net Sales. Net sales increased 5.6% to $157.8 million in 1997 from
$149.5 million in 1996. Shelby Williams divested its contemporary upholstered
seating product line, Preview, and a related manufacturing facility in August
1996. See Note to Shelby Williams' Consolidated Financial Statements captioned
"Restructuring Charge." Excluding Preview, net sales increased 9.9% to $157.8
million in 1997 from $143.6 million in 1996. Approximately 2% of this increase
was due to increased pricing and favorable product mix with the remainder
attributable to volume increases. Efforts to strengthen foreign marketing
capability resulted in increased export sales for 1997 to $16.9 million,
compared to $14.5 million in 1996. The demand for hotel rooms across the United
States remained strong in 1997. As a result, lodging companies continued to
build new hotels and refurbish older ones in order to remain competitive. New
construction and refurbishing of hotels provide a market for Shelby Williams'
products, allowing it to benefit from this major industry expansion. Sales of
these products increased from 1996 to 1997 by 3.8%, or 9.4% excluding Preview,
to $117.7 million for hotel and food service furniture, and 9.3% to $15.2
million for wall coverings. Sales of healthcare and university furniture also
increased from 1996, amounting to $24.9 million for 1997, or an increase of
12.3%. At December 31, 1997, Shelby Williams' backlog of unshipped orders was
approximately $31.8 million, compared to $30.7 million at December 31, 1996.
Costs and Expenses. Selling, general and administrative expenses were
$22.3 million in 1997 and $22.1 million in 1996. As a percentage of net sales,
selling, general and administrative expenses decreased to 14.1% in 1997 from
14.8% in 1996. This decrease as a percentage of net sales was a function of
volume and reflects the high selling, general and administrative expenses of
Preview.
As a result of the factors described above, operating profit increased
18.4% to $14.7 million in 1997 from $12.4 million in 1996. The operating margin
improved to 9.3% in 1997 compared to 8.3% in 1996. Excluding Preview, operating
profits in 1997 and 1996 were $14.7 million and $12.2 million, respectively, and
as a percentage of sales, were 9.3% and 8.5%, respectively.
Net interest expense in 1996 of $1.0 million was reduced to almost nil
in 1997 as a result of reduced debt and increased cash equivalents.
The effective tax rate increased to 34.4% in 1997 from 32.4% in 1996
due to the absence of tax credits which were no longer available.
As a result of the foregoing, income from continuing operations for
1997 was $9.7 million, a 24.8% increase over $7.8 million for 1996. Income per
share from continuing operations increased 19.3% to $1.05 from $0.88 on 4.5%
more average shares outstanding.
Pro Forma Liquidity and Capital Resources
Our primary liquidity requirements are to pay our debt (including our
interest expense) under the Senior Secured Credit Facilities and the New Notes,
and to provide working capital, product development and other capital
expenditures, and possibly to fund acquisitions. Falcon historically funded
these requirements through internally generated cash flow. Shelby Williams
historically funded its requirements through internally generated cash flow and
short-term bank borrowings. As of May 1, 1999, on a pro forma basis after giving
effect to the Transactions, our consolidated indebtedness would have been $172.1
million, consisting of $70.0 million under the term loan facility, $100.0
million in New Notes and $2.1 million in other indebtedness.
Capital expenditures were $3.0 million for the first twenty-six weeks
of fiscal year 1999 compared to $6.4 million for the same period in 1998.
Capital expenditures for fiscal year 1998 were $10.6 million compared to $7.4
million for the same period in 1997.
We have budgeted total capital expenditures for fiscal 1999 and 2000 of
approximately $7.9 million and $9.1 million, respectively. We estimate that,
upon completion of our integration of Shelby Williams into Falcon, the annual
capital expenditures required to maintain our facilities will be between $9.6
million and $10.7 million per year. Our ability to make capital expenditures is
subject to certain restrictions under the Senior Secured Credit Facilities. See
"Description of the Senior Secured Credit Facilities."
We expect to incur approximately $7.5 million of non-recurring cash
costs to integrate Shelby Williams into Falcon by reducing excess manufacturing
capacity through consolidating and improving the utilization of manufacturing
facilities.
Our principal source of cash to fund our liquidity needs will be net
cash from operating activities and borrowings under the Senior Secured Credit
Facilities. The Senior Secured Credit Facilities are comprised of a six-year
revolving credit facility of up to $50.0 million and a six year term loan in the
principal amount of $70.0 million, each subject to fluctuating rates of
interest. The Senior Secured Credit Facilities are subject to certain financial
and operational covenants and other restrictions, including among others, a
requirement to maintain certain financial ratios and limitations on our
liability to incur additional indebtedness. See "Description of the Senior
Secured Credit Facilities."
As of May 1, 1999, on a pro forma basis after giving effect to the
Transactions, the Revolving Credit Facility would have provided $50.0 million of
additional borrowings available to be drawn, subject to the satisfaction of
customary conditions. We may use amounts available under the Revolving Credit
Facility for working capital and general corporate purposes (including to fund
possible acquisitions), subject to certain limitations under the Senior Secured
Credit Facilities. Assuming the successful implementation of our integration
plan, we believe that these funds will be sufficient to meet our current and
future financial obligations, including the payment of principal and interest on
the New Notes, working capital, capital expenditures and other obligations. We
can give no assurance, however, that this will be the case. Our future operating
performance and ability to service or refinance the New Notes and to repay,
extend or refinance the Senior Secured Credit Facilities will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond our control. See "Risk Factors."
Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting guidance for the capitalization of certain internal-use software
costs once certain criteria are met. This accounting standard will be effective
for the Company beginning November 1, 1999. The adoption of SOP 98-1 is not
expected to have a material impact on the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133
provides comprehensive and consistent standards for the recognition and
measurement of derivative and hedging activities. It requires that derivatives
be recorded on the consolidated balance sheets at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges of variable cash flows of forecasted transactions and hedges
of foreign currency exposures of net investments in foreign operations. Changes
in the fair value of derivatives that do not meet the criteria for hedges would
be recognized in the consolidated statement of earnings. This statement will be
effective for the Company beginning November 1, 2000. The adoption of SFAS No.
133 is not expected to have a material impact on the Company.
Inflation
We do not believe that inflation has had a material effect on past
results of operations of either Falcon or Shelby Williams.
Year 2000 Readiness Disclosure
Falcon. The year 2000 issue refers to the inability of a date-sensitive
computer program to recognize a two-digit date field designated "00" as the year
2000. Mistaking "00" for 1900 could result in a system failure or
miscalculations causing disruptions to operations, including manufacturing, a
temporary inability to process transactions, send invoices or engage in other
normal business activities. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty.
During 1998, Falcon began the process of addressing its year 2000
issues. The process includes six steps: (1) plan, (2) inventory, (3) assess, (4)
remediate, (5) test and (6) develop contingency plans. The planning phase was
completed during 1998 and resulted in the year 2000 issues being managed around
four functional areas. The functional areas that were identified are business
applications, supply chain, information technology (IT) technical infrastructure
and customer issues.
Falcon inventoried and assessed its business applications during 1998.
At that time, Falcon determined that its current main application software,
Computer Associates PRMS package, was not year 2000 compliant. A year 2000
compliant software upgrade version is available and in-house. Based upon the
complexity, number of modifications and custom programming, the installation of
the upgrade is a major project. The total number of hours required to implement
and test the upgrade is estimated to be approximately 4,000 man hours. It is
currently estimated that this project will be completed by September 1999.
Falcon has identified those companies in the supply chain which provide
materials, products or services that are critical to Falcon's operations.
Critical suppliers' year 2000 issues are being assessed through the use of
questionnaires and other inquiries.
The IT technical infrastructure area is primarily comprised of desktop
computer workstations and software, computer networking infrastructure, host
server systems and telecommunication systems. The inventory and assessment of
known long lead-time items has been completed. Major projects are identified and
are scheduled for completion during 1999. An exhaustive and comprehensive
follow-up investigation of this area is underway to assure no critical
components have been overlooked.
Falcon has been working with customers to address their year 2000
concerns regarding Falcon's ability to operate. Any plans to address the ability
of our significant customers to accept our products after December 31, 1999,
will be determined as contingency plans are developed.
Falcon intends to perform integrated year 2000 testing of critical
systems in all functional areas during the second quarter of 1999. Given the
nature of Falcon's manufacturing and other operations, full-scale integrated
testing may not be practical in some areas and, therefore, may be limited in
scope to avoid significant disruption of Falcon's operations. Statements of
compliance from vendors and other compliance evidence are expected to mitigate
the risk of not performing integrated testing in those areas.
<PAGE>
The development of contingency arrangements for all functional areas is
early in the planning stage. Plans will include procedures that attempt to
minimize the impact of any unremediated and unresolved year 2000 issues on
Falcon's operations and financial position. Initial plans are expected to be
complete by mid-1999 and will continue to be refined as developments warrant.
As of May 1, 1999, Falcon has incurred approximately $0.2 million in
costs related to year 2000 work. Additional costs to evaluate and remediate the
remaining issues are currently estimated to be in the range of $0.1-$0.5 million
and will be expensed as incurred during 1999.
Based on the status of Falcon's work to address its year 2000 issues,
management does not expect the year 2000 issue to pose significant operational
problems for Falcon. However, if the software upgrade is delayed or the
remediation of other issues is not completed timely, the year 2000 could have a
material adverse effect on Falcon, depending on the nature and extent of any
remaining non-compliance. Furthermore, if Falcon's customers and suppliers fail
to rectify year 2000 issues in their own systems, the resultant effect on Falcon
may be material. Management anticipates that the most reasonably likely
worst-case scenario would involve a temporary shutdown of certain operations.
Through the development of contingency plans, Falcon expects to mitigate the
effect that any such temporary shutdowns would have on Falcon or third parties.
The estimated costs and date of completion of year 2000 remediation are
based on management's best estimates, which were derived from numerous
assumptions about future events. These assumptions include the availability of
certain resources, third-party modification plans and other factors. There can
be no guarantee that these estimates will be achieved and actual results could
differ materially. Specific factors that might cause material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to identify and correct all relevant computer codes,
and the cost and availability of replacements for devices with embedded chips.
Shelby Williams. Shelby Williams does not have a significant amount of
date-dependent software programs in its centralized information systems. Other
systems, such as computer controlled machinery and even telephones may have year
2000 problems with their computer chips. Shelby Williams' manufacturing
operations are not significantly dependent on computer controlled machinery.
Shelby Williams has inventoried all computer controlled equipment and assessed
the exposure of each system to ensure all computer controlled equipment is year
2000 compliant. Based upon this review, Shelby Williams believes that all
critical equipment is compliant.
Shelby Williams has completed an assessment of its centralized
information system and has modified or replaced portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The project, according to plan, has been completed. The
year 2000 project cost was approximately $0.2 million of which approximately
$0.1 million was capitalized and the remainder expensed.
Shelby Williams believes that with modifications to existing software
which have been completed and conversions to new software which have been made,
the year 2000 issue will not pose significant operational problems for its
computer systems. However, actual results could differ from those anticipated
and have a material impact on operations. In addition, disruptions in the
general economy resulting from year 2000 issues could also materially adversely
affect Shelby Williams. The amount of potential lost revenue and additional cost
cannot be reasonably estimated at this time. Shelby Williams has contingency
plans for certain critical applications. These contingency plans involve, among
other actions, manual workarounds and adjusting staffing strategies.
Shelby Williams' centralized information systems do not interface with
third-party systems. Shelby Williams has queried its significant suppliers, all
of whose products are available from alternative sources. To date, Shelby
Williams is not aware of any supplier with a year 2000 issue that would
materially impact Shelby Williams' results of operations, liquidity, or capital
resources. However, there is no assurance that its suppliers will be year
2000-compliant. The inability of suppliers to complete their year 2000
resolution process in a timely fashion could materially impact Shelby Williams,
the effect of which is not determinable.
European Monetary Union
On January 1, 1999, eleven member countries of the European Union
adopted the Euro as their common legal currency. Effective that date, conversion
rates between the existing sovereign currency (legacy currency) of each of these
participating countries and the Euro will be irrevocably fixed, and the Euro
will be available for non-cash transactions. The legacy currencies of these
countries will remain legal tender during a transition period from January 1,
1999 to January 1, 2002. During this transition period, parties may pay for
goods and services using either the Euro or the relevant legacy currency.
Currency conversion will be performed using a method whereby one legacy currency
is converted to the Euro and then to the second legacy currency. The conversion
to the Euro will be completed in July 2002 when the legacy currencies of the
participating member countries cease to be legal tender.
While the conversion to the Euro is expected to increase cross-border
price transparency, and therefore stimulate cross-border competition within the
single currency zone created by the participating countries, the effect on the
price of raw materials that the Company purchases is expected to generally
offset the effect on the finished products it sells. In addition, the conversion
to the Euro is expected to have the positive effect of eliminating currency risk
in cross-border sales.
The Company will have a team in place to identify issues arising from
the implementation of the Euro, plan for the changeover, and communicate with
customers, suppliers, and employees. Information systems will be updated to
allow the method of currency conversion to the requisite number of decimal
places in a timely fashion. If the updates are not ready, currency conversion
will be accomplished manually or through outsourcing until the updates are
installed. The cost of the technological updates or any interim measures is not
expected to be material.
For the reasons stated above, management does not expect the
introduction of the Euro to have a material effect on the Company's business,
financial condition, or results of operations. If cross-border price
transparency causes the markets from which the Company purchases raw materials
or to which it sells finished products to behave differently than management
expects, the introduction of the Euro could have a material effect on the
Company.
<PAGE>
THE EXCHANGE OFFER
General
We sold the Original Notes on June 17, 1999 in a transaction exempt
from the registration requirements of the Securities Act of 1933 as amended (the
"Securities Act"). The initial purchaser of the Original Notes subsequently
resold such notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act.
In connection with the sale of Original Notes to the initial purchaser
pursuant to the Purchase Agreement, dated June 14, 1999, among us and Donaldson,
Lufkin & Jenrette Securities Corporation, the holders of the Original Notes
became entitled to the benefits of the exchange and registration rights
agreement dated June 14, 1999 among us and the initial purchaser.
Under the registration rights agreement, we became obligated to file a
registration statement in connection with an exchange offer within 75 days after
the issue date and cause the exchange offer registration statement to become
effective within 150 days after the issue date. The exchange offer being made by
this prospectus, if consummated within the required time periods, will satisfy
our obligations under the registration rights agreement. This prospectus,
together with the letter of transmittal, is being sent to all beneficial holders
known to us.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we will accept all
Original Notes properly tendered and not withdrawn prior to the expiration date.
We will issue $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Original Notes accepted in the exchange offer.
Holders may tender some or all of their Original Notes pursuant to the exchange
offer.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, we believe that holders of the New Notes
issued in exchange for Original Notes may offer for resale, resell and otherwise
transfer the New Notes, other than any holder that is an affiliate of ours
within the meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery provisions of the Securities Act. This
is true as long as the New Notes are acquired in the ordinary course of the
holder's business, the holder has no arrangement or understanding with any
person to participate in the distribution of the New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. A broker-dealer that acquired Original Notes
directly from us cannot exchange the Original Notes in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the New Notes cannot rely on the no-action letters of the staff
of the Securities and Exchange Commission and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction.
Each broker-dealer that receives New Notes for its own account in
exchange for Original Notes, where Original Notes were acquired by such
broker-dealer as a result of market-making 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" for additional information.
We shall be deemed to have accepted validly tendered Original Notes
when, as and if we have given oral or written notice of the acceptance of such
notes to the exchange agent. The exchange agent will act as agent for the
tendering holders of Original Notes for the purposes of receiving the New Notes
from the issuer and delivering New Notes to such holders.
If any tendered Original Notes are not accepted for exchange because of
an invalid tender or the occurrence of the conditions set forth under "--
Conditions" without waiver by us, certificates for any such unaccepted Original
Notes will be returned, without expense, to the tendering holder of any such
Original Notes as promptly as practicable after the expiration date.
Holders of Original Notes who tender in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
Original Notes, pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes in connection with the exchange
offer. See "--Fees and Expenses."
Shelf Registration Statement
If (1) applicable law or interpretations of the staff of the Securities
and Exchange Commission are changed so that the New Notes received by holders
who make all of the necessary representations in the letter of transmittal are
not or would not be, upon receipt, transferable by each such holder without
restriction under the Securities Act, or (2) any holder of Original Notes which
are Transfer Restricted Securities notifies the Company prior to the 20th
business day following the consummation of the exchange offer that (a) it is
prohibited by law or SEC policy from participating in the exchange offer, (b) it
may not resell the New Notes acquired by it in the exchange offer to the public
without delivering a prospectus, and the prospectus contained in the exchange
offer registration statement is not appropriate or available for such resales by
it, or (c) it is a broker-dealer and holds Original Notes acquired directly from
the Company or any of the Company's affiliates, we will, at our cost:
File a shelf registration statement covering resales of the Original
Notes,
Use our reasonable best efforts to cause the shelf registration
statement to be filed under the Securities Act at the earliest possible
time, but no later than 30 days after the time such obligation to file
arises, and
Use our reasonable best efforts to keep effective the shelf
registration statement until the earlier of two years after the date as
of which the Securities and Exchange Commission declares such shelf
registration statement effective or the shelf registration otherwise
becomes effective, or such shorter period as will terminate when all
Transfer Restricted Securities covered thereby have been sold pursuant
thereto.
"Transfer Restricted Securities" means each Original Note or New Note
until the earliest on the date of which (1) such note is exchanged in the
exchange offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Securities
Act, (2) such note has been disposed of in accordance with the shelf
registration statement, (3) such note is disposed of by a broker-dealer pursuant
to the "Plan of Distribution" contemplated herein (including delivery of the
prospectus contained therein) or (4) such note is distributed to the public
pursuant to Rule 144 under the Securities Act.
We will, if and when we file the shelf registration statement, provide
to each holder of the Original Notes copies of the prospectus which is a part of
the shelf registration statement, notify each holder when the shelf registration
statement has become effective and take other actions as are required to permit
unrestricted resales of the Original Notes. A holder that sells Original Notes
pursuant to the shelf registration statement generally must be named as a
selling security-holder in the related prospectus and must deliver a prospectus
to purchasers, a seller will be subject to civil liability provisions under the
Securities Act in connection with these sales. A seller of the Original Notes
also will be bound by applicable provisions of the registration rights
agreement, including indemnification obligations. In addition, each holder of
Original Notes must deliver information to be used in connection with the shelf
registration statement and provide comments on the shelf registration statement
in order to have its Original Notes included in the shelf registration statement
and benefit from the provisions regarding any liquidated damages in the
registration rights agreement.
Liquidated Damages
If we are required to file the shelf registration statement and either
(1) if the exchange offer is not consummated on or before the 30th
business day after this registration statement is declared effective;
(2) if obligated to file the shelf registration statement and the
Company and the Guarantors fail to file the shelf registration statement with
the SEC on or prior to the 30th day after such filing obligation arises;
(3) if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or prior to the 60th day
after the obligation to file a shelf registration statement arises; or
(4) if the exchange offer registration statement or the shelf
registration statement, as the case may be, is declared effective but thereafter
ceases to be effective or useable in connection with resales of the Transfer
Restricted Securities, for such time of non-effectiveness or non-usability
(each, a "Registration Default"),
then the Company and the Guarantors agree to pay to each holder of Transfer
Restricted Securities affected thereby liquidated damages ("Liquidated Damages")
in an amount equal to $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
Liquidated Damages shall increase by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week per $1,000 in principal
amount of Transfer Restricted Securities. The Company and the Guarantors shall
not be required to pay Liquidated Damages for more than one Registration Default
at any given time. Following the cure of all Registration Defaults, the accrual
of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Company or the
Guarantors to holders entitled thereto in the same manner in which interest is
payable to holders under the Indenture.
The sole remedy available to the holders of the Original Notes will be
the as described above. Any amounts of additional interest due as described
above will be payable in cash on the same interest payments dates as the
Original Notes.
Expiration Date; Extensions; Amendment
The term "expiration date" means 12:00 midnight, New York City time, on
____________________, 1999, unless we extend the exchange offer, in which case
the term "expiration date" means the latest date to which the exchange offer is
extended.
In order to extend the expiration date, we will notify the exchange
agent of any extension by oral or written notice and will issue a public
announcement of the extension, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
We reserve the right
(a) to delay accepting of any Original Notes, to extend the
exchange offer or to terminate the exchange offer and not accept
Original Notes not previously accepted if any of the conditions set
forth under "--Conditions" shall have occurred and shall not have been
waived by us, if permitted to be waived by us, by giving oral or
written notice of such delay, extension or termination to the exchange
agent, or
(b) to amend the terms of the exchange offer in any manner deemed
by us to be advantageous to the holders of the Original Notes.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we promptly will disclose such amendment in a manner reasonably calculated to
inform the holders of the Original Notes of such amendment. Depending upon the
significance of the amendment, we may extend the exchange offer if it otherwise
would expire during such extension period.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer,
we will not be obligated to publish, advertise, or otherwise communicate any
such announcement, other than by making a timely release to an appropriate news
agency.
Procedures for Tendering
To tender in the exchange offer, a holder must complete, sign and date
the letter of transmittal, or a facsimile of the letter of transmittal, have the
signatures on the letter of transmittal guaranteed if required by instruction 3
of the letter of transmittal, and mail or otherwise delivery such letter of
transmittal or such facsimile in connection with a book entry transfer, together
with the Original Notes and any other required documents. To be validly
tendered, such documents must reach the exchange agent before 12:00 midnight New
York City time, on the expiration date. Delivery of the Original Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the exchange agent
prior to the expiration date.
The tender by a holder of Original Notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its
address set forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect such tender for
such holders.
The method of delivery of Original Notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery to the exchange agent before 12:00 midnight
New York City time, on the expiration date. No letter of transmittal or Original
Notes should be sent to us.
Only a holder of Original Notes may tender Original Notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name Original Notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder.
Any beneficial holder whose Original Notes are registered in the name
of its broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on its behalf. If such beneficial holder wishes
to tender on its own behalf, such registered holder must, prior to completing
and executing the letter of transmittal and delivering its Original Notes,
either make appropriate arrangements to register ownership of the Original Notes
in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States referred to
as an "eligible institution", unless the Original Notes are tendered: (a) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of transmittal;
or (b) for the account of an eligible institution. In the event that signatures
on a letter of transmittal or a notice of withdrawal, are required to be
guaranteed, such guarantee must be by an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by appropriate bond powers and a proxy which
authorizes such person to tender the Original Notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the Original Notes.
If the letter of transmittal or any Original 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 unless waived by us,
evidence satisfactory to us of their authority so to act must be submitted with
the letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, and withdrawal of the tendered Original Notes will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all Original Notes not properly
tendered or any Original Notes our acceptance of which, in the opinion of
counsel for us, would be unlawful. We also reserve the right to waive any
irregularities or conditions of tender as to particular Original Notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities In connection with tenders
of Original Notes must be cured within such time as we shall determine. None of
us, the exchange agent or any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Original
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Original Notes received
by the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost to
such holder by the exchange agent to the tendering holders of Original Notes,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, we reserve the right in our sole discretion to:
(a) purchase or make offers for any Original Notes that remain
outstanding subsequent to the expiration date or, as set forth
under "- Conditions," to terminate the exchange offer in
accordance with the terms of the registration rights agreements
and
(b) to the extent permitted by applicable law, purchase Original
Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ
from the terms of the exchange offer.
By tendering Original Notes pursuant to the exchange offer, each holder
will represent to us that, among other things,
(a) the New Notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of such holder,
(b) such holder is not engaged in and does not intend to engage in a
distribution of the New Notes,
(c) such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes, and
(d) such holder is not our "affiliate," as defined under Rule 405 of
the Securities Act, or, if such holder is such an affiliate, will
comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
Book-Entry Transfer
We understand that the exchange agent will make a request promptly
after the date of this prospectus to establish accounts with respect to the
Original Notes at the Depository Trust Company for the purpose of facilitating
the exchange offer, and subject to the establishment of such accounts, any
financial institution that is a participant in the Depository Trust Company's
system may make book-entry delivery of Original Notes by causing the Depository
Trust Company to transfer such Original Notes into the exchange agent's account
with respect to the Original Notes in accordance with the Depository Trust
Company's procedures for such transfer. Although delivery of the Original Notes
may be effected through book-entry transfer into the exchange agent's account at
the Depository Trust Company, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee, and all other
required documents must in each case be transmitted to and received or confirmed
by the exchange agent at its address set forth below on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to Depository Trust Company does not constitute delivery to the
exchange agent.
Guaranteed Delivery Procedures
Holders who wish to tender their Original Notes and
(a) whose Original Notes are not immediately available; or
(b) who cannot deliver their Original Notes, the letter of
transmittal or any other required documents to the exchange agent prior
to the expiration date, may effect a tender if
(1) the tender is made through an eligible institution;
(2) prior to the expiration date, the exchange agent
receives from such eligible institution a properly completed and
duly executed Notice of Guaranteed Delivery, by facsimile
transmission, mail or hand delivery, setting forth the name and
address of the holder of the Original Notes, the certificate
number or numbers of such Original Notes and the principal
amount of Original Notes tendered stating that the tender is
being made thereby, and guaranteeing that, within three business
days after the expiration date, the letter of transmittal, or
facsimile thereof, together with the certificate(s) representing
the Original Notes to be tendered in proper form for transfer
and any other documents required by the letter of transmittal
will be deposited by the eligible institution with the exchange
agent; and
(3) such properly completed and executed letter of
transmittal (or facsimile thereof) together with the
certificate(s) representing all tendered Original Notes in
proper form for transfer and all other documents required by the
letter of transmittal are received by the exchange agent within
three business days after the expiration date.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of Original
Notes may be withdrawn at any time prior to 12:00 midnight, New York City time,
on the expiration date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth in this prospectus by 12:00 midnight, New York
City time, on the expiration date. Any such notice of withdrawal must
(a) specify the name of the depositor, who is the person having
deposited the Original Notes to be withdrawn,
(b) identify the Original Notes to be withdrawn, including the
certificate number or numbers and principal amount of such Original
Notes or, in the case of Original Notes transferred by book-entry
transfer, the name and number of the account at Depository Trust
Company to be credited,
(c) be signed by the holder in the same manner as the original
signature on the letter of transmittal by which such Original Notes
were tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the trustee
with respect to the Original Notes register the transfer of such
Original Notes into the name of the depositor withdrawing the tender,
and
(d) specify the name in which any such Original Notes are being
registered if different from that of the depositor.
All questions as to the validity, form and eligibility, including time
of receipt, of such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no New Notes will be issued with respect to the Original
Notes withdrawn unless the Original Notes so withdrawn are validly retendered.
Any Original Notes which have been tendered but which are not accepted for
exchange will be returned to its holder without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn Original Notes may be retendered by following one of
the procedures described above under "Procedures for Tendering" at any time
prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange, any New Notes for any Original
Notes, and may terminate or amend the exchange offer before the expiration date,
if the exchange offer violates any applicable law or interpretation by the staff
of the Commission.
If we determine in our reasonable discretion that the foregoing
condition exists, we may (1) refuse to accept any Original Notes and return all
tendered Original Notes to the tendering holders, (2) extend the exchange offer
and retain all Original Notes tendered prior to the expiration of the exchange
offer, subject, however, to the rights of holders who tendered such Original
Notes to withdraw their tendered Original Notes, or (3) waive such condition, if
permissible, with respect to the exchange offer and accept all properly tendered
Original Notes which have not been withdrawn. If such waiver constitutes a
material change to the exchange offer, we will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the holders, and we
will extend the exchange offer as required by applicable law.
Pursuant to the registration rights agreement, if the exchange offer is
not consummated prior to the exchange offer termination date, as defined below,
we are required to cause to be filed with the Securities and Exchange Commission
a shelf registration statement with respect to the Original Notes as promptly as
practicable after the exchange offer termination date, and thereafter use its
best efforts to have the shelf registration statement declared effective.
"exchange offer termination date" means the date on which the earliest
of any of the following events occurs:
(a) applicable interpretations of the staff of the Securities and
Exchange Commission do not permit us to effect the exchange
offer,
(b) any holder of Original Notes or New Notes notifies us that either
(1) such holder is not eligible to participate in the exchange
offer, or
(2) such holder participates in the exchange offer and does not
receive freely transferable New Notes in exchange for tendered
Original Notes.
Exchange Agent
IBJ Whitehall Bank & Trust Company has been appointed as exchange agent
for the exchange offer. The Bank of New York, trustee under the Indenture under
which the New Notes will be issued, recently announced the signing of a
definitive agreement providing for its acquisition of IBJ Whitehall Bank & Trust
Company. Questions and requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
Reorganization Operations addressed as follows:
For information by Telephone:
(212) 858-2103
By Hand or Overnight Delivery Service.
One State Street
New York, New York 10004
Attn: Securities Processing Window
Subcellar One, (SC-1)
By Facsimile Transmission:
(212) 858-2611
(Telephone Confirmation)
(212) 858-2103
Fees and Expenses
We have agreed to bear the expenses of the exchange offer pursuant to
the exchange and registration rights agreement. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We, however, will pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer
will be paid by us. Such expenses include fees and expenses of IBJ Whitehall
Bank & Trust Company as exchange agent, accounting and legal fees and printing
costs, among others.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the
Original Notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us.
The expenses of the exchange offer and the unamortized expenses related to the
issuance of the Original Notes will be amortized over the term of the New Notes.
Consequences of Failure to Exchange
Holders of Original Notes who are eligible to participate in the
exchange offer but who do not tender their Original Notes will not have any
further registration rights, and their Original Notes will continue to be
subject to restrictions on transfer. Accordingly, such Original Notes may be
resold only:
- to us, upon redemption of the Original Notes or otherwise;
- so long as the Original Notes are eligible for resale pursuant to
Rule 144A under the Securities Act to a person inside the United
States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
- in accordance with Rule 144 under the Securities Act, or under
another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to us;
- outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act; or
- under an effective registration statement under the Securities
Act;
in each case in accordance with any applicable securities laws of any state of
the United States.
Regulatory Approvals
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
Other
Participation in the exchange offer is voluntary and holders of
Original Notes should carefully consider whether to accept the terms and
condition of this exchange offer. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take with respect to the exchange offer.
BUSINESS
Overview
Falcon is a leading supplier of furniture and related products for the
office, food service, hospitality (including gaming) and national accounts (the
100 largest restaurant chains in the United States) segments of the commercial
furniture market. Founded in 1959, Falcon believes that it has become a
nationally recognized supplier in this market due to its:
- superior customer service;
- broad range of innovative products;
- vertically integrated manufacturing capabilities;
- strong relationships with its network of distributors and dealers;
and
- high-quality products.
Falcon designs, manufactures and distributes an extensive line of
products, including table bases, table tops, metal and wood chairs, booths and
interior decor systems, all made to customer specifications in a variety of
styles and finishes. Falcon's products are marketed under its well-known brand
names, including Falcon(R), Howe(R), Johnson Tables(R), Charlotte(R) and Decor
Concepts(R). Falcon employs a geographically diverse network of direct and
independent sales representatives, independent office furniture dealers and
distributors to distribute its products, and markets its products to restaurant
supply dealers, original equipment manufacturers ("OEMs"), mass merchandisers,
chain restaurants, architectural and design firms and end-users. Major customers
of Falcon include McDonald's, Sam's Club, Burger King, Marriott International
and Price Costco.
On June 18, 1999, Falcon's recently formed, wholly owned subsidiary
merged into Shelby Williams. As a result, Shelby Williams became a wholly owned
subsidiary of Falcon. Shelby Williams is a leading supplier of seating products
for the hospitality (including gaming) and food service segments of the
commercial furniture market. Shelby Williams designs, manufactures and
distributes a broad range of seating products, including wood, metal and rattan
chairs, barstools, sofas and sleeper sofas, and stacking chairs, as well as
banquet-related products, including folding tables, food service carts and
portable dance floors. Shelby Williams' products are marketed under its
well-recognized brand names, including Shelby Williams(R), King Arthur(R),
Thonet(R) and Phillocraft(R). In addition, Shelby Williams designs and
manufactures vinyl wall coverings for the hospitality and home furnishing
segments under the Sellers & Josephson(R) brand name. Shelby Williams primarily
utilizes direct sales representatives and, to a lesser extent, independent
distributors to distribute its products and markets its products to hospitality
and food service chains, interior designers, architectural and design firms,
contract furniture, food service and office furniture dealers. Major customers
of Shelby Williams include Bass Hotels (Holiday Inn), Hilton Hotels, Marriott
International, Sheraton Hotels & Resorts, Mirage Resorts, Circus Circus and MGM
Grand.
Falcon believes that its Acquisition of Shelby Williams is advantageous
for many reasons, including:
- Shelby Williams is a leading supplier of seating products, and the
Acquisition will solidify the combined company's position as a premier
producer of commercial furniture;
- Shelby Williams has strengths which are complementary to those of
Falcon;
- Shelby Williams has many strong, well-recognized brand names;
- Falcon has significantly increased its size and geographic presence,
better enabling the combined company to serve its customers across the
United States and internationally as its customers expand and grow
their own operations;
- Shelby Williams has an experienced, well-established sales force with
long-standing customer relationships;
- The combined company has an opportunity to realize significant
manufacturing and operating efficiency gains; and
- The combined company has enhanced growth opportunities through the
potential for cross-selling Falcon's products with those of Shelby
Williams, and Falcon has gained access to new channels of
distribution.
On a pro forma basis after giving effect to the Acquisition of Shelby
Williams, our revenues for fiscal year 1998 and for the twenty-six weeks ended
May 1, 1999 would have been $306.9 million and $157.0 million, respectively, and
EBITDA for fiscal year 1998 and for the twenty-six weeks ended May 1, 1999 would
have been $37.0 million and $18.0 million, respectively. Revenues from our top
ten customers accounted for approximately 16.5% and 15.0% of pro forma revenues
in fiscal year 1998 and in the twenty-six weeks ended May 1, 1999, respectively.
In addition, no single customer accounted for greater than approximately 2.8%
and 2.6% of pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively.
The combination of Falcon and Shelby Williams strengthens our position
as a leading supplier of furniture and related products in the highly fragmented
commercial furniture market. We are a stronger competitor in our markets due to
the combination of Shelby Williams' strong brand names and long-standing
customer relationships with Falcon's vertically integrated manufacturing
capabilities and reputation for reliability, integrity and customer service. In
addition, the Acquisition of Shelby Williams gives us the size, market presence
and reputation to make us an attractive acquiror to many of the small,
privately-held companies in the commercial furniture market.
As a result of the Acquisition, we have significant opportunities to
leverage and strengthen our distribution capabilities to further penetrate
targeted markets. For example, Shelby Williams' strong relationships with the
architectural and design community and its hospitality segment customers
supplement Falcon's strong relationships with the office furniture dealer
community. We intend to utilize these relationships to aggressively market our
products to increase revenues.
The Acquisition also allows us to leverage excess manufacturing
capacity to rationalize the combined company's facilities and increase
company-wide efficiency. We expect that by increasing capacity utilization at
fewer manufacturing facilities we will benefit from reduced per unit costs
generated by spreading fixed manufacturing overhead costs over larger production
volumes. In addition, we will use our excess manufacturing capacity to
manufacture some components which were previously purchased by Shelby Williams
from third-party suppliers. We anticipate that we will benefit from increased
margins due to savings from eliminating the mark-ups currently being paid to
these third-party suppliers, as well as improving operating margins through
increased production volumes. For example, Falcon can utilize excess
manufacturing capacity at its Mimon, Czech Republic facility to produce wood
chairs which Shelby Williams currently imports from Europe from third-party
suppliers.
Industry Overview
We compete primarily in four segments of the commercial furniture
market, which represent only a portion of the overall retail and commercial
furniture market. These four segments are office, food service, hospitality
(including gaming) and national accounts (the 100 largest restaurant chains in
the United States). We estimate the market size of these segments totaled
approximately $4.0 billion in 1998.
The following table provides an overview of each of the four primary
market segments in which we compete.
Segment Estimated Size Description
(In millions)
Office................ $ 1,400 Tables and seating products with primary
end use markets, including corporate
offices, education, and conference and
training centers. Excludes panel systems,
filing systems and executive desks/
credenzas, which we do not produce.
Food service.......... 1,400 Table tops and table bases, metal and wood
chairs, booths, barstools and benches for
use by traditional "mom & pop" restaurants
to institutions serving food as an adjunct
to other core activities (e.g., school and
office cafeterias, prisons, nursing homes,
etc.).
Hospitality........... 700 Focuses on the furniture needs of
independent and chain hotels, motels,
conference resorts and casinos. Products
we manufacture for this segment include
table tops, table bases, metal and wood
chairs, millwork, folding tables, metal
and wood barstools, benches and booths.
These products can be found throughout a
customer's establishment (e.g., lounge,
bar area, restaurant, banquet/conference/
guest rooms).
National accounts..... 450 We define the national accounts segment as
the 100 largest restaurant chains in the
United States. The national accounts
segment includes quick service (i.e., fast
food) chains (e.g., McDonald's and Burger
King), casual dining restaurants (e.g.,
T.G.I. Friday's and Red Lobster) and quick
service lite restaurants (e.g., airport
Pizza Huts and Dunkin' Donuts).
Total................. $ 3,950
=======
In addition to the four market segments above, approximately 21.5% and
18.0% of our pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively, were derived from the healthcare, university,
OEM and retail segments, as well as vinyl wall covering sales.
Competitive Strengths
We believe that we have the following competitive strengths:
Market Leader. We are a leading supplier of seating and table-related
products in the office, food service, hospitality (including gaming) and
national accounts segments of the commercial furniture market. We believe that,
as a result of consolidation within the segments in which we compete, our
customers and potential new customers want to deal with a smaller number of
larger, established suppliers with the ability to serve them at all of their
locations. Our leading market position will be a competitive advantage in
attracting and retaining these customers.
Diverse Product Lines with Strong Brand Names. We offer a diverse range
of products, including both standard and customized seating and table products,
thereby allowing customers to select the specific products which best fulfill
their needs and can be produced and distributed to meet their timing
requirements. We also enjoy strong name recognition through our well-established
brands, including Falcon(R), Howe(R), Johnson Tables(R), Charlotte(R), Decor
Concepts(R), Shelby Williams(R), King Arthur(R), Thonet(R), Sellers &
Josephson(R) and Phillocrafts (R). We believe that our broad product line, as
well as the strength of our brands, are important factors in maintaining
existing customers and attracting new customers.
Vertically Integrated Manufacturing Capabilities. We are vertically
integrated, which means that we control all aspects of our production process
from design to manufacture to distribution. By being vertically integrated, we
are able to lower our costs by manufacturing the products we sell as compared to
those competitors who may only be resellers or assemblers of products and, as a
result, must purchase certain of their components from third-party suppliers,
incurring a mark-up cost which we do not incur. By being vertically integrated,
we are also able to manufacture certain key materials that are specifically
designed to meet our customer's specifications. In addition, we believe that
being vertically integrated allows us to better serve our customers since we are
not dependent on third-party suppliers to provide needed components.
Accordingly, we are better equipped to respond quickly to changes in customer
orders or to rush a particular order for a valued customer.
Superior Customer Service. Customer service is an essential element of
our marketing and operating philosophy. We are committed to attracting new
customers and retaining existing customers by providing consistently superior
customer service. As part of our customer service program, we employ
approximately 130 dedicated customer service representatives. Using an on-line
computer system, our customer service representatives are able to provide our
customers with up-to-date information on the status of their orders. We intend
to maintain and enhance our high level of customer service to strengthen our
relationships with our customers. We believe that continued high levels of
customer service will further increase sales to existing customers and attract
new ones. We believe that superior customer service is essential to competing in
our targeted market segments.
Diverse and Established Customer Base. Over the past four decades, we
have built a reputation for high-quality products, reliability and superior
customer service. Our customers represent major companies in the various market
segments of the commercial furniture market, including McDonald's, Marriott
International, Sam's Club, Burger King and Hilton Hotels. Revenues from our top
ten customers accounted for approximately 16.5% and 15.0% of pro forma revenues
in fiscal year 1998 and in the twenty-six weeks ended May 1, 1999, respectively.
In addition, no single customer accounted for greater than approximately 2.8%
and 2.6% of pro forma revenues in fiscal year 1998 and in the twenty-six weeks
ended May 1, 1999, respectively.
Strength of Distribution and Sales Network. We distribute our products
through a geographically diverse network of direct and independent sales
representatives, independent office furniture dealers and distributors, and
market our products to hospitality and food service chains, restaurant supply
dealers, mass merchandisers, OEMs and chain restaurants. Shelby Williams' strong
relationships with the architectural and design community and its hospitality
segment customers supplement Falcon's strong relationships with the office
furniture dealer community, giving us strong relationships with the major
distribution channels within the commercial furniture market. In addition,
Shelby Williams' sales force complements that of Falcon's as there is not any
significant overlap between them. To ensure stability and continuity in Shelby
Williams' sales force, we have entered into long-term employment contracts with
Shelby Williams' national sales manager and regional vice presidents of sales as
part of our Acquisition of Shelby Williams. We intend to maintain and leverage
the strengths of each company's sales force following the Acquisition of Shelby
Williams. Our sales and marketing staff consists of approximately 260 full-time
employees, of which 120 are field sales personnel. In addition, we utilize
approximately 140 independent sales organizations. We maintain 16 showrooms and
sales offices in the United States and have approximately 40 distributors that
market our products internationally.
Diversified Market Segments and Revenue Stability. We market our
products to the office, food service, hospitality (including gaming), national
accounts, university, healthcare and other institutional segments of the
commercial furniture market. Our revenues are balanced among the various
segments, with no segment accounting for a disproportionate percentage of total
revenues. This balance in our revenues provides stability and helps protect us
against economic downturns. In addition, we maintain relative revenue stability
and are not significantly subject to economic cycles due to our diverse customer
base and because a substantial portion of our sales are from refurbishment
projects rather than new construction sales. As a general matter, refurbishment
sales tend to be less cyclical than new construction sales, which are generally
more affected by economic downturns because new construction projects (and
accordingly furniture sales for new construction) are often put on hold or
delayed in economic downturns, as new construction expenditures are often
considered discretionary by customers.
Experienced Management Team with Significant Equity Ownership Interest.
We are led by Franklin A. Jacobs, Chairman and CEO, who founded Falcon in 1959.
Our seasoned and respected management team has built their professional careers
primarily in the commercial furniture industry. These individuals possess a
detailed knowledge of each of our target market segments, and are well respected
in the industry for design, quality and customer service. Their knowledge and
depth of experience enables us to continue to provide innovative and
high-quality products and services.
Our senior management team also has a strong track record of
integrating acquisitions into the organization profitably and efficiently. Since
1992, Falcon's management team has successfully completed the acquisition of
four companies, including Charlotte Company in 1994, Decor Concepts in 1995, The
Chair Source in 1996 and most recently, Howe Furniture Corporation in 1998. Paul
N. Steinfeld, Shelby Williams' Chairman and CEO, and Manfred Steinfeld, a board
member of Shelby Williams, will also help manage the integration of the combined
company. In addition, certain key members of Shelby Williams' senior management
team have entered into long term employment agreements or consulting agreements
with the Company to facilitate the integration of Falcon and Shelby Williams.
Mr. Jacobs beneficially owns approximately 22.0% of the Company's
outstanding common stock. Including Mr. Jacobs' ownership interest, the
Company's directors and executive officers beneficially own approximately 35.6%
of the Company's outstanding common stock. Falcon's senior management team has
been awarded, and we intend to award certain key members of Shelby Williams'
management team, options and other equity rights, subject to certain
performance-based and other vesting provisions.
Shelby Williams Integration Plan
We have adopted a plan to integrate the operations of Falcon and Shelby
Williams, the principal components of which are:
- eliminating redundant administrative costs and expenses, including such
"public company" costs for Shelby Williams as board of directors'
salaries, annual report costs and New York Stock Exchange listing fees;
- realizing cost savings on raw materials and freight from the greater
purchasing power of the combined company;
- consolidating and improving certain functions, including accounting,
tax, information systems, human resources and legal;
- utilizing Falcon's production capabilities to manufacture certain
Shelby Williams products currently purchased from third-party
suppliers;
- improving the combined sales, marketing and distribution
infrastructures of Falcon and Shelby Williams; and
- reducing excess manufacturing capacity by consolidating and improving
the utilization of manufacturing facilities.
As a result of the Acquisition, we have excess manufacturing capacity,
creating opportunities to rationalize facilities and increase efficiencies.
Among other things, we anticipate that we can improve capacity utilization by
manufacturing several products which Shelby Williams previously purchased from
third-party suppliers, such as wood chairs, table tops and booths. By increasing
capacity utilization at fewer manufacturing facilities, we expect to decrease
per unit costs resulting from allocating our total fixed manufacturing overhead
costs over greater production volumes. In addition, since Falcon and Shelby
Williams manufacture similar products, opportunities exist to share best
manufacturing practices and techniques to further increase operating
efficiencies.
Business Strategy
We have adopted a comprehensive business strategy which includes the
following:
Capitalize on the Acquisition of Shelby Williams. The fundamental
strategy underlying the Falcon-Shelby Williams combination is to leverage the
strengths of both businesses by adopting the best practices of each across the
Company as a whole and to capitalize on the opportunities inherent in the
combination. We believe that the Falcon-Shelby Williams combination presents
numerous cost savings and revenue enhancement opportunities.
Maintain Customer Service Leadership. Over the past four decades, we
have built a reputation for superior customer service. We intend to aggressively
maintain our leadership position in customer service. We believe that our
superior customer service, as well as our reliability and high-quality products,
are important factors in maintaining existing customers and attracting new
customers.
Maximize Operating Efficiencies. We intend to improve our productivity
through a number of initiatives, including selective upgrades to production,
plant and equipment and optimizing manufacturing capacity. We plan to leverage
our excess manufacturing capacity to improve manufacturing productivity and
increase company-wide efficiency. We expect to recognize significant economic
benefits as a result of savings from eliminating mark-ups paid to third-party
suppliers and improving our operating margins through increased production
volumes.
Grow Through Strategic Acquisitions. Our business strategy is to grow
through strategic acquisitions. We plan to regularly evaluate potential
acquisition opportunities to support and strengthen our business. We have a
strategic acquisition plan which clearly identifies the criteria a potential
acquisition candidate must generally meet in order to be considered a viable
acquisition candidate. Among other criteria, we look for acquisition candidates
that are in our own industry, are profitable, have leading brand names and
well-established sales forces, and can be acquired at purchase prices that
produce earnings accretion. We anticipate realizing cost savings by increasing
production volumes at our existing manufacturing facilities and enhancing
revenues by increasing cross-selling opportunities. We believe that our broad
product line, extensive distribution network and strong brand name recognition
make us an attractive acquiror to many of the small, privately-held commercial
furniture manufacturers in our industry.
It is our intention to spend the short to medium term focusing on
successfully integrating the operations of Falcon and Shelby Williams. As a
result, we do not currently anticipate making any additional acquisitions for a
period of time, but will remain opportunistic as potential acquisitions present
themselves. We are not currently in discussions with any potential acquisition
candidates.
Products
Our principal products consist of an extensive line of furniture and
related products, including wood, metal and rattan chairs, banquet and
conference tables, table tops, table bases, booths, casegoods and other related
products.
Seating. We design and manufacture a wide variety of seating products,
primarily for:
- dining, gaming, guest room, conference and banquet facilities;
- healthcare institutions and universities; and
- other institutional uses.
We market our seating products under the Falcon(R), Charlotte(R), Decor
Concepts(R), Shelby Williams(R) and Thonet(R) brand names.
Metal. Our metal stacking chairs are available in a wide variety of
styles and are used primarily in multi-use function rooms, where it is necessary
to store chairs for events such as training courses and banquets. Metal chairs
may be upholstered in one of our standard catalog vinyls or fabrics or in
customer-furnished or customer-specified materials and may be plated or powder
coat painted in a standard catalog finish or in a customer-designated custom
finish.
Wood and Rattan. Our wood chairs are manufactured in hardwoods, such as
maple, oak and beech, and are available in a wide variety of finishes,
upholstered fabric and vinyl coverings. Products are made of solid wood or a
combination of woods, and many are constructed with bentwood components, which
provide extended durability. Our wood chair products are finished on
conveyorized lines which incorporate forced drying cycles. Wood chairs are
finished with one of our standard colors or the customer may specify or supply
its choice of finish material. Sealer coats and final conversion varnish coats
are applied to our wood chairs by means of state-of-the-art, electrostatic
finishing systems which insure uniform application, resulting in a durable
chip-resistant finish. To fully complement our seating line, we market a wide
collection of wicker and rattan seating products.
Banquet and Conference Tables. We design and manufacture banquet and
conference tables, which along with our metal stacking chairs are used primarily
in multi-use function rooms. Our tables are constructed from the table tops and
bases that we manufacture as separate components and then either assembled for
sale to our customers as a complete table unit or sold to other furniture
manufacturers as separate components for their assembly operations. We market
our banquet and conference tables under the Falcon(R), King Arthur(R), Johnson
Tables(R) and Howe(R) brand names.
Table Tops. We manufacture table tops in a number of standard sizes and
shapes and in a variety of finishes, including wood veneers, fiberglass,
high-pressure laminate patterns and solid wood. Edge treatments for the table
tops are available in vinyl, laminate, wood or metal. Wood edge, veneer and
butcher block tops are stained with one of our standard color finishes and
sealed and sprayed with a durable catalyzed top coat. We also have the
capability of manufacturing custom table tops in a wide variety of
customer-specified sizes, shapes and finishes. We typically sell table tops with
a base we produce separately. Our table tops are marketed under the Falcon(R),
Howe(R), Johnson Tables(R) and Shelby Williams(R) brand names.
Table Bases. Our table bases are produced in a variety of sizes, styles
and finishes and are used by restaurants, hotels, offices, cafeterias,
hospitals, airports, universities, country clubs and other commercial locations
where food is served. More than 35 styles of table bases are finished to order
in one of our standard catalog powder coat paint finishes or designer plated
finishes and also may be painted to match a customer's custom finish
requirements. We market our table bases under the Falcon(R), Howe(R), Johnson
Tables(R) and Shelby Williams(R) brand names.
Booths. Booths are available in standard catalog styles or
customer-specified styles, some of which are suitable for outdoor applications.
We manufacture booths in wood, metal or fiberglass, and our booths may be
upholstered in one of our standard catalog vinyls or fabrics or in
customer-designated or supplied coverings. Exposed wood is color matched to
customer specifications and top coated with the same durable catalyzed finish
used on our table tops and other wood products. We market our booths under the
Falcon(R) and Shelby Williams(R) brand names.
Casegoods. The combination of our broad line of furniture products and
our vertical manufacturing capabilities enable us to offer a complete commercial
interior decor package to our customers with significant design flexibility and
short lead times. We integrate certain of our products into complete interior
decor systems, including all furniture, booths, walls, wood trim and casegood
components. These casegood components include such products as counters, bars,
divider walls, planter units, salad bars and stands, which we produce in a
variety of high-pressure laminates. We then deliver these products to the
customer site and install them using our own employees or subcontractors we have
trained. We market these products under the Falcon(R) and Decor Concepts(R)
brand names.
Other Products. In addition to our other products, we also manufacture
portable dance floors and platforms, food service carts, cutting room tables, as
well as a full range of vinyl wall coverings. We market these products under the
Sellers & Josephson2 (R), King Arthur(R) and Phillocraft(R) brand names.
Marketing and Distribution
Falcon
Domestic Sales. Falcon sells its furniture products throughout the
United States to a wide variety of customers, including restaurant supply
dealers, architectural design firms, office furniture dealers, mass
merchandisers, OEMs and chain restaurants. Falcon markets these products through
a combination of direct factory sales representatives employed by Falcon and
independent manufacturer's representatives organizations. Most sales
representatives are assigned to geographical territories. The efforts of these
factory and independent sales representatives are directed by Falcon's Vice
President--Sales and Marketing, other vice presidents who focus on individual
markets, and regional sales managers.
Each factory and independent sales representative is assigned a
territory in which to promote and sell Falcon's products and to ensure customer
satisfaction. Falcon determines the prices at which its products will be sold.
Falcon's independent sales representatives are commissioned and do not carry
competing lines.
Falcon assists its representatives in various ways, including:
- conducting extensive training programs to better educate its sales
representatives with respect to the design, manufacture, variety and
decor applications of its products;
- providing restaurant supply and office furniture dealers, mass
merchandisers, architectural designers, OEMs and other customers with
catalog materials, samples and brochures;
- maintaining a customer service department that ensures that it
promptly responds to the needs and orders of its customers;
- exhibiting its products at national and regional furniture shows and
at three showrooms in the Merchandise Mart in Chicago;
- maintaining regular contact with key customers; and
- conducting ongoing surveys to determine customer satisfaction.
Flight. Falcon's office and other furniture products are also marketed
through its "Flight" network of over 400 independent office furniture dealers.
Flight dealers distribute Falcon's furniture products to a wide variety of
commercial users and office furniture retailers and provide Falcon with access
to incremental sales opportunities. The Flight network is designed to both
distribute Falcon's office furniture products and cross-sell its food service
furniture products. Falcon utilizes its direct factory sales force and
independent sales representatives, under the supervision of Falcon's Vice
President--Contract, to call upon existing and prospective Flight dealers.
International Sales. Certain of Falcon's products are marketed
throughout Europe through an exclusive distribution agreement with a European
distributor. The Falcon Mimon a/s subsidiary located in Mimon, Czech Republic
also markets wood chair frames directly. Falcon's Howe Europe a/s subsidiary
located in Middelfart, Denmark markets, assembles and distributes tables and
chairs to the European contract office market for training, conferencing,
meeting and executive dining applications. Falcon holds the European
distribution rights to the award-winning 40/4(TM) chair through an exclusive
licensing agreement with David Rowland, the chair's designer. The manufacturing
capabilities of Falcon Mimon, Howe Europe and our extensive distribution network
allow us to take advantage of opportunities in Europe.
Distribution of Falcon's products in Asia and the Pacific Rim is
achieved through exclusive distribution arrangements in Japan, Hong Kong and
South Korea. Falcon plans to augment existing distribution agreements during
1999 with additional distribution arrangements in other countries in the Pacific
Rim. The Falcon Products (Shenzhen) Limited subsidiary located in Shenzhen, The
People's Republic of China markets table tops and millwork to support national
accounts customers throughout the Asia Pacific region. Falcon's international
sales efforts are supported by dedicated customer service personnel. During
fiscal years 1996, 1997 and 1998, and for the twenty-six weeks ended May 1,
1999, foreign operations and export sales were $10.9 million, $9.3 million,
$13.5 million, and $7.7 million respectively. Of these amounts, $3.8 million,
$3.9 million, $8.7 million and $4.8 million of sales in fiscal years 1996, 1997
and 1998, and for the twenty-six weeks ended May 1, 1999, respectively, were
made directly from the Falcon Mimon, Howe Europe, and Falcon Products (Shenzhen)
locations.
National Accounts. Falcon's national accounts program targets the major
restaurant chains in the United States. Falcon maintains a separate national
accounts sales force consisting of both employee sales representatives and
independent sales representatives that are directed by Falcon's Vice President--
Food Service and regional sales managers. Falcon believes that its vertically
integrated manufacturing capabilities allow it to better serve these customers
than most of our competitors and that our design, installation and service
capabilities are particularly suited for many of these customers. The national
accounts sales force develops original design concepts, including seating
layouts and product specifications for each customer based on the customer's
requirements. Falcon's national accounts sales force is supported by its own
customer service team, quotation and design staff and product engineers, located
at our Newport, Tennessee and City of Industry, California manufacturing
facilities.
Shelby Williams
Shelby Williams sells its products both domestically and
internationally to a wide variety of customers, including hospitality and food
service chains or their buying agencies, and other customers through interior
designers, architectural and design firms, contract furniture, food service and
furniture dealers. Shelby Williams primarily utilizes direct sales
representatives and, to a lesser extent, independent distributors to distribute
its products.
Shelby Williams also markets its products through advertising in major
trade publications and illustrating the Shelby Williams' products in its
catalogs. Shelby Williams publishes four extensive catalogs displaying its
products and distributes catalogs to architects, designers and dealers. Catalogs
are periodically supplemented as new products are introduced. Customers may
order standard products directly from these catalogs or request changes to meet
their design specifications.
Shelby Williams' sales and marketing staff consists of approximately
100 full-time employees, of which approximately 70 are field sales personnel.
This dedicated sales force is an integral component of the Shelby Williams'
customer service and support strategy. Shelby Williams' sales personnel sell
products and services to customers within an assigned territory and promote
customer satisfaction with periodic service calls in addition to scheduled
follow-up visits.
Shelby Williams also markets its products through 13 showrooms and
sales offices in the United States and approximately 40 distributors
internationally. Many of these distributors are concentrated in Europe and Asia.
In addition, Shelby Williams utilizes its local facilities and existing
distribution channels to assemble and distribute products in the United States
imported from European sources. Shelby Williams also exhibits at major national
and international trade shows.
Product Design and Development
Our design and engineering group works with sales and marketing
personnel to support our complete decor systems initiatives with our national
accounts customers. Our engineering staff utilizes a computer aided design
system to provide layout and configuration advice to customers who are
integrating our furniture products into their facilities and to design casegoods
and other components. The design and engineering group also assists our product
design engineers in the development of new products.
Our product development team, which is comprised of sales, marketing,
purchasing, engineering and financial personnel, strives to produce customer
satisfaction and competitively priced products by constantly improving our
product lines. The product development team has a formalized charter and a plan
that not only will account for new product introductions, but has identified
market trends and includes product development capabilities to accommodate these
trends. We have four full-time product design engineers who report to the
product development team and who are responsible for the design of new products.
On occasion, we also purchase product designs from outside sources to supplement
our internal design capabilities.
Manufacturing
Falcon
Falcon's manufacturing operations primarily consist of wood bending,
wood working and finishing, assembly, metal forming, bending and fabrication,
electrostatic wood and metal finishing, robotic welding and upholstering. Falcon
is a vertically integrated manufacturer, which allows it to control all aspects
of its production process and maintain quality control. Each manufacturing
facility produces a specified product or group of products and has virtually
complete production capability, subcontracting only a portion of certain
production processes from third-party suppliers or insourcing the manufacturing
of certain products from Falcon's other facilities. For example, Falcon's
Lewisville, Arkansas facility produces approximately 10% of the facility's wood
chairs, with the balance assembled from machined parts imported from Falcon
Mimon or other European suppliers. In addition, Falcon has a fully operational
modern information system at all of its manufacturing facilities. These systems
perform detailed and timely cost analysis of production by product and facility,
which assists Falcon in controlling its manufacturing processes and in better
serving its customers.
Falcon's manufacturing facilities are strategically located throughout
the United States and internationally to meet the requirements of its customers
and its distribution network. Falcon's products are manufactured at its
facilities in the United States in Newport, Tennessee, Belmont, Mississippi,
Lewisville, Arkansas and City of Industry and Azusa, California, and
internationally in Mimon, Czech Republic, Juarez and Tijuana, Mexico, Shenzhen,
The People's Republic of China and Middelfart, Denmark.
Shelby Williams
Shelby Williams' manufacturing operations primarily consist of wood
bending, wood working and finishing, assembly, metal forming and fabrication,
electrostatic wood and metal finishing. Shelby Williams also prints and
laminates vinyl wall coverings. For certain chair styles, Shelby Williams
purchases components manufactured by other companies. These components, which
are manufactured to Shelby Williams' specifications, are assembled, finished and
upholstered by Shelby Williams. All outsourced components are available
domestically except for rattan, which is indigenous to the Philippines and
Indonesia. For many of its standard product offerings, Shelby Williams optimizes
its production costs by sourcing the components produced at its Zacatecas,
Mexico facility.
Shelby Williams has six domestic facilities and one facility in Mexico.
All manufacturing operations emphasize quality control during the various
production processes. To provide consistency and speed to the finishing process,
Shelby Williams utilizes conveyorized paint lines with spray booths and drying
ovens positioned to allow proper drying times between finishing steps. In
addition, Shelby Williams has electrostatic wood-finishing systems which provide
superior finishing qualities and are advantageous from an environmental
standpoint. Shelby Williams has invested in powder-coating lines which provide
similar advantages for the metal products, and expects to continue to invest in
automated machinery and equipment, including a state-of-the-art aluminum
production facility and a new wood-finishing system.
Raw Materials
We manufacture most of our products to customer order from basic raw
materials. We utilize a variety of raw materials in the manufacture of our
products, including rough lumber, plywood, rattan laminates, particle board,
metal tubing, steel wire, scrap iron and various plastic components and other
frame components, from cushioning, vinyl and textiles, all of which we believe
are in abundant supply and available from a variety of sources. We have no
long-term supply contracts with any of our suppliers and we have experienced no
significant problems in obtaining raw materials for our operations at
commercially reasonable terms should the need arise.
Certain products we sell, including unfinished wood chair frames and
frame components and tubular steel stacking chair components, are purchased by
us from other sources. We have not experienced difficulty in obtaining suppliers
to manufacture these products, and we believe that alternative arrangements
could be made to obtain these products at commercially reasonable terms should
the need arise.
Competition
The office, food service, hospitality (including gaming), national
accounts, university, healthcare and other institutional segments of the
commercial furniture industry are fragmented and highly competitive with respect
to each of the products we sell. We compete primarily on the basis of design,
quality, customer service, product pricing and speed of delivery. We believe
that our competitive strengths are our vertically integrated manufacturing, our
emphasis on customer service and support, our reputation for quality and
responsiveness to our customers, the one-stop shopping advantage made possible
by the wide variety of products and our ability to design, manufacture and
install turnkey interior decor systems. We compete for sales for each of our
products with numerous domestic and foreign manufacturers, many of which have
greater financial and other resources. We can give no assurance that our
competitors will not offer a greater range of high-quality products, or that new
entrants with greater financial resources than us will not enter the market, or
that our results of operations will not be adversely affected by increased
competition.
<PAGE>
<TABLE>
<CAPTION>
Facilities
The tables below summarize certain information about the Company's
facilities.
Falcon Facilities
Approximate Lease/Ownership
Location Square Footage Use Terms
- -------- -------------- --------- ---------------
<S> <C> <C> <C>
Domestic:
St. Louis, Missouri................... 60,000 Principal executive offices Leased, expiring July 2015.
Newport, Tennessee.................... 370,000 Production of table bases, Leased, (1) for 300,000 square
table tops, millwork, feet expiring in December 2001,
casegoods, and booths with two five-year renewal options
and (2) for 70,000 expiring in
June 2001, with one five-year
renewal option.
Belmont, Mississippi.................. 227,000 Production of metal chairs Own 176,000 square feet in
and fiberglass seating four contiguous buildings;
Leased 51,000 square feet,
expiring in November 2003.
City of Industry, California.......... 179,000 Production of table bases, Leased, expiring in April
table tops, millwork, 2006, with two five-year
casegoods, metal chairs renewal options.
and fully upholstered
seating
Lewisville, Arkansas.................. 159,000 Production of wood chairs Leased, expiring in February
2004 with four five-year renewal
options.
Azusa, California..................... 34,000 Production of fiberglass Leased, expiring in October
booths 1999.
Foreign:
Mimon, Czech Republic................. 700,000 Production of wood chairs Owned.
Tijuana, Mexico....................... 89,000 Production of wood chairs, Leased, expiring in December
fully upholstered 1999, with three one-year
seating and casegoods renewal options.
Juarez, Mexico........................ 51,000 Production of iron castings Owned.
for table bases
Middelfart, Denmark................... 25,000 Production of tables and Leased, month-to-month.
chairs
Shenzhen, The People's Republic of 15,000 Production of table tops Leased, expiring July 31,
China................................. and millwork 1999, with an annual renewal
option.
Shelby Williams Facilities
Approximate Lease/Ownership
Location Square Footage Use Terms
- -------- -------------- --------- ---------------
Domestic:
Chicago, Illinois.................... 7,000 Principal executive offices Leased, expiring July 2000.
Morristown, Tennessee................. 744,000 Production of wood and metal Owned.
chairs and rattan/wicker
products
Canton, Mississippi.................. 406,000 Production of wood chairs Approximately 238,100 square
feet owned and 167,900 square
feet leased, expiring
from May 2000 to January 2009.
Statesville, North Carolina........... 327,000 Production of wood and metal Owned.
chairs
Englewood, New Jersey................. 68,000 Production of wall coverings Leased, expiring December
2003, with option to
renew for 10 additional
years.
Carlstadt, New Jersey................. 35,000 Production of wall coverings Leased, expiring April 2004.
Foreign:
Zacatecas, Mexico..................... 90,000 Production of wood chairs Owned.
</TABLE>
The Company also has showrooms and sales offices in ten United States
cities, including Atlanta, Chicago, Dallas, Los Angeles, New York, Plantation,
Florida and Houston.
The Company believes its facilities are in good condition and are
adequate for the purposes for which they are currently used. The capacity of the
Company's current facilities is considered to be adequate to meet the current
needs and anticipated increases in sales volume for the foreseeable future.
Employees and Labor Relations
As of May 1, 1999, we employed approximately 3,800 full-time employees,
2,300 of whom are subject to collective bargaining agreements. Approximately 300
persons were employed in sales, 100 persons in administration, and 3,400 persons
in manufacturing. We believe that our relations with our employees are good.
Intellectual Property Rights
Falcon. Falcon has registered the Falcon(R), Johnson Tables(R),
Charlotte(R), Flight(R), Genesis(R), Howe(R), Diffrient(R), Mios(R), Storm(R),
Tutor(R) and Tempest(R) trademarks, in addition to other trademarks, with the
United States Patent and Trademark Office. Management believes that Falcon's
trademark position is adequately protected in all markets in which it does
business. Falcon has received mechanical patents on certain of its furniture
mechanisms and components.
Shelby Williams. Shelby Williams sells its hospitality and food service
products under the registered trademarks Shelby Williams(R), King Arthur(R) and
Sterno(R) (licensed in perpetuity) and its healthcare, dormitory and other
institutional furniture under the registered trademark Thonet(R). Shelby
Williams markets cutting room tables and accessories under the registered
trademark Phillocraft(R) and wall coverings under the registered trademark
Sellers & Josephson(R).
We believe that while our patents and trademarks have value, we are not
dependent upon patents, trademarks, service marks or copyrights.
Environmental Matters
We are subject to numerous environmental laws and regulations in the
various jurisdictions in which we operate that (a) govern operations that may
have adverse environmental effects, such as discharges into air and water, as
well as handling and disposal practices for solid and hazardous wastes, and (b)
impose liability for response costs and certain damages resulting from past and
current spills, disposals or other releases of hazardous materials. Our
operations may result in noncompliance with or liability for remediation
pursuant to environmental laws. Environmental laws have changed rapidly in
recent years, and we may be subject to more stringent environmental laws in the
future. Although environmental matters have not to date had a material adverse
effect on the results of operations or financial condition of either Falcon or
Shelby Williams, we can give no assurance that such matters will not have a
material adverse effect on our results of operations or financial condition or
that more stringent environmental laws will not be enacted which could have a
material adverse effect on our results of operations or financial condition.
In February 1997, the King Arthur division of Shelby Williams received
a complaint, addressed to King Arthur, Inc., in a case pending in the Superior
Court of New Jersey, Camden County, Law Division, entitled Pennsauken Solid
Waste Management Authority, et al., vs. Ward Sand & Material Co., Inc. and a
large number of other defendants. The complaint, which identifies King Arthur,
Inc. as one of the defendants, alleges, among other things, that during the
operation of a landfill from the 1960's to 1984, the defendants improperly
generated, transported and/or disposed of certain hazardous waste materials, and
that defendants are jointly and severally liable to plaintiffs for all costs and
damages incurred by plaintiffs for remediation of the landfill and any
surrounding areas which are found to be contaminated. The complaint does not
specify any dollar amount of damages. Shelby Williams acquired certain assets of
King Arthur, Inc. in 1986. We believe, based on our present knowledge, that we
have valid defenses to the allegations in the complaint, and that our liability,
if any, is not material. We have put our insurers on notice of the complaint.
Legal Proceedings
From time to time, we are subject to legal proceedings and other claims
arising in the ordinary course of business. We maintain insurance coverage
against potential claims in amounts which we believe to be adequate. There are
no material pending legal proceedings, other than routine litigation incidental
to the business, to which we are a party or of which any of our property is the
subject.
In April 1999, the Internal Revenue Service issued a proposed
adjustment regarding an accumulated earnings tax liability of Shelby Williams in
the aggregate amount of approximately $4.7 million for the fiscal years
1995-1997. We are contesting the proposed adjustment. We have reviewed the
position of the IRS and believe it is highly unlikely that the IRS will succeed
in sustaining either all or a material portion of such an adjustment. Shelby
Williams has not accrued any amounts on its historical consolidated balance
sheet in regard to this matter.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning our directors and
executive officers:
Name Age Position
- ---- --- --------
Franklin A. Jacobs.. 66 Chairman of the Board of Directors and Chief
Executive Officer
Darryl C. Rosser.... 47 President, Chief Operating Officer and Director
Michael J. Dreller.. 37 Vice President--Finance, Chief Financial Officer,
Secretary and Treasurer
Richard J. Hnatek... 54 Senior Vice President--International Sales/New
Chain Development
Jackson H. Spidell.. 44 Vice President--Operations
Michael J. Kula..... 49 Vice President--Corporate Technology & Development
Stephen E. Cohen.... 30 Vice President--Sales and Marketing
Raynor E. Baldwin... 59 Director
Melvin F. Brown..... 63 Director
Donald P. Gallop.... 66 Director
James L. Hoagland... 76 Director
S. Lee Kling........ 70 Director
Lee M. Liberman..... 77 Director
James Schneider..... 67 Director
Franklin A. Jacobs has been our Chairman of the Board and Chief
Executive Officer since 1971, and was our President from inception to May 1981
and from January 1984 to December 1995.
Darryl C. Rosser has been our President and Chief Operating Officer
since December 1995. From May 1995 to December 1995, Mr. Rosser served as our
Executive Vice President--Operations, and from December 1993 to May 1993, Mr.
Rosser served as our Senior Vice President--Operations.
Michael J. Dreller has been our Vice President--Finance, Chief
Financial Officer, Secretary and Treasurer since January 1996. Mr. Dreller
previously was our corporate controller from 1993 to September 1995. Prior to
rejoining the Company, Mr. Dreller was the Vice President and Chief Financial
Officer of JDI Group, Inc., a distributor of residential furniture, from
September 1995 to December 1995.
Richard Hnatek has been our Senior Vice President--International
Sales/New Chain Development since August 1998, and from December 1993 to August
1998 he served as our Senior Vice President--Sales.
Jackson H. Spidell has been our Vice President--Operations since
November 1998. Prior to joining the Company, Mr. Spidell acted as a Director of
West Michigan Manufacturing Operations for Herman Miller, Inc., a manufacturer
of office furniture.
Michael J. Kula has been our Vice President--Corporate Technology &
Development since November 1998 and served as our Vice President--Operations
from July 1996 to November 1998. Prior to joining the Company, Mr. Kula was the
Senior Vice President--Operations of the Gunlocke Company, a subsidiary of HON
Industries, Inc., a manufacturer of office furniture, from January 1994 to July
1996.
Stephen E. Cohen has been our Vice President--Sales and Marketing since
August 1998. Mr. Cohen served as Vice President--Sales from November 1996 to
August 1998, served as our Vice President--Sales Western Region from October
1995 to November 1996, and served as our Vice President--Sales Midwestern Region
from March 1995 to October 1995.
Raynor E. Baldwin has been our director since 1977. Mr. Baldwin is
President of Woodsmiths, Incorporated, a manufacturer of table tops.
Melvin F. Brown has been our director since 1997. Mr. Brown has been
the Chairman Emeritus of Deutsche Financial Services, a commercial finance
company, since June 1998. From January 1997 to June 1998, Mr. Brown served as
Vice Chairman of Deutsche Financial Services. From May 1995 to June 1998, acted
as the President and Chief Executive Officer of Deutsche Financial Services.
Prior thereto, Mr. Brown acted as the President of ITT Commercial Finance
Corporation.
Donald P. Gallop has been our director since 1963. Mr. Gallop is an
attorney-at-law and Chairman of the law firm of Gallop, Johnson & Neuman, L.C.
Mr. Gallop is also a Director of Data Research Associates, Inc.
<PAGE>
James L. Hoagland has been our director since 1990. Mr. Hoagland has
been retired since September 1989. Prior to September 1989, Mr. Hoagland served
as the President and Chief Executive Officer of Graybar Electric Company, Inc.,
a distributor of electrical and telecommunications equipment.
S. Lee Kling has been our director since 1969. Mr. Kling is Chairman of
the Board of Kling Rechter & Co., L.P., a merchant banking company and a
Director of Bernard Chaus, Inc., Electro Rent Corporation, Hanover Direct, Inc.,
Lewis Galoob Toys, Inc., National Beverage Corp., Top Air Manufacturing, Inc.
and Union Planters Corporation.
Lee M. Liberman has been our director since 1985. Mr. Liberman is
Chairman Emeritus and consultant to Laclede Gas Company, a retail natural gas
distribution public utility.
James Schneider has been our director since 1989. Mr. Schneider is a
broker for International Monetary Market,
Chicago Mercantile Exchange.
<PAGE>
SECURITY OWNERSHIP
The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of our common stock by (1) each
person who is known by us to own beneficially more than 5% of our common stock,
(2) each director and each executive officer who is the beneficial owner of
shares of our common stock and (3) all directors and executive officers as a
group.
Beneficial Owners:
Amount and Nature Percent
Name and Address of Beneficial Ownership(1) of Class
---------------- -------------------------- --------
Franklin A. Jacobs(2)................. 2,027,724 22.0%
Chairman of the Board and Chief
Executive Officer of the Company
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
David L. Babson & Company, Inc(3)..... 1,069,820 11.9
One Memorial Drive
Cambridge, MA 02142-1300
Robert Fleming, Inc.(3)............... 842,979 9.3
320 Park Avenue, 11th Floor
New York, NY 10022
Royce Funds, Inc.(3).................. 825,400 9.1
1414 Avenue of the Americas
New York, NY 10022
Dimensional Fund Advisors, Inc.(3).... 478,736 5.3
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
(l) Reflects the number of shares outstanding on January 20, 1999, and, with
respect to each person, assumes the exercise of all stock options held by
such person that are exercisable currently or within 60 days of the date
of this prospectus (such options being referred to hereinafter as
"currently exercisable options").
(2) Includes 81,789 shares held by Joyce Jacobs, the former wife of Mr.
Jacobs, and 39,553 shares held in revocable trusts for the benefit of Mr.
Jacobs' children as to which Mr. Jacobs serves as sole trustee. Also
includes currently exercisable options to acquire 192,500 shares of common
stock. Does not include 162,494 shares held in trust for the benefit of
Mr. Jacobs' children as to which Donald P. Gallop serves as sole trustee.
See Note 4 under "Directors and Executive Officers."
(3) According to Schedule 13G, provided to the Company in accordance with the
Exchange Act.
<PAGE>
Directors and Executive Officers:
Amount and Nature Percent
Name and Address of Beneficial Ownership(1) of Class
---------------- -------------------------- --------
Raynor E. Baldwin(2)................... 234,505 2.6%
Melvin F. Brown(3)..................... 4,060 *
Donald P. Gallop(4).................... 247,206 2.7
James L. Hoagland(5)................... 333,822 *
Franklin A. Jacobs(6).................. 2,027,724 22.0
S. Lee Kling(7)........................ 170,882 1.9
Lee M. Liberman(8)..................... 44,012 *
Darryl C. Rosser(9).................... 120,617 1.3
James Schneider(10).................... 339,456 3.8
Michael J. Dreller(11)................. 14,583 *
Richard J. Hnatek(12).................. 105,786 1.2
Michael J. Kula(13).................... 10,045 *
All Directors and Executive Officers as
a Group (14 individuals)(14)(15) ... 3,365,451 35.6%
(*) Represents less than 1% of the class.
(l) See Note (l) to the table under "Beneficial Owners."
(2) Includes 69,294 shares held in a pension trust as to which Mr. Baldwin
serves as sole trustee and principal beneficiary and 24,048 shares owned by
his wife. Also includes currently exercisable options to acquire 9,970
shares of common stock.
(3) Includes currently exercisable options to acquire 1,060 shares of common
stock.
(4) Includes 162,494 shares which are held in a trust for the benefit of Mr.
Jacobs' children as to which Mr. Gallop serves as sole trustee, 49,627
shares which are owned of record by Gallop, Johnson & Neuman, L.C., a law
firm of which Mr. Gallop is Chairman, and 1,324 shares which Mr. Gallop
owns of record as custodian for the benefit of his children. Mr. Gallop
disclaims beneficial ownership of all such shares. Also includes currently
exercisable options to acquire 9,970 shares of common stock.
(5) Includes currently exercisable options to acquire 9,970 shares of common
stock.
(6) See Note (2) to the table under "Beneficial Owners."
(7) Includes 130,716 shares owned by a revocable trust of which Mr. Kling and
his wife are the trustees. Mr. Kling shares voting and dispositive power
over such shares. Also includes currently exercisable options to acquire
9,970 shares of common stock.
(8) Includes currently exercisable options to acquire 9,970 shares of common
stock.
(9) Includes currently exercisable options to acquire 89,592 shares of
common stock.
(10) Includes 276,963 shares owned by a partnership of which Mr. Schneider and
his children are general partners and as to which Mr. Schneider shares
voting and dispositive power, 28,734 shares held in a pension trust as to
which Mr. Schneider serves as sole trustee and 331 shares which Mr.
Schneider holds as custodian for his children. Also includes currently
exercisable options to acquire 11,620 shares of common stock.
(11) Includes currently exercisable options to acquire 9,000 shares of common
stock.
(12) Includes currently exercisable options to acquire 60,100 shares of
common stock.
(13) Includes currently exercisable options to acquire 8,000 shares of common
stock.
(14) Includes 84,725 shares subject to currently exercisable options held
by non-director executive officers of Falcon and 344,622 shares subject to
currently exercisable options held by directors of Falcon.
(15) For purposes of determining the aggregate amount and percentage of shares
deemed beneficially owned by directors and executive officers of Falcon
individually and by all directors, nominees and executive officers as a
group, exercise of all currently exercisable options listed in the
footnotes hereto is assumed. For such purpose, 9,456,954 shares of common
stock are deemed to be outstanding.
<PAGE>
CERTAIN TRANSACTIONS
Falcon
Raynor E. Baldwin, a director of Falcon, is President and sole
stockholder of Woodsmiths, Incorporated, a manufacturer of table tops, which
purchases products from Falcon. During fiscal 1998, Falcon received payments of
$179,768 in connection with transactions with Woodsmiths.
Shelby Williams
William B. Kaplan, a director of Shelby Williams until the consummation
of our Acquisition of Shelby Williams, is Chairman and Chief Executive Officer
and 50% shareholder of Senior Lifestyle Corporation. Affiliates of Senior
Lifestyle have selected and from time to time in the future may select Shelby
Williams' products for purchase by building projects managed, but not owned, by
such affiliates. Neither Mr. Kaplan, Senior Lifestyle nor such affiliates
receive any compensation from Shelby Williams for such selections.
Douglas A. Parker, a director of Shelby Williams until the consummation
of our Acquisition of Shelby Williams, is president and Chief Executive Officer
of Leonard Parker Company, Inc. Leonard Parker purchased products from Shelby
Williams for resale in the normal course of business in 1998 and such purchases
are continuing in 1999. Net sales by Shelby Williams to Leonard Parker for
fiscal year 1998 amounted to approximately $7.2 million.
Trisha Wilson, a director of Shelby Williams until the consummation of
our Acquisition of Shelby Williams, has recommended or specified, and from time
to time in the future may recommend or specify, Shelby Williams' products for
projects in connection with which she or her company renders interior
architectural hospitality design services. Neither Ms. Wilson nor her company
receives any compensation from Shelby Williams for such recommendations or
specifications.
<PAGE>
DESCRIPTION OF THE SENIOR SECURED CREDIT FACILITIES
In connection with our Acquisition of Shelby Williams, DLJ Capital
Funding, Inc. provided senior secured credit facilities (the "Senior Secured
Credit Facilities") to us in the aggregate amount of $120.0 million consisting
of (1) a six-year revolving credit facility of up to $50.0 million (the
"Revolving Credit Facility") and (2) a six-year term loan in the principal
amount of $70.0 million (the "Term Loan"). DLJ Capital Funding has arranged a
syndicate of other financial institutions that will, together with DLJ Capital
Funding, participate in the Senior Secured Credit Facilities.
Repayment
The Term Loan matures in quarterly installments, resulting in aggregate
annual amortization payments as follows.
Annual
Year after Closing Amortization
- ------------------ -------------
(In thousands)
1................................................. $ 0
2................................................. 7,000
3................................................. 10,500
4................................................. 14,000
5................................................. 17,500
6................................................. 21,000
Guarantees; Security
All of our existing domestic subsidiaries (including Shelby Williams)
have guaranteed, and future domestic subsidiaries will guarantee, the Senior
Secured Credit Facilities. A first priority security interest in substantially
all of our properties and assets and the assets of our existing and future
domestic subsidiaries (and all of our non-United States subsidiaries to the
extent doing so would not result in material increased tax or similar
liabilities to us or our subsidiaries), including a pledge of all of the stock
of our domestic subsidiaries and 66% of the stock of our foreign subsidiaries,
will secure the Senior Secured Credit Facilities.
Interest
At our option, the interest rates per annum applicable to the Revolving
Credit Facility and Term Loan will be a fluctuating rate of interest determined
by reference to (1) the London Interbank Offered Rate ("LIBOR") plus the
applicable margin, or (2) the greater of the Prime Rate as set forth on Telerate
Page 5 and the rate which is of 1% in excess of the rates on overnight Federal
funds transactions as published by the Federal Reserve Bank of New York (the
"Base Rate"), plus the applicable margin. The applicable margin will be
determined based on our total leverage ratio. For the Revolving Credit Facility
and the Term Loan, the applicable margin will range from 1.75% to 2.50% for
LIBOR borrowings and from 0.75% to 1.50% for Base Rate borrowings. We are
required to obtain and maintain until June 18, 2001 one or more interest rate
agreements with respect to the Term Loan to convert the fluctuating interest
rate obligations to fixed interest rate obligations in an aggregate principal
amount of not less than 50% of the amount of the Term Loan outstanding on June
18, 1999.
Fees
We have agreed to pay customary fees with respect to the Senior Secured
Credit Facilities, including up-front arrangement and funding fees, annual
administrative agency fees, and commitment fees on the unused portion of the
Revolving Credit Facility.
Use of Proceeds
The entire amount of the Term Loan was used to finance the Acquisition
of Shelby Williams, the refinancing of existing debt in aggregate principal
amount of approximately $20.2 million (plus accrued interest) and fees and
expenses associated with the Transactions. The Revolving Credit Facility will be
available to be used for working capital and general corporate purposes,
including to fund possible acquisitions.
Prepayments
We are permitted to voluntarily prepay the obligations under the Term
Loan and to reduce the amount committed under the Revolving Credit Facility
without any penalty or premium at any time. We are required to prepay the Term
Loan with:
- 100% of the net proceeds of asset sales, other than sales in the
ordinary course of business and sales of obsolete equipment or the
proceeds of which do not exceed certain de minimis amounts and
subject to other limited exceptions;
- 100% of the net proceeds of any debt offering, excluding this
exchange offer and subject to certain other limited exceptions;
- 50% of the net proceeds of issuances of equity securities of the
Company, if our total leverage ratio exceeds 3.0 to 1, subject to
limited exceptions, subject to a reduction to 0% if the total
leverage ratio is less than 3.0 to 1; and
- 75% of excess cash flow of the Company for each fiscal year.
Such mandatory prepayments will be applied to scheduled installments of the Term
Loan on a pro rata basis.
Covenants; Events of Default
The Senior Secured Credit Facilities contain covenants restricting our
ability and the ability of any of our subsidiaries to (with limited exceptions),
among other things:
- incur debt;
- subject our assets to liens;
- make investments;
- incur contingent liabilities;
- pay dividends (other than in amounts consistent with existing
company practice);
- merge or sell assets;
- make capital expenditures;
- enter into sale/lease-back transactions;
- enter into new businesses;
- discount receivables;
- enter into affiliate transactions; and
- change our fiscal year.
In addition, the Senior Secured Credit Facilities require us to meet
certain financial performance tests, including a minimum fixed charge coverage
ratio, a maximum leverage ratio, a minimum consolidated EBITDA test and a
minimum consolidated net worth test.
The Senior Secured Credit Facilities also contain certain conditions
under which an event of default under the Senior Secured Credit Facilities will
exist, including:
- failure to make payments when due under the Senior Secured Credit
Facilities;
- defaults in other agreements;
- breach of covenants;
- material misrepresentations;
- involuntary or voluntary bankruptcy;
- judgments or attachments against us;
- dissolution; and
- changes in control.
<PAGE>
DESCRIPTION OF NEW NOTES
As used in this "Description of New Notes," the term the "Company"
refers only to Falcon Products, Inc., a Delaware corporation, and not to any of
our Subsidiaries. You can find the definitions of certain terms used in this
description under the subheading "Certain Definitions."
The Company will issue the New Notes under an Indenture (the
"Indenture") among itself, the Guarantors and The Bank of New York, as trustee
(the "Trustee"). The terms of the New Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The New Notes are subject to
all such terms, and holders of New Notes (the "Holders") are referred to the
Indenture and the Trust Indenture Act for a statement thereof.
The following description is a summary of the material provisions of
the Indenture. It does not restate that agreement in its entirety. We urge you
to read the Indenture because it, and not this description, defines your rights
as holders of the New Notes. Copies of the Indenture are available as set forth
below under "Where You Can Find More Information."
Brief Description of the New Notes and the Guarantees
The New Notes
The New Notes:
(1) are general obligations of the Company;
(2) are subordinated in right of payment to all existing and future
Senior Debt of the Company;
(3) are senior in right of payment to any future subordinated
Indebtedness of the Company; and
(4) are unconditionally guaranteed by the Guarantors.
The Guarantees
The New Notes are unconditionally guaranteed by all of the Domestic
Subsidiaries of the Company on a senior subordinated basis.
The Guarantees of the New Notes:
(1) are general obligations of each Guarantor;
(2) are subordinated in right of payment to all existing and future
Senior Debt of each Guarantor; and
(3) are senior in right of payment to any future subordinated
Indebtedness of each Guarantor.
As of the Issue Date, all of our subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries
will not guarantee the New Notes.
Not all of our Restricted Subsidiaries will guarantee the New Notes. In
the event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debt and their trade creditors before they will be able to
distribute any of their assets to us.
Principal, Maturity and Interest
The Company will issue New Notes with a maximum aggregate principal
amount of $100.0 million. The New Notes will be in denominations of $1,000 and
integral multiples of $1,000. The New Notes will mature on June 15, 2009.
Interest on the New Notes will accrue at the rate of 11 3/8% per annum
and will be payable semi-annually in arrears on June 15 and December 15,
commencing on December 15, 1999. The Company will make each interest payment to
the Holders of record of the New Notes on the immediately preceding June 1 and
December 1, respectively.
Interest on the New Notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the New Notes
If a Holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those New
Notes in accordance with those instructions. All other payments on the New Notes
will be made at the office or agency of the Paying Agent and Registrar within
the City and State of New York unless the Company elects to make interest
payments by check mailed to the Holders at their address set forth in the
register of Holders.
Paying Agent and Registrar for the New Notes
The Trustee will initially act as Paying Agent and Registrar. The
Company may change the Paying Agent or Registrar without prior notice to the
Holders of the New Notes, and the Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed. The registered Holder will be treated as the owner of
it for all purposes.
Subsidiary Guarantees
The Guarantors will jointly and severally guarantee the Company's
obligations under the New Notes. Each Subsidiary Guarantee will be subordinated
to the prior payment in full of all Senior Debt of that Guarantor.
The Indenture provides that a Guarantor may not sell or otherwise
dispose of all or substantially all of its assets, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person, whether or
not such Person is affiliated with such Guarantor), another Person unless: (1)
immediately after giving effect to that transaction, no Default or Event of
Default exists; and (2) either: (a) the Person acquiring the property in any
such sale or disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that Guarantor pursuant
to a supplemental indenture satisfactory to the Trustee; or (b) the Net Proceeds
of such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture.
The Subsidiary Guarantee of a Guarantor will be released: (1) in
connection with any sale or other disposition of all or substantially all of the
assets of that Guarantor (including by way of merger or consolidation), if the
Company applies the Net Proceeds of that sale or other disposition, in
accordance with the applicable provisions of the Indenture; or (2) in connection
with any sale of all of the capital stock of a Guarantor, if the Company applies
the Net Proceeds of that sale in accordance with the applicable provisions of
the Indenture; or (3) if the Company designates any Restricted Subsidiary that
is a Guarantor as an Unrestricted Subsidiary.
See "--Repurchase at Option of Holders--Asset Sales."
Subordination
The payment of principal, premium, if any, and interest on the New
Notes are subordinated in right of payment, as set forth in the Indenture, to
the prior payment in full in cash of all Senior Debt of the Company, whether
outstanding on the Issue Date or thereafter incurred.
The holders of Senior Debt will be entitled to receive payment in full
in cash of all Obligations due in respect of Senior Debt (including interest
after the commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt, whether or not allowed as a claim in such proceeding)
before the Holders of New Notes will be entitled to receive any payment with
respect to the New Notes (except that Holders of New Notes may receive and
retain Permitted Junior Securities and payments made from the trust described
under "--Legal Defeasance and Covenant Defeasance"), in the event of any
distribution to creditors of the Company: (1) in a liquidation or dissolution of
the Company; (2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property; (3) in an assignment
for the benefit of creditors; or (4) in any marshalling of the Company's assets
and liabilities.
The Company also may not make any payment in respect of the New Notes
(except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if: (1) a payment default on
Designated Senior Debt occurs and is continuing; or (2) any other default occurs
and is continuing on Designated Senior Debt that permits holders of the
Designated Senior Debt to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
holders of any Designated Senior Debt. Payments on the New Notes may and shall
be resumed: (1) in the case of a payment default, upon the date on which such
default is cured or waived; and (2) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
Payment Blockage Notice may be delivered unless and until 360 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 180 days.
The Company must promptly notify holders of Senior Debt if payment of
the New Notes is accelerated because of an Event of Default. As a result of the
subordination provisions described above, in the event of a bankruptcy,
liquidation or reorganization of the Company, Holders of the New Notes may
recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors--Your Right to Receive Payments on the New Notes is
Junior to our Bank and other Unsubordinated Indebtedness and Possibly all of our
Future Borrowings and the Guarantors of the New Notes are Junior to all
Guarantors' Existing Senior Indebtedness and Possibly to all of their Future
Borrowings."
Optional Redemption
At any time prior to June 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of New Notes issued
under the Indenture at a redemption price of 111.375% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Public Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount of New Notes
issued on the Issue Date remains outstanding immediately after the
occurrence of such redemption (excluding New Notes held by the Company and
its Subsidiaries); and
(2) the redemption must occur within 45 days of the date of the
closing of such Public Equity Offering.
Except pursuant to the preceding paragraph, the New Notes will not be
redeemable at the Company's option prior to June 15, 2004. On or after June 15,
2004, the Company may redeem the New Notes, in whole or from time to time in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on June 15 of the years
indicated below:
Year Percentage
---- ----------
2004.................................................... 105.688%
2005..................................................... 103.792%
2006..................................................... 101.896%
2007 and thereafter...................................... 100.000%
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of New Notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of that Holder's New Notes pursuant to the Change
of Control Offer. In the Change of Control Offer, the Company will offer a
Change of Control Payment in cash equal to 101% of the aggregate principal
amount of New Notes repurchased plus accrued and unpaid interest thereon, if
any, to the date of purchase. Within ten days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
New Notes on the Change of Control Payment Date specified in such notice,
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the New Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all New Notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the New Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of New Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of New Notes so
tendered the Change of Control Payment for such New Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a New Note equal in principal amount to any unpurchased portion of
the New Notes surrendered, if any; provided that each such replacement New Note
will be in a principal amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of
Control" covenant, but in any event within 90 days following a Change of
Control, the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of New Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a
Change of Control Offer following a Change of Control will be applicable
regardless of whether or not any other provisions of the Indenture are
applicable. Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the New Notes
to require that the Company repurchase or redeem the New Notes in the event of a
takeover, recapitalization or similar transaction.
The Company's outstanding Senior Debt currently limits our ability to
purchase New Notes, and also provides that certain change of control events with
respect to the Company would constitute a default under the agreements governing
the Senior Debt. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing New Notes, the Company could seek
the consent of its senior lenders to the purchase of New Notes or could attempt
to refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing New Notes. In such case, the Company's failure to
purchase tendered New Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under such Senior Debt. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of New Notes.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of New Notes to
require the Company to repurchase such New Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee; and
(3) at least 85% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall
be deemed to be cash:
(a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the Company or
any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the New Notes or
any Subsidiary Guarantee) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases
the Company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that
are contemporaneously (subject to ordinary settlement periods)
converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received in that conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds at its option:
(1) to repay permanently Senior Debt of the Company or Senior Debt of
any Guarantor and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other assets that are used or useful in a Permitted
Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders of New Notes and all holders of other
Indebtedness that is pari passu with the New Notes containing provisions similar
to those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
New Notes and such other pari passu Indebtedness that may be purchased out of
the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount plus accrued and unpaid interest, if any, to the date
of purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of New Notes and such other pari passu Indebtedness tendered
into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee
shall select the New Notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Selection and Notice
If less than all of the New Notes are to be redeemed at any time, the
Trustee will select New Notes for redemption as follows:
(1) if the New Notes are listed, in compliance with the requirements
of the principal national securities exchange on which the New Notes are
listed; or
(2) if the New Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate.
No New Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional.
If any New Note is to be redeemed in part only, the notice of
redemption that relates to that New Note shall state the portion of the
principal amount thereof to be redeemed. A New Note in principal amount equal to
the unredeemed portion of the original New Note will be issued in the name of
the Holder thereof upon cancellation of the original New Note. New Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on New Notes or portions of them
called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect holders
of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable
in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company
or any direct or indirect parent of the Company or any Restricted
Subsidiary of the Company (other than any such Equity Interests owned by
the Company or any Restricted Subsidiary of the Company);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that (a)
is pari passu with the New Notes, (b) is subordinate in right of payment
to the Subsidiary Guarantees or (c) otherwise constitutes Subordinated
Indebtedness (other than the New Notes or the Subsidiary Guarantees),
except a payment of interest or principal at the Stated Maturity thereof
or pursuant to any required sinking fund payments; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (2) and (3) of the next succeeding paragraph), is less than the
sum, without duplication, of
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the
Company since the Issue Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (ii) the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or Subordinated Indebtedness of the Company
or any Guarantor or of any Equity Interests of the Company or any
Guarantor in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, Equity Interests of the Company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (3) (b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
(a) pari passu Indebtedness, (b) Indebtedness which is subordinate in
right of payment to the Subsidiary Guarantees or (c) Subordinated
Indebtedness of the Company or any Guarantor with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its common Equity Interests on a pro rata basis
provided that, at the time of the declaration of any such dividends, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof; and
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; provided that (i) the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $1.0 million in any twelve-month period (with
unused amounts in any calendar year being carried over to succeeding
calendar years, without being subject to any maximum due to such carry
over treatment or expiration of any amounts so carried over) and (ii) at
the time of the aforementioned repurchase, redemption, acquisition or
retirement, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Debt), and the Company may issue Disqualified Stock, if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least (a) 2.0 to 1 if
such Indebtedness is incurred on or prior to June, 2001 and (b) 2.25 to 1 if
such Indebtedness is incurred thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Guarantor of Indebtedness
and letters of credit under one or more Credit Facilities; provided that
the aggregate principal amount of all Indebtedness and letters of credit
of the Company outstanding under all Credit Facilities after giving effect
to such incurrence (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and the Guarantors thereunder) does not exceed an amount equal to $135
million less the aggregate amount applied by the Company or any of its
Subsidiaries since the Issue Date to permanently repay Indebtedness (and,
if any of such Indebtedness is revolving credit Indebtedness, to reduce
commitments with respect thereto) under a Credit Facility as a result of
asset dispositions;
(2) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the New Notes in an aggregate principal amount of $100.0
million at any time outstanding and the Subsidiary Guarantees;
(4) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital 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, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to be incurred under the first paragraph of this covenant or
clauses (2), (3), (4) or (9) of this paragraph;
(6) the incurrence by the Company or any Guarantor of intercompany
Indebtedness between or among the Company and any of the Guarantors;
provided, however, that:
(a) such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
New Notes, in the case of the Company, or the Subsidiary Guarantee of
such Guarantor, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other
than the Company or a Guarantor and (ii) any sale or other transfer
of any such Indebtedness to a Person that is not either the Company
or a Guarantor shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or any such Guarantor,
as the case may be, that was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (i) interest rate risk with respect to any floating rate
Indebtedness or (ii) foreign currency valuation risk; in either case, in
respect of Indebtedness that is permitted by the terms of the Indenture to
be outstanding;
(8) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
(9) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (9), not to
exceed $7.5 million;
(10) Indebtedness of the Company's Foreign Subsidiaries in an amount
not to exceed $7.5 million at any time outstanding; and
(11) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class
of Disqualified Stock; provided, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (11) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant. Indebtedness
under Credit Facilities outstanding on the Issue Date shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (1)
of the preceding paragraph. Subject to the other terms of the Indenture, any
Indebtedness incurred in accordance with this covenant may be incurred under the
Credit Agreement.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-dominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-dominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
Permitted Refinancing Indebtedness is denominated that is in effect on the date
of such refinancing.
No Senior Subordinated Debt
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of the Company and senior in any respect in
right of payment to the New Notes. No Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of such Guarantor
and senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of the Company's Restricted Subsidiaries, or
with respect to any other interest or participation in, or measured by,
its profits, or pay any indebtedness owed to the Company or any of the
Company Restricted Subsidiaries;
(2) make loans or advances to the Company or any of the Company's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
the Company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness and the Credit Agreement, in each case as
in effect on the Issue Date and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to
such dividend and other payment restrictions than those contained in such
Existing Indebtedness or Credit Agreement, as in effect on the Issue Date;
(2) the Indenture, the Subsidiary Guarantees and the New Notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in
the case of Indebtedness, such Indebtedness was permitted by the terms of
the Indenture to be incurred;
(5) customary non-assignment provisions in licenses or leases entered
into in the ordinary course of business and consistent with past
practices;
(6) purchase money or capital lease obligations for property acquired
in the ordinary course of business that impose restrictions on the
property so acquired of the nature described in clause (3) of the
preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limit the right of the Company or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,
assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the New Notes and the
Indenture pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of
the Company immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro
forma effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Company and any of its Wholly
Owned Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Holders
of such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted
Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company; and
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments."
Additional Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary after the Issue Date or if any Foreign
Subsidiary becomes a Domestic Subsidiary, then that newly acquired or created
Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture satisfactory to the Trustee and deliver an Opinion of Counsel to the
Trustee within 10 Business Days of the date on which it was acquired or created,
provided, this covenant shall not apply to any Subsidiary that has been properly
designated as an Unrestricted Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be an Investment made as of the
time of such designation and will either reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "--Restricted Payments" or reduce the amount available for
future Investments under one or more clauses of the definition of "Permitted
Investments." All such outstanding Investments will be valued at their fair
market value at the time of such designation. That designation will only be
permitted if such Restricted Payment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary of the Company that is a Guarantor may
enter into a sale and leaseback transaction if:
(1) the Company or that Guarantor, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction under the Fixed Charge Coverage
Ratio test in the first paragraph of the covenant described above under
the caption "--Incurrence of Additional Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction
are at least equal to the fair market value, as determined in good faith
by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee, of the property that is the subject of such sale
and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under the caption "--Asset Sales,"
provided, however, that the restrictions in clauses (1) and (2) above shall not
apply to (a) the issuance of Disqualified Stock in compliance with the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" or (b) the pledge of the Capital Stock of any Restricted
Subsidiary of the Company in compliance with the covenant described above under
the caption "--Liens."
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Company will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
Guarantee of the payment of the New Notes by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness, unless such other
Indebtedness is Senior Debt, in which case the Guarantee of the New Notes shall
be subordinated to the Guarantee of such Senior Debt to the same extent as the
New Notes are subordinated to such Senior Debt.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of
the New Notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "--Subsidiary Guarantees." The form of the Subsidiary
Guarantee will be part of the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of New Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
New Notes unless such consideration is offered to be paid and is paid to all
Holders of the New Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
Whether or not required by the SEC, so long as any New Notes are
outstanding, the Company will furnish to the Holders of New Notes, within the
time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, or if any of the Company's Subsidiaries are not Guarantors, then
the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of the Company and its Restricted
Subsidiaries that are Guarantors separate from the financial condition and
results of operations of the Subsidiaries that are not Guarantors and the
Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the SEC, the Company will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. For all reporting periods ending subsequent to June 14, 1999, the
Issuer shall include in each Form 10-Q and Form 10-K a presentation, which need
not be audited, of sales, operating income, interest expense, depreciation and
amortization, and capital expenditures for such operating period and the twelve
months ended on the last day of such reporting period, on a pro forma basis
consistent with the presentation under the "Unaudited Pro Forma Consolidated
Statement of Income" section of this prospectus.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
New Notes, whether or not prohibited by the subordination provisions of
the Indenture;
(2) default in payment when due of the principal of or premium, if
any, on the New Notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by the Company or any of its Subsidiaries to comply with
the provisions described under the captions "--Change of Control,"
"--Merger, Consolidation or Sale of Assets," "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock";
(4) failure by the Company or any of its Restricted Subsidiaries for
60 days after notice to comply with any of the other agreements in the
Indenture or the New Notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of such
Indebtedness when due at final stated maturity (after giving effect
to any grace period related thereto) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to
its express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5.0 million (net of any
amounts with respect to which a reputable and creditworthy insurance
company has acknowledged liability in writing), which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding New
Notes will become due and payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a notice of acceleration (the "Acceleration Notice") and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become immediately due and payable upon the
first to occur of an acceleration under the Credit Agreement or five Business
Days after receipt by the Company and the Representative under the Credit
Agreement of such Acceleration Notice but only if such Event of Defaults is then
continuing.
Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding New Notes may direct the
Trustee in its exercise of any trust or power. In the event of a declaration of
acceleration of the New Notes because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness described in
clause (5) of the preceding paragraph, the declaration of acceleration of the
New Notes shall be automatically annulled if the holders of any Indebtedness
described in clause (5) have rescinded the declaration of acceleration in
respect of such Indebtedness within 30 days of the date of such declaration and
if (i) the annulment of the acceleration of the New Notes would not conflict
with any judgment or decree of a court of competent jurisdiction, and (ii) all
existing Events of Default, except nonpayment of principal or interest on the
New Notes that became due solely because of the acceleration of the New Notes,
have been cured or waived. The Trustee may withhold from Holders of the New
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the New
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
June 15, 2004, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the New Notes prior to June 15, 2004, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or the Guarantors under the New Notes, the Indenture, the
Subsidiary Guarantees, or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of New Notes by accepting a
New Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the New Notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding New Notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding New Notes to receive
payments in respect of the principal of, premium, if any, and interest on
such New Notes when such payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes,
mutilated, destroyed, lost or stolen New Notes and the maintenance of an
office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the New Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the New Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding New Notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Company
must specify whether the New Notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue
Date, 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 Holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to
the Trustee confirming that the Holders of the outstanding New Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under the Credit
Agreement or any other material agreement or instrument (other than the
Indenture) to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is
bound;
(6) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of New Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Amendment, Supplement and Waiver
Except as described in the next three succeeding paragraphs, the
Indenture or the New Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the New Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for New Notes), and any existing default or compliance with any
provision of the Indenture or the New Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding New Notes
(including consents obtained in connection with a tender offer or exchange offer
for New Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any New Notes held by a non-consenting Holder):
(1) reduce the principal amount of New Notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any New
Note or alter the provisions with respect to the redemption of the New
Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any New Note;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the New Notes (except a rescission
of acceleration of the New Notes by the Holders of at least a majority in
aggregate principal amount of the New Notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any New Note payable in money other than that stated in the
New Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of New Notes to receive
payments of principal of or premium, if any, or interest on the New Notes;
(7) waive a redemption payment with respect to any New Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
Holders of the New Notes will require the consent of the Holders of at least 75%
in aggregate principal amount of New Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or the
New Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated New Notes in addition to or in
place of certificated New Notes;
(3) to provide for the assumption of the Company's obligations to
Holders of New Notes in the case of a merger or consolidation or sale of
all or substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of New Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
Transfer and Exchange
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.
The registered holder of a New Note will be treated as the owner of it
for all purposes.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
New Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the 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 Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of New Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
Except as set forth below, New Notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess thereof. New Notes will be issued at the closing of this exchange
offer only against delivery of the tendered Original Notes.
The New Notes initially will be represented by one or more New Notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the Trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Notes may not be exchanged
for New Notes in certificated form except in limited circumstances.
In addition, transfers of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants (including, if applicable, those of Euroclear and Cedel),
which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the tendering Holders with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners
of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may
hold their interests therein directly through DTC. Investors in the Global Notes
who are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. All interests in a Global Note, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such Persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants, the
ability of a Person having beneficial interests in a Global Note to pledge such
interests to Persons that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will
not have New Notes registered in their names, will not receive physical delivery
of New Notes in certificated form and will not be considered the registered
owners or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the Persons in whose names the New Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither the Company, the
Guarantors, the Trustee nor any agent of the Company, the Guarantors, or the
Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's (including Euroclear and Cedel, without limitation) records
relating to or payments made on account of beneficial ownership interest
in the Global Notes or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's (including
Euroclear and Cedel, without limitation) records relating to the
beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants (including Euroclear and
Cedel, without limitation).
DTC has advised the Company that its current practice, upon receipt of
any payment in respect of securities such as the New Notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of New Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee, the Company or the Guarantors. The
Company, the Guarantors and the Trustee will not be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the New
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds, and transfers
between participants in Euroclear and Cedel will be effected in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
New Notes described herein, cross-market transfers between the Participants in
DTC, on the one hand, and Euroclear or Cedel participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to
be taken by a Holder of New Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global Notes
and only in respect of such portion of the aggregate principal amount of the New
Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the New Notes, DTC
reserves the right to exchange the Global Notes for legended New Notes in
certificated form, and to distribute such New Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. The Company, the Guarantors, the Trustee and their
respective agents will not have any responsibility for the performance by DTC,
Euroclear or Cedel or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with,
or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"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 purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of Cash Equivalents or inventory in the ordinary
course of business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the
caption "--Change of Control" and/or the provisions described above under
the caption "--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries,
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Sales:
(a) any single transaction or series of related transactions
that: (i) involves assets having a fair market value of less than
$1.0 million; or (ii) results in net proceeds to the Company and its
Restricted Subsidiaries of less than $1.0 million;
(b) a transfer of assets (i) between or among the Company and
any Guarantor or (ii) between or among a Restricted Subsidiary of the
Company that is not a Subsidiary Guarantor to another Restricted
Subsidiary of the Company that is not a Subsidiary Guarantor;
(c) an issuance of Equity Interests (i) by a Guarantor to the
Company or to another Guarantor or (ii) by a Restricted Subsidiary of
the Company that is not a Subsidiary Guarantor to another Restricted
Subsidiary of the Company that is not a Subsidiary Guarantor; and
(d) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250.0 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds with assets of $100.0 million or greater which invest substantially
all their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), becomes the Beneficial Owner, directly or
indirectly, of more than 35% of the Voting Stock of the Company, measured
by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving
or transferee Person immediately after giving effect to such issuance.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments, if any, pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses (excluding
any such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of the Company shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of the Company only to
the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary
shall be excluded, whether or not distributed to the specified Person or
one of its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of
June 17, 1999, by and among the Company, DLJ Capital Funding, Inc., as
Administrative Agent, and the other parties thereto providing for revolving
credit and term loans, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, supplemented, extended, renewed, restated,
refunded, replaced or refinanced from time to time, including any amendment,
modification, supplement, extension, renewal, restatement, refunding,
replacement or refinancing that increases the amount borrowable thereunder
provided such Indebtedness could be incurred under the Indenture or alters the
maturity thereof.
"Credit Facilities" means, with respect to the Company or any
Guarantor, one or more debt facilities or commercial paper facilities,
including, without limitation, the Credit Agreement, in each case with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (1) Obligations under the Credit
Agreement and (2) any other Senior Debt permitted under the Indenture the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the New Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means a Subsidiary that is organized under the
laws of the United States, any state thereof or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date, until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations;
plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock)
or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person for such period. In the event that the specified Person or any of its
Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions that have been made by the specified Person or any
of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during
the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred
on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
For the purpose 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 Fixed Charges associated with any Indebtedness
Incurred in connection therewith, or any other calculation under this
definition, the pro forma calculations will be determined in good faith by a
responsible financial or accounting officer of the Company (including pro forma
expense and cost reductions calculated on a basis consistent with Regulation S-X
under the Securities Act). If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
will 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).
"Foreign Subsidiary" means any Restricted Subsidiary that was organized
under the laws of a jurisdiction outside the United States and substantially all
of whose assets are located and business is conducted outside of the United
States.
"GAAP" means generally accepted accounting principles 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 in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) the Company's Domestic Subsidiaries; and
(2) any other subsidiary that executes a Subsidiary Guarantee;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under:
(1) foreign currency exchange agreements, interest rate swap
agreements, interest rate cap agreements and interest rate collar
agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Issue Date" means the date of original issuance of the Original Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person and its Restricted Subsidiaries, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case after taking into account any available tax credits
or deductions and any tax sharing arrangements and amounts required to be
applied to the repayment of Indebtedness, other than Senior Debt, secured by a
Lien on the asset or assets that were the subject of such Asset Sale.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) 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 (other than the New Notes or the
Credit Facilities) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the manufacture, distribution and marketing
of furniture and related products.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary that is not a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) other Investments in any Person engaged in a Permitted Business
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to
this clause (7) since the Issue Date, not to exceed $5.0 million;
(8) other Investments in any Foreign Subsidiary having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (8) since the
Issue Date, not to exceed $2.5 million;
(9) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(10) accounts receivable and commercially reasonable advances to
customers in the ordinary course of business and extensions of trade
credit; and
(11) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts
receivable or (b) as a result of a foreclosure by the Company or any of
its Restricted Subsidiaries with respect to any secured Investment or
other transfer of title with respect to any secured Investment in default.
"Permitted Junior Securities" means: (1) Equity Interests in the
Company; or (2) debt securities of the Company that are subordinated to all
Senior Debt and any debt securities issued in exchange for Senior Debt to the
same extent as, or to a greater extent than, the New Notes and the Subsidiary
Guarantees are subordinated to Senior Debt pursuant to Article Eight of the
Indenture, that have a final maturity date and a weighted average life to
maturity which is the same as or greater than, the New Notes and that are not
secured by a Lien on any assets.
"Permitted Liens" means:
(1) Liens on the assets of the Company and any Guarantor securing
Indebtedness and other Obligations under the Credit Facilities that were
permitted by the terms of the Indenture to be incurred;
(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or
consolidated with the Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that
such Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the Issue Date;
(8) Liens on Assets of the Company and of the Guarantors to secure
Senior Debt of the Company or any such Guarantors that was permitted by
the Indenture to be incurred;
(9) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; and
(10) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of premiums, prepayments, penalties and
reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
equal to or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
New Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right
of payment to, the New Notes on terms at least as favorable to the Holders
of New Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Public Equity Offering" means any underwritten public offering of
common stock of the Company in which the gross proceeds to the Company are at
least $35.0 million.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness and all Obligations (including without
limitation interest accruing after filing of a petition in bankruptcy
whether or not such interest is an allowable claim in such proceeding) of
the Company or its Subsidiaries, including without limitation any
Guarantees of such Obligations, pursuant to the Credit Facilities and all
Hedging Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by the Company or
the Guarantors under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on
a parity with or subordinated in right of payment to the New Notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt
will not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" 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 New Notes pursuant to a written
agreement.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock
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 such Person or one or more
of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means that certain Subsidiary Guarantee executed
by the Guarantors in accordance with the terms of the Indenture.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Set forth below are the material United States federal income tax
consequences relevant to, in the opinion of Gallop, Johnson & Neuman, L.C., our
legal counsel, the exchange offer. Except where noted, the following deals only
with New Notes held as capital assets within the meaning of section 1221 of the
Internal Revenue Code of 1986, as amended ("Internal Revenue Code") by a holder
of New Notes that is an individual citizen or resident of the United States or a
United States corporation that purchased the New Notes pursuant to their
original issue. The following does not deal with special situations, such as
those of broker-dealers, tax-exempt organizations, individual retirement
accounts and other tax deferred accounts, financial institutions, insurance
companies, or persons holding New Notes as part of a hedging or conversion
transaction or a straddle. Furthermore, the following is based upon the
provisions of the Internal Revenue Code and regulations, rulings and judicial
decisions promulgated under the Internal Revenue Code as of the date hereof.
Such authorities may be repealed, revoked, or modified, possibly with
retroactive effect, so as to result in United States federal income tax
consequences different from those discussed below. In addition, except as
otherwise indicated, the following does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
As used herein, a "United States person" is
(1) a citizen or resident of the U.S.,
(2) a corporation, partnership or other entity created or organized in
or under the laws of the U.S. or any political subdivision thereof,
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source,
(4) a trust if
(A) a United States court is able to exercise primary supervision
over the administration of the trust and
(B) one or more United States persons have the authority to control
all substantial decisions of the trust,
(5) a certain type of trust in existence on August 20, 1996, which was
treated as a United States person under the Internal Revenue Code in effect
immediately prior to such date and which has made a valid election to be treated
as a United States person under the Internal Revenue Code, and
(6) any person otherwise subject to U.S. federal income tax on a net
income basis in respect of its worldwide taxable income.
A U.S. Holder is a beneficial owner of a New Note who is a United
States person. A Non-U.S. Holder is a beneficial owner of a New Note that is not
a U.S. Holder.
The Exchange Offer
The exchange of New Notes pursuant to the exchange offer will be
treated as a continuation of the corresponding Original Notes because the terms
of the New Notes are not materially different from the terms of the Original
Notes. Accordingly:
(1) such exchange will not constitute a taxable event to a U.S. Holder,
(2) no gain or loss will be realized by a U.S. Holder upon receipt of a
New Note,
(3) the holding period of the New Note will include the holding period
of the Original Note exchanged therefor and
(4) the adjusted tax basis of the New Notes will be the same as the
adjusted tax basis of the Original Notes exchanged.
The filing of a shelf registration statement should not result in a
taxable exchange to us or any holder of a New Note.
Tax Consequences to U.S. Holders
Payments of Interest. If you are a U.S. Holder, generally you will be
required to include interest payable on a New Note in your gross income as
ordinary interest income at the time it accrues or when you receive it, in
accordance with your method of accounting for federal income tax purposes.
Sale or Retirement of the New Notes. When you sell or exchange a New
Note, or when the Company retires a New Note, you will recognize capital gain or
loss equal to the difference between the amount you realized on the sale,
exchange or retirement and your adjusted tax basis in the New Note. For these
purposes, the amount you realize does not include any amount attributable to
accrued interest on the New Note. Amounts attributable to accrued interest on
the New Note are treated as interest as described under "Payments of Interest"
above. Such capital gain will be long-term capital gain if at the time of such
sale, exchange or retirement the New Note has been held by you for more than 12
months, and will be short-term capital gain if the New Note has been held by you
for 12 months or less. In the case of certain non-corporate taxpayers, long-term
capital gain will be subject to tax at a maximum rate of 20% and short-term
capital gain will be taxable as ordinary income at a maximum rate of 39.6%.
Capital gains (whether short-term or long-term) recognized by corporations will
be taxed at the same rates applicable to ordinary income, although the
distinction between capital gain or loss and ordinary income or loss is relevant
for purposes of, among other things, limitations on the deductibility of capital
losses.
Market Discount
If a U.S. Holder acquires a New Note after its original issue for an
amount that is less than its adjusted issue price at the time of acquisition,
the amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount. The adjusted issue price
of a New Note is its stated redemption price at maturity reduced by any payments
of principal thereon at the time of the acquisition thereof.
Under the market discount rules, a U.S. Holder will be required to
treat any partial principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a New Note as ordinary income to the extent
of the market discount which has not previously been included in income and is
treated as having accrued on such New Note at the time of such payment or
disposition. In addition, the U.S. Holder may be required to defer, until the
maturity of the New Note or its earlier disposition in a taxable transaction,
the deduction of a portion of the interest expense on any indebtedness incurred
or continued to purchase or carry such New Notes.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the New Note, unless
the U.S. Holder elects to accrue such discount on a constant interest rate
method. A U.S. Holder may elect to include market discount in income currently
as it accrues, on either a ratable or constant interest rate method. This
election is made on a debt-by-debt basis and is irrevocable. If this election is
made, the Holder's basis in the New Note will be increased to reflect the amount
of income recognized and the rules described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
Amortizable Bond Premium
A U.S. Holder that purchases a New Note for an amount in excess of the
principal amount will be considered to have purchased such New Note with
"amortizable bond premium." A U.S. Holder generally may elect to amortize the
premium over the remaining term of the New Note on a constant yield method as
applied with respect to each accrual period of the New Note, and allocated
ratably to each day within an accrual period in a manner substantially similar
to the method of calculating daily portions of original issue discount, as
described above. However, because the New Notes may be optionally redeemed for
an amount that is in excess of their principal amount, special rules apply that
could result in a deferral of the amortization of bond premium until later in
the term of the New Note. The amount amortized in any year will be treated as a
reduction of the U.S. Holder's interest income, including original issue
discount income, from the New Note. Bond premium on a New Note held by a U.S.
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized upon disposition of the New Note. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the Internal Revenue Service.
Backup Withholding and Information Reporting. Certain noncorporate U.S.
Holders may be subject to backup withholding at a rate of 31% on payments of
principal, and interest on, and the proceeds of disposition of, a New Note.
Backup withholding will apply only if:
(1) the U.S. Holder fails to furnish its Taxpayer Identification Number
("TIN") in the manner required (which number, for an individual,
would be his or her Social Security number);
(2) the U.S. Holder furnishes an incorrect TIN;
(3) the Internal Revenue Service notifies the Company or other payor that
the U.S. Holder has underreported payments of interest or dividends;
or
(4) under certain circumstances, the U.S. Holder fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has not
been notified by the IRS that it is subject to backup withholding.
Tax Consequences to Non-U.S. Holders
Payments of Interest. If you are not a U.S. Holder (referred to as a
"Non-U.S. Holder"), payments of interest on the New Notes to you will generally
not be subject to U.S. federal income or withholding tax, provided that:
(1) (a) you are not (A) a direct or indirect owner of 10% or more of the
total voting power of all voting equity interests in the Company within
the meaning of Section 871(h)(3) of the Internal Revenue Code and the
Regulations thereunder or (B) a controlled foreign corporation related
to us within the meaning of Section 864(d)(4) of the Internal Revenue
Code;
(b) such interest is not effectively connected with your conduct of a
trade or business within the United States; and
(c) we or our paying agent receives (A) from you, a properly completed
Form W-8 (or substitute Form W-8), signed under the penalties of
perjury, which provides your name and address and certifies that you
are a Non-U.S. Holder or (B) from a security clearing organization,
bank or other financial institution that holds the New Notes in the
ordinary course of its trade or business (a "Financial Institution") on
your behalf, a statement certifying under penalties of perjury that it
has received such a Form W-8 (or substitute Form W-8) from you, or that
it has received from another Financial Institution a statement that it
has received a Form W-8 (or substitute Form W-8) from you, and a copy
of such Form W-8 is furnished to the payor; or
(2) if you are entitled to the benefits of an income tax treaty under which
interest on the New Notes is exempt from United States federal
withholding tax and you provide a properly executed Form 1001 claiming
the exemption.
If payment of interest on a New Note is effectively connected with the
conduct of a trade or business in the United States by you as a Non-U.S. Holder,
such payment will be subject to United States federal income tax on a net basis
at the rates applicable to U.S. Holders generally (and, if you are a corporate
Non-U.S. Holder, such payments may also be subject to a 30% branch profits tax).
Payments that are subject to United States federal income tax on a net basis
will not be subject to United States withholding tax so long as the Non-U.S.
Holder provides us or our paying agent with a properly executed Form 4224.
Sale, Exchange or Retirement of the New Notes. If you are a Non-U.S.
Holder, you will not be subject to United States federal income or withholding
tax with respect to gain recognized on a sale, exchange or retirement of the New
Notes unless (1) the gain is effectively connected with your conduct of a trade
or business in the United States or (2) if you are an individual, you are
present in the United States for 183 or more days in the taxable year of the
disposition and certain other requirements are met.
Backup Withholding and Information Reporting. Interest paid with
respect to a New Note, and payment of the proceeds from the sale, exchange or
retirement of a New Note to or through a United States office of a broker,
received by a Non-U.S. Holder will be subject to information reporting and
backup withholding unless the payor receives the appropriate certification
statement. Appropriate certification procedures require that you certify as to
your status as a Non-U.S. Holder and provide your name and address. In addition,
payments of the proceeds from the sale, redemption or other disposition of a New
Note to or through a foreign office of a broker or the foreign office of a
custodian, nominee or other agent acting on behalf of the beneficial owner of a
New Note will not be subject to information reporting or backup withholding;
however, if the broker, custodian, nominee or other agent is a United States
person, a controlled foreign corporation for federal income tax purposes or a
foreign person 50% or more of whose gross income over a specified three-year
period is from a United States trade or business, information reporting may be
required with respect to such payments.
If you are a Non-U.S. Holder, any amounts withheld under the backup
withholding rules from a payment to you would be allowed as a refund or a credit
against your federal income tax liability, provided that the required
information is furnished to the IRS.
On October 7, 1997, the Department of Treasury issued new regulations
governing the certification procedures regarding withholding, back-up
withholding and information reporting on certain amounts paid to Non-U.S.
Holders, which are effective for payments made after December 31, 2000. In
general, the new Treasury regulations do not alter the treatment of Non-U.S.
Holders who satisfy current reporting requirements. The new Treasury regulations
alter the procedures for claiming the benefits of an income tax treaty and may
change certain procedures relating to intermediaries receiving payments on
behalf of a beneficial owner of a New Note. You should consult your tax advisor
concerning the effect, if any, of such new Treasury regulations on an investment
in the New Notes.
PLAN OF DISTRIBUTION
A broker-dealer that is the Holder of Original Notes that were acquired
for the account of such broker-dealer as a result of market-making or other
trading activities, other than Original Notes acquired directly from us or any
of our affiliates may exchange such Original Notes for New Notes pursuant to the
exchange offer. This is true so long as each broker-dealer that receives New
Notes for its own account in exchange for Original Notes, where such Original
Notes were acquired by such broker-dealer as a result of market-marking or other
trading activities acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes. This prospectus, as it may be amended or
supplemented form time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Original Notes where such
Original Notes were acquired as result of market-making activities or other
trading activities. We have agreed that for a period of 270 days after
consummation of the exchange offer or such shorter period as will terminate when
all registrable securities covered hereby have been sold pursuant hereto, we
will make this prospectus, as it may be amended or supplemented from time to
time, available to any broker-dealer for use in connection with any such resale.
All broker-dealers effecting transactions in the New Notes may be required to
deliver a prospectus.
We will not receive any proceeds from any sale of New Notes by
broker-dealers or any other Holder of New Notes. New Notes received by
broker-dealers for their own account in the exchange offer may be sold from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the 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 and/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 the 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 270 days after consummation of the exchange offer or
such time as any broker-dealer no longer owns any registrable securities, we
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. We have agreed to pay all expenses incident to the
exchange offer and to our performance of, or compliance with, the registration
rights agreements (other than commissions or concessions of any brokers or
dealers) and will indemnify the Holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes offered hereby will be
passed upon for us and the Guarantors by Gallop, Johnson & Neuman, L.C., St.
Louis, Missouri. Donald P. Gallop, a member of Gallop, Johnson & Neuman, L.C.,
serves as one of our directors. In addition, Gallop, Johnson & Neuman, L.C. and
certain of its members beneficially own 247,206 shares of our common stock.
EXPERTS
The consolidated financial statements of Falcon Products, Inc. as of
October 31, 1998 and November 1, 1997 and for each of the three fiscal years in
the period ended October 31, 1998 included in this registration statement and
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Shelby Williams Industries,
Inc. at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus represents only a summary of the information presented
herein, and incorporates by reference the following reports of Falcon that have
been filed with the SEC:
- Annual Report on Form 10-K for the fiscal year ended October 31, 1998;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended January
30, 1999 and May 1, 1999;
- Current Reports on Form 8-K dated May 12, 1999, June 11, 1999, June 15,
1999 and June 28, 1999;
- Schedule 14D-1 dated May 12, 1999, Schedule 14D-1/A dated June 2, 1999
and Schedule 14D-1/A-2 dated June 10, 1999; and
- all documents subsequently filed by Falcon pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
exchange offer.
In addition, this prospectus incorporates by reference the following
reports of Shelby Williams that have been filed with the SEC:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999;
- Current Report on Form 8-K dated May 12, 1999;
- Schedule 14D-9 dated May 12, 1999 and Schedule 14D-9/A dated June 3,
1999; and
- all documents subsequently filed by Shelby Williams pursuant to
sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this exchange offer.
By referring to this "prospectus" we are referring not only to the
information presented herein, but also to the information contained in those
documents that have been incorporated by reference. Any statement contained
herein that contradicts any statement contained in the incorporated documents
will be deemed to modify or supercede the statement contained in the
incorporated documents to the extent of such contradiction for purposes of this
prospectus. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
Falcon files, and until the consummation of our Acquisition of Shelby
Williams, Shelby Williams filed, annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document that either Falcon or Shelby Williams has filed at the following
locations:
- at the Public Reference Room of the SEC, Room 1024--Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C.
20549;
- at the public reference facilities of the SEC's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 or
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
- by writing to the SEC, Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
- at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005; or
- from the SEC's web site, www.sec.gov.
Some of these locations may charge a prescribed fee for copies.
Documents incorporated by reference, other than exhibits to these documents not
specifically incorporated by reference into this prospectus, are available
without charge, upon written or oral request by any person to whom this
prospectus has been delivered, from Falcon, 9387 Dielman Industrial Drive, St.
Louis, Missouri 63132, telephone (314) 991-9200, Attention: Corporate Secretary.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Falcon Products, Inc.
Page
Report of Independent Public Accountants.............................. F-2
Consolidated Statements of Earnings for the years
ended October 31, 1998, November 1, 1997 and
November 2, 1996................................................... F-3
Consolidated Balance Sheets, as of October 31, 1998 and
November 1, 1997.................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended October 31, 1998, November 1,
1997 and November 2, 1996.......................................... F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1998, November 1, 1997 and
November 2, 1996................................................... F-6
Notes to Consolidated Financial Statements............................ F-7
Consolidated Statements of Earnings for the thirteen and
twenty-six weeks ended May 1, 1999 and May
2, 1998 (Unaudited)................................................ F-24
Consolidated Balance Sheets, as of May 1, 1999 (Unaudited)
and October 31, 1998............................................... F-25
Consolidated Statements of Stockholders' Equity for the
twenty-six weeks ended May 1, 1999 and May
2, 1998 (Unaudited)................................................ F-26
Consolidated Statements of Cash Flows for the twenty-six weeks
ended May 1, 1999 and May 2, 1998
(Unaudited)........................................................ F-27
Notes to Unaudited Consolidated Financial Statements--
twenty-six weeks ended May 1, 1999................................. F-28
Shelby Williams Industries, Inc.
Report of Independent Auditors...................................... F-33
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996................................. F-34
Consolidated Balance Sheets as of December 31, 1998
and 1997........................................................... F-35
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996................................... F-36
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and
1996.............................................................. F-37
Notes to Consolidated Financial Statements........................... F-38
Consolidated Statements of Income for the three months
ended March 31, 1999 and 1998 (Unaudited)......................... F-48
Consolidated Balance Sheets as of March 31, 1999
(Unaudited) and December 31, 1998................................. F-49
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998
(Unaudited)....................................................... F-50
Notes to Unaudited Consolidated Financial Statements................. F-51
F-1
<PAGE>
Report of Independent Public Accountants
To Falcon Products, Inc.:
We have audited the accompanying consolidated balance sheets of FALCON
PRODUCTS, INC. (a Delaware corporation) and subsidiaries as of October 31, 1998
and November 1, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended October 31, 1998. 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 Falcon Products,
Inc. and subsidiaries as of October 31, 1998 and November 1, 1997, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended October 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 15, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
FALCON PRODUCTS, INC.
Consolidated Statements of Earnings
For the Years Ended October 31, 1998, November 1, 1997, and November 2,
1996
(In thousands, except per share data) 1998 1997 1996
---------- -------------------
<S> <C> <C> <C>
Net sales..................................................... $143,426 $113,010 $100,702
Cost of sales, including nonrecurring items................... 103,067 79,507 69,125
Special and nonrecurring items................................ 271 3,700 --
----------- -------- -------
Gross margin.................................................. 40,088 29,803 31,577
Selling, general and administrative expenses.................. 29,482 22,044 20,469
----------- ---------- ----------
Operating profit.............................................. 10,606 7,759 11,108
Interest income (expense), net; including interest
income of $264, $228 and $263, respectively............... (619) 139 95
Minority interest in consolidated subsidiary.................. 64 47 89
--------- -------- --------
Earnings from continuing operations before income taxes....... 10,051 7,945 11,292
Income tax expense............................................ 3,701 3,019 4,291
--------- -------- --------
Net earnings from continuing operations....................... 6,350 4,926 7,001
Discontinued operations, net of tax........................... -- 938 1,432
Gain on sale of discontinued operations, net of tax........... -- 6,770 --
--------- -------- -------
Net earnings.................................................. $ 6,350 $ 12,634 $ 8,433
========- ======== ========
Earnings per share - Basic:
Continuing operations.................................... $ 69 $ .51 $ .73
Discontinued operations.................................. -- .10 .15
Gain on sale of discontinued operations.................. -- .70 --
--------- -------- -------
Net earnings per share................................... $ .69 $ 1.31 $ .88
========= ======== ========
Earnings per share - Diluted:
Continuing operations.................................... $ .68 $ .50 $ .71
Discontinued operations.................................. -- .09 .15
Gain on sale of discontinued operations.................. -- .69 --
--------- -------- -------
Net earnings per share................................... $ .68 $ 1.28 $ .86
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FALCON PRODUCTS, INC.
Consolidated Balance Sheets
October 31, 1998, and November 1, 1997
(In thousands, except per share data) 1998 1997
--------- ------
Assets
Current assets:
Cash and cash equivalents.......................... $ 5,186 $ 16,294
Accounts receivable, less allowances of $672
and $337, respectively........................... 22,683 18,625
Inventories, net................................... 24,877 22,687
Prepayments and other current assets............... 3,081 3,732
---------- --------
Total current assets.......................... 55,827 61,338
---------- --------
Property, plant and equipment:
Land 2,116 2,731
Buildings and improvements......................... 11,395 12,347
Machinery and equipment............................ 32,154 26,360
--------- --------
45,665 41,438
Less accumulated depreciation...................... 18,167 16,227
---------- --------
Net property, plant and equipment............. 27,498 25,211
--------- --------
Other assets, net of accumulated amortization:
Goodwill........................................... 23,243 9,454
Other 5,406 3,354
---------- --------
Total other assets...................................... 28,649 12,808
---------- --------
Total Assets....................................... $ 111,974 $ 99,357
========== =========
Liabilities and Stockholders' Equity Current
liabilities:
Accounts payable................................... $ 11,695 $ 10,458
Accrued liabilities................................ 6,769 10,716
Current maturities of long-term debt............... 1,607 1,473
---------- --------
Total current liabilities..................... 20,071 22,647
Long-term obligations:
Long-term debt..................................... 17,208 321
Pension liability.................................. -- 96
Deferred income taxes.............................. 876 2,155
Minority interest in consolidated subsidiary....... 810 874
Other 1,063 --
---------- --------
Total liabilities............................. 40,028 26,093
---------- --------
Stockholders' equity:
Common stock, $.02 par value: authorized
20,000,000 shares; issued 9,915,117.............. 198 198
Additional paid-in capital......................... 47,376 47,376
Treasury stock, at cost (992,777 and 477,512
shares, respectively)............................ (13,557) (6,855)
Cumulative translation adjustments................. (19) (727)
Retained earnings.................................. 37,948 33,272
--------- --------
Total stockholders' equity.................... 71,946 73,264
---------- --------
Total Liabilities and Stockholders' Equity.............. $ 111,974 $ 99,357
========= =========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FALCON PRODUCTS, INC.
Consolidated Statements of Stockholders'
Equity For the Years Ended October 31, 1998, November 1, 1997, and November 2, 1996
Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
(In thousands) Stock Capital Stock Adjustments Earnings Equity
------ ---------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 28, 1995.................. $ 191 $ 42,761 $ (135) $ 182 $15,308 $ 58,307
Net earnings.......................... -- -- -- -- 8,433 8,433
Cash dividends........................ -- -- -- -- (958) (958)
Issuance of stock to Employee
Stock Purchase Plan................ -- 195 533 -- -- 728
Exercise of employee incentive
stock options...................... 2 355 864 -- (553) 668
Compensation expense under non-
qualified stock options............ -- 7 -- -- -- 7
Tax benefit of stock options.......... -- 647 -- -- -- 647
Translation adjustments............... -- -- -- 92 -- 92
Cancellation of restricted stock...... -- (19) -- -- 19 --
Amortization of restricted stock...... -- -- -- -- 24 24
Treasury stock purchases.............. -- -- (2,791) -- -- (2,791)
Issuance of stock for acquisition..... 5 3,314 -- -- -- 3,319
-------- ---------- --------- ---------- -------- -----------
Balance, November 2, 1996.................. 198 47,260 (1,529) 274 22,273 68,476
Net earnings.......................... -- -- -- -- 12,634 12,634
Cash dividends........................ -- -- -- -- (1,348) (1,348)
Issuance of stock to Employee
Stock Purchase Plan................ -- 8 893 -- -- 901
Exercise of employee incentive
stock options...................... -- -- 624 -- (314) 310
Tax benefit of stock options.......... -- 103 -- -- -- 103
Translation adjustments............... -- -- -- (1,001) -- (1,001)
Amortization of restricted stock...... -- -- -- -- 27 27
Treasury stock purchases.............. -- -- (7,202) -- -- (7,202)
Issuance of stock for acquisition..... -- 5 359 -- -- 364
-------- --------- --------- ---------- ------- ---------
Balance, November 1, 1997.................. 198 47,376 (6,855) (727) 33,272 73,264
Net earnings.......................... -- -- -- -- 6,350 6,350
Cash dividends........................ -- -- -- -- (1,457) (1,457)
Issuance of stock to Employee
Stock Purchase Plan................ -- -- 31 -- -- 31
Exercise of employee incentive
stock options...................... -- -- 323 -- (217) 106
Translation adjustments............... -- -- -- 708 -- 708
Treasury stock purchases.............. -- -- (7,473) -- -- (7,473)
Issuance of stock for acquisition..... -- -- 417 -- -- 417
- ------ --------- ---------- ---------- -------- -----------
Balance, October 31, 1998.................. $ 198 $ 47,376 $ (13,557) $ (19) $ 37,948 $ 71,946
======= ========= ========= ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
FALCON PRODUCTS, INC.
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1998, November 1, 1997, and November 2, 1996
(In thousands) 1998 1997 1996
----------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,350 $ 12,634 $ 8,433
Adjustments to reconcile net earnings to cash
provided by operating activities:
Gain on sale of discontinued operations............... -- (6,770) --
Earnings from discontinued operations................. -- (938) (1,432)
Depreciation and amortization......................... 3,753 4,230 3,816
Special and nonrecurring items, net................... 3,521 -- --
Translation adjustments during year................... 708 (1,001) 92
Tax benefit of stock option exercises................. -- 103 647
Compensation expense under stock and option plans..... -- 27 31
Deferred income tax provision......................... 1,768 (978) 819
Minority interest in consolidated subsidiary.......... (64) (47) (89)
Change in assets and liabilities:
Accounts receivable, net......................... (595) (3,346) 1,472
Inventories...................................... (4,695) (3,055) (3,941)
Prepayments and other current assets............. 587 (438) (464)
Other assets, net................................ (2,490) (944) (1,443)
Accounts payable................................. (1,845) 3,264 (172)
Accrued liabilities.............................. (6,215) 763 (1,203)
Other liabilities................................ (156) -- --
--------- -------- -------
Cash provided by continuing operations........... 627 3,504 6,566
Cash provided by (used in) discontinued
operations..................................... -- (99) 867
Cash provided by operating activities............ 627 3,405 7,433
--------- -------- -------
Cash flows from investing activities:
Additions to property, plant and equipment, net....... (6,594) (3,807) (4,449)
Proceeds from sale of discontinued operations......... -- 17,711 --
Net proceeds from sale of building.................... 5,170 -- --
Cost of businesses acquired (including working
capital at acquisition of
$564 in 1998 and $165 in 1996)..................... (15,962) -- (1,189)
--------- -------- --------
Cash provided by (used in) investing activities.. (17,386) 13,904 (5,638)
--------- -------- --------
Cash flows from financing activities:
Common stock issuances................................ 137 1,575 1,396
Treasury stock purchases.............................. (7,473) (7,202) (2,791)
Cash dividends........................................ (1,457) (1,348) (958)
Additions to (repayment of) long-term debt, net....... 14,777 389 (634)
Change in pension liability........................... (333) (143) (64)
--------- -------- --------
Cash provided by (used in) financing activities.. 5,651 (6,729) (3,051)
--------- -------- --------
Increase (decrease) in cash and cash equivalents........... (11,108) 10,580 (1,256)
Cash and cash equivalents - beginning of period............ 16,294 5,714 6,970
--------- -------- -------
Cash and cash equivalents - end of period.................. $ 5,186 $16,294 $ 5,714
========= ======== =======
Supplemental cash flow information:
Cash paid for interest................................ $ 728 $ 91 $ 121
========= ======== =======
Cash paid for taxes................................... $ 5,329 $ 4,841 $ 3,809
========= ======== =======
</TABLE>
F-6
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Falcon Products, Inc. and its subsidiaries (the Company). All significant
intercompany balances and transactions are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal years 1998 and 1997 ended October 31, 1998 and November 1, 1997,
respectively, and included 52 weeks. Fiscal year 1996 ended on November 2, 1996,
and included 53 weeks. References to years relate to fiscal years rather than
calendar years.
Nature of Business
The principal products manufactured and sold by the Company are
pedestal table bases, table tops, metal and wood chairs, booths, millwork and
casegoods. The Company's sales are primarily to the food service, contract
furniture, hospitality, government and healthcare markets. The Company considers
its operations a single industry segment.
The Company operates factories in Mexico through wholly-owned
subsidiaries which produce all of its table base casting requirements and wood
chair frames and casegood products for the hospitality industry. Substantially
all of the sales of these subsidiaries are to the parent company and are
eliminated in consolidation. The Company has a manufacturing facility in the
Czech Republic, Falcon Mimon, a.s., which manufactures and sells chair frames
and fully finished wood chairs throughout Europe and in North America. In
addition, the Company operates Howe Europe a/s, in Middelfart, Denmark, which
markets, assembles and distributes tables and chairs to the European
contract/office market. Sales from foreign operations and export sales from
domestic facilities were $13.6 million, $9.3 million and $10.9 million in 1998,
1997 and 1996, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Substantially
all of the Company's cash equivalents are denominated in U.S. dollars and
therefore the effect of exchange rate changes on cash balances was not
significant during any of the years presented.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method. Inventories at October 31, 1998,
and November 1, 1997, consist of the following:
(In thousands) 1998 1997
------- -------
Raw materials............... $18,174 $17,579
Work in process............. 5,288 4,320
Finished goods, net......... 1,415 788
-------- --------
$ 24,877 $ 22,687
========= =========
F-7
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Property, Plant and Equipment
Investments in property, plant and equipment are recorded at cost.
Improvements are capitalized, while repair and maintenance costs are charged to
operations. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts; gains or losses are included in
operations.
Depreciation, including the amortization of assets recorded under
capital leases, is computed by use of the straight-line method over estimated
service lives. Principal service lives are: buildings and improvements - 5 to 40
years; machinery and equipment - 3 to 13 years.
Certain of the Company's assets were acquired through long-term lease
obligations financed principally by Industrial Development Revenue Bonds. These
leases represent installment purchases. Accordingly, the assets are recorded at
cost and the related obligations are included in long-term obligations as
mortgages payable.
Long-lived Assets
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles to be
held and used or disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. The Company has assessed the recoverability of
long-lived assets, including intangible assets, and has determined that no
impairment loss need be recognized for applicable assets of continuing
operations.
Other Assets
Other assets consist of the following at October 31, 1998, and November
1, 1997:
(In thousands) 1998 1997
--------- -------
Goodwill, net of accumulated amortization
of $2,285 and $1,481.............................. $23,243 $ 9,454
Deferred catalog costs, net of accumulated
amortization of $965 and $318..................... 2,241 1,226
Other, net of accumulated amortization
of $1,127 and $544............................... 3,165 2,128
--------- --------
$ 28,649 $ 12,808
========== =========
Goodwill represents the excess of cost over fair value of net assets
acquired at the date of acquisition. Goodwill is amortized on a straight-line
basis over thirty to forty years. Deferred debt issue costs are amortized on a
straight-line basis over the original life of the respective debt issue,
approximately three years. The cost of the design, production and distribution
of sales catalogs and reprints thereof is being amortized on a straight-line
basis over two to five years.
Pension Plan
The Company has a noncontributory defined benefit pension plan covering
certain hourly and substantially all domestic salaried personnel. The Company's
policy is to fund pension benefits to the extent contributions are deductible
for tax purposes and in compliance with federal laws and regulations.
The Company also has a noncontributory defined benefit pension plan
which covered certain employees of Howe Furniture Corporation. Benefits under
this plan were curtailed January 1, 1993.
F-8
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Stock Dividends
On November 21, 1995, the Board of Directors of the Company declared a
10% stock dividend. The record date of this transaction was December 13, 1995,
with a distribution date of January 2, 1996. All information contained in the
accompanying Consolidated Financial Statements and these Notes to Consolidated
Financial Statements relating to the Company's common stock, including shares
outstanding, stock option plans and per share data, has been restated to give
effect to the stock dividend discussed above.
Foreign Currency Translation
The Financial Statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars in accordance with SFAS No. 52. The functional
currency for Falcon Mimon, a.s. and Howe Europe a/s has been determined to be
the subsidiaries' local currency. As a result, the gain or loss resulting from
the translation of its financial statements to U.S. dollars is included as a
separate component of stockholders' equity.
For the Company's Mexican subsidiaries, inventory, prepayments and
property are translated at historical exchange rates while other assets and
liabilities are translated at current exchange rates. Revenues and expenses are
translated at average exchange rates during the year. The resulting translation
adjustment is included in selling, general and administrative expenses.
The net foreign currency translation and transaction losses included in
earnings for 1998, 1997 and 1996, were $737, $304 and $235 thousand,
respectively.
Interest Rate Hedge Agreement
The Company manages fluctuations in interest rates on borrowings under
its revolving credit facility by using an interest rate swap agreement. The
interest rate swap agreement is accounted for as a hedge of a debt obligation,
and accordingly, the net settlement amount is recorded as an adjustment to
interest expense in the period incurred.
The Company's interest rate swap agreement requires the Company to pay
a fixed rate and receive a floating rate thereby creating fixed rate debt. The
Company's participation in interest rate hedging transactions involves
instruments that have a close correlation with its debt, thereby managing risk.
The interest rate swap agreement has been designed for hedging purposes and is
not held or issued for speculative purposes.
Earnings Per Share
In 1998, the Company adopted SFAS No. 128, "Earnings Per Share." All
per share amounts have been calculated in accordance with SFAS No. 128 using the
weighted average number of shares outstanding during each period, adjusted for
the impact of common stock equivalents using the treasury stock method when the
effect is dilutive. All per share data has been retroactively restated in
accordance with SFAS No. 128.
Note 2 - Business Acquisitions
In March 1998, the Company acquired the stock of Howe Furniture
Corporation and its subsidiaries ("Howe") for $16.6 million, and assumed $2.2
million of outstanding long-term debt of Howe. Howe specializes in the design,
engineering and marketing of tables for the contract office and hospitality
markets. The Company used the purchase method of accounting to record this
acquisition. Accordingly, results of operations have been included in the
financial statements from the date of acquisition. The excess of the purchase
price over amounts assigned to net tangible assets ($13.9 million) was recorded
as goodwill.
F-9
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
In October 1996, the Company acquired certain assets and assumed
certain liabilities of The Chair Source for 241,400 newly issued shares of
common stock valued at approximately $3.3 million, plus 75,000 shares of common
stock to be issued through October 1999, subject to certain contingencies. The
Chair Source manufactures wood and upholstered seating and distributes them
primarily to the hospitality, lodging and food service markets. The company used
the purchase method of accounting to account for this acquisition and recorded
goodwill of approximately $2.9 million relating to this acquisition.
In February 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of a manufacturing facility located in Tijuana,
Mexico. This facility specializes in manufacturing upscale wood and
upholstered seating for the lodging and hospitality markets. The total
purchase price for this facility was approximately $500 thousand and was funded
by the Company with its available cash reserves. The company used the purchase
method of accounting to account for this acquisition and recorded goodwill of
approximately $421 thousand relating to this acquisition.
Note 3 - Special and Nonrecurring Items
During 1998, the Company recorded a pre-tax charge of $4.7 million,
$2.9 million after-tax, related to management's decision to discontinue and
dispose of the Company's hotel casegoods line of business. The charge entails
the writedown of assets, including goodwill, inventories and equipment,
associated with the product line located in the Tijuana, Mexico facility. Of the
total charge, cost of sales includes a $3.3 million charge to write-down the
carrying value of inventory. The remaining components of the charge have been
reported in special and nonrecurring items in the Consolidated Statement of
Earnings and are related to impairment charges and reserves for losses on
disposal of certain assets and exit costs for lease termination.
In 1998, the Company also recorded a $1.3 million pre-tax gain, $0.8
million after-tax, on the sale of the Company's corporate headquarters building
during 1998, which is included in special and non-recurring items, in the
accompanying Consolidated Statement of Earnings. The Company entered into a two
year lease agreement to lease back a portion of the premises, and accordingly,
the portion of the total $2.5 million gain representing the present value of the
operating lease payments, approximately $1.2 million, was deferred and is
included in other liabilities on the accompanying Consolidated Balance Sheet as
of October 31, 1998. The deferred gain will be credited to income as a reduction
to rent expenses over the term of the lease.
During the fourth quarter of 1998, the Company recorded an additional
pre-tax charge of $0.2 million, $0.1 million after-tax, related to the
consolidation of the Company's manufacturing facilities that was announced in
1997.
During 1997, the Company recorded a pre-tax charge of $3.7 million,
$2.3 million after-tax, for special and nonrecurring items. The charges are a
result of the consolidation of the Company's manufacturing operations at its
Anaheim, California and Belding, Michigan facilities into its City of Industry,
California facility and the elimination of several duplicative and nonperforming
wood seating product lines. These pre-tax charges are recorded as a separate
line in the Consolidated Statements of Earnings and included $3.0 million for
costs associated with asset write-downs and dispositions and $0.7 million for
exit costs of leased facilities and employee severance and termination costs.
Note 4 - Discontinued Operations
On September 8, 1997, the Company completed the sale of its William
Hodges division (the Hodges Division) to Leggett & Platt, Incorporated for
approximately $17.7 million. The Hodges Division manufactures wire shelving and
kitchen equipment. The sale resulted in a gain of approximately $6.8 million,
net of applicable income taxes of $3.8 million.
The results of the Hodges Division for 1997 through the date of the
sale (approximately 10.5 months) and for fiscal year 1996 are classified as
discontinued operations in the accompanying consolidated financial statements.
Earnings from the discontinued Hodges Division were $938 thousand in 1997 and
$1,432 thousand in 1996, net of applicable income taxes of $575 thousand and
$877 thousand, respectively. Net revenues from the Hodges Division in 1997
through the date of the sale were $7.8 million. Hodges Division revenues in
fiscal year 1996 were $10.3 million.
F-10
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Note 5 - Rental Expense and Lease Commitments
The Company leases certain manufacturing facilities and certain office
and transportation equipment under non-cancelable lease agreements having an
initial term of more than one year and expiring at various dates through the
year 2006.
The future minimum rental commitments due under lease agreements are as
follows at October 31, 1998:
Capital Operating
(In thousands) Leases Leases
------- ---------
1999........................................... $ 61 $ 2,129
2000........................................... 61 1,411
2001........................................... 61 1,373
2002........................................... 61 849
2003........................................... 61 670
Later years.................................... 61 1,777
-------- -------
Total minimum lease payments................... 366 $ 8,209
=======
Less-amount representing interest.............. (45)
-------
Present value of minimum lease payments........ $ 321
=======
Total operating lease and rental expense was approximately $1,622,
$1,463 and $953 thousand in 1998, 1997 and 1996, respectively.
Note 6 - Long Term Debt
Long-term debt consists of the following at October 31, 1998, and
November 1, 1997:
(In thousands) 1998 1997
-------- ------
Revolving line of credit expiring April 22, 2000,
interest at prime minus 2.0%.......................... $16,935 $ --
Notes payable to a foreign bank, secured by certain
assets of Falcon Mimon, due in varying monthly
installments through 1999, interest at LIBOR + 2.5%... 1,559 1,301
Obligations under capital leases, due in annual
installments through November 16, 2003,
interest at 4.0%...................................... 321 368
Other................................................... -- 125
------- -------
18,815 1,794
Less current maturities................................. 1,607 1,473
------- -------
$17,208 $ 321
======= =======
At October 31, 1998, the Company had letters of credit outstanding of
approximately $409 thousand relating to insurance reserves and certain foreign
purchases.
In connection with the acquisition of Howe, the Company entered into an
unsecured $20.0 million revolving line of credit expiring April 22, 2000. The
rate of interest on borrowings under this agreement is, at the Company's option,
the Prime Rate, Federal Funds Rate or LIBOR adjusted for a spread based upon the
Company's leverage ratio. The variable interest rate was 6.4% at October 31,
1998.
Under the loan agreements, the Company must comply with certain
covenants including, but not limited to, the maintenance of specific ratios and
net worth. The Company has complied with the terms of the loan agreements.
F-11
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
The minimum annual maturities of long-term debt, including capital
lease obligations, are: $1,607, $16,985, $52, $54 and $57 thousand in 1999
through 2003, respectively, and $60 thousand thereafter.
The Company has entered into an interest rate swap agreement with a
notional amount of $12.0 million. The notional amount of the interest rate swap
does not represent amounts exchanged by the parties and thus, is not a measure
of the Company's exposure through its use of the interest rate swap agreement.
The amounts exchanged are determined by reference to the notional amount and
other terms of the contract.
Management believes that the seller of the interest rate swap agreement
will be able to meet its obligation under the agreement. The Company has
policies regarding the financial stability and credit standing of major
counterparties. Non-performance by the counterparty is not anticipated nor would
it have a material adverse effect on the results of operations or financial
position of the Company.
Note 7 - Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" (SFAS No. 109), which requires income taxes to be
accounted for using a balance sheet approach known as the liability method. The
liability method accounts for deferred income taxes by applying statutory tax
rates in effect at the date of the balance sheet to differences between the book
and tax basis of assets and liabilities. Adjustments to deferred income taxes
resulting from statutory rate changes flow through the tax provision in the year
of the change.
The components of income tax expense are as follows:
(In thousands) 1998 1997 1996
------- -------- ------
Current:
Federal.................. $ 1,551 $ 3,587 $ 3,107
State.................... 207 410 365
Foreign.................. 175 -- --
Deferred...................... 1,768 (978) 819
------- -------- -------
$ 3,701 $ 3,019 $ 4,291
======= =======- =======
The following is a reconciliation between statutory federal income tax
expense and actual income tax expense:
(In thousands) 1998 1997 1996
-------- -------- ------
Computed "expected" federal income tax
expense............................... $ 3,417 $ 2,701 $ 3,852
Increase (decrease) resulting from:
State income taxes.................. 393 378 452
Other, net.......................... (109) (60) (13)
------- ------- -------
$ 3,701 $ 3,019 $ 4,291
======= =======- =======
F-12
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
The significant components of deferred income tax assets and
liabilities are as follows:
(In thousands) 1998 1997
------- ------
Deferred tax assets:
Inventories................................... $ 434 $ 648
Reserves and accruals......................... 949 1,505
Net operating loss carryforward............... 822 --
-------- ------
2,205 2,153
Deferred tax liabilities:
Depreciation and other property
basis differences........................... (1,153) (1,558)
Other......................................... (158) (597)
-------- -------
(1,311) (2,155)
Net deferred income tax asset (liability).......... $ 894 $ (2)
======= =======
Net current deferred income tax assets are included in prepayments and
other current assets in the accompanying Consolidated Balance Sheets. The
Company's net operating loss carryforward of $2.2 million expires in 2013. The
Company's income tax returns have been examined by the Internal Revenue Service
for fiscal years through 1994.
Note 8 - Stock Option and Stock Purchase Plans
The Company has an employee incentive stock option plan which allows
the Company to grant key employees incentive and nonqualified stock options to
purchase up to 1,100,000 shares of the Company's common stock at not less than
the market price on the date of grant. Options not exercised accumulate and are
exercisable, in whole or in part, in any subsequent period but not later than
ten years from the date of grant.
The Company also has a Non-Employee Director Stock Option Plan,
approved by the stockholders, under which the Company annually grants an option
to purchase 1,650 shares of common stock to each director who is neither an
officer of the Company nor compensated under any employment or consulting
arrangements ("Non-Employee Director"). Under the plan, the option exercise
price is the fair market value of the Company's common stock on the date of the
grant and the options are exercisable, on a cumulative basis, at 20% per year
commencing on the date of the grant.
The Non-Employee Director Stock Option Plan was amended in December
1998 to increase the number of shares underlying the options granted from 1,650
to 2,000.
The Company accounts for the option plans using APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized relating to the stock options.
Pro forma net earnings and net earnings per common share in the
following table were prepared as if the Company had accounted for its stock
option plans under the fair market value method of SFAS No. 123, "Accounting for
Stock-Based Compensation."
1998 1997 1996
-------- -------- ------
Net earnings - pro forma................. $ 6,127 $12,446 $ 8,425
======= ======= =======
Net earnings per share - pro forma....... $ .66 $ 1.26 $ .86
======= ======= =======
Weighted-average fair value of options
granted................................ $ 6.64 $ 7.39 $ 6.54
======= ======= =======
F-13
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
For the pro forma disclosures, the fair value of each option grant is
estimated at the date of the grant using an option pricing model with the
following assumptions:
1998 1997 1996
-------- -------- --------
Expected dividend yield........... 1% .7% .6%
Expected stock price volatility... 30% 30% 30%
Risk-free interest rate........... 5.8% 6.4% 5.8%
Expected life of option........... 10 years 10 years 10 years
In 1998, the Company adopted an Employee Stock Purchase Plan. Under the
Employee Stock Purchase Plan, employees may contribute up to 10% of their gross
income to purchase stock of the Company at 85% of the lesser of the fair market
value on the grant date or the exercise date.
During 1997, the Company had a Stock Purchase Plan under which eligible
employees could elect to invest up to 10% of salary earned during each pay
period and the Company contributed an amount equal to 40% of each participant's
contributions. This plan was terminated at the end of fiscal 1997.
<TABLE>
<CAPTION>
Stock option transactions under the plans for 1998, 1997, and 1996 are
summarized below:
1998 1997 1996
-------------------- ------------------- ---------------------
Average Number Average Number Average Number
Price of Shares Price of Shares Price of Shares
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year............................ $ 10.70 687,892 $ 9.35 575,925 $ 7.58 766,450
Options granted....................... 14.07 242,550 14.49 168,900 13.04 68,150
Options canceled...................... 13.55 37,791 13.16 12,754 10.00 64,348
Options exercised..................... 4.88 21,803 7.01 44,179 3.44 194,327
------- ------- ------- ------- ------- -------
Options outstanding at end of year.... $ 11.66 870,848 $ 10.70 687,892 $ 9.35 575,925
======= ======= ======= ======= ======= =======
Exercisable at end of year............ 447,663 311,847 245,346
======= ======= =======
Stock options outstanding at October 31, 1998:
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Remaining Weighted Weighted
Number Contractual Average Number Average
Range of Exercise of Options Life Exercise Price of Options Exercise Price
----------------- ---------- ----------- -------------- ----------- --------------
$ 0.50 - $ 10.00 355,488 4.6 $ 9.07 314,733 $ 8.99
$ 10.00 - $ 13.00 132,510 6.5 $ 11.16 63,620 $ 10.96
$ 13.00 - $ 15.00 382,850 8.7 $ 14.23 69,310 $ 14.37
----------- ------------ ------------ ----------- ------------
870,848 6.7 $ 11.66 447,663 $ 10.10
=========== ============ ============ =========== ============
</TABLE>
F-14
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Note 9 - Earnings Per Share
As discussed in Note 1 herein, the Company adopted SFAS No. 128 in
1998. In accordance with SFAS No. 128, the following tables reconcile net
earnings from continuing operations and weighted average shares outstanding to
the amounts used to calculate basic and diluted earnings per share for each of
the years ended 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Per
Net Share
(In thousands, except per share data) Earnings Shares Amount
<S> <C> <C> <C>
For the year ended October 31, 1998
Net Earnings from Continuing Operations.............. $ 6,350 -- $ --
======= ======= =======
Basic Earnings Per Share
Earnings available to common stockholders.......... $ 6,350 9,156 $ 0.69
Assumed exercise of options (treasury method)...... -- 126 --
------- ------- -------
Diluted Earnings Per Share
Earnings available to common stockholders.......... $ 6,350 9,282 $ 0.68
======= ======= =======
For the year ended November 1, 1997
Net Earnings from Continuing Operations.............. $ 4,926 -- $ --
======= ======= =======
Basic Earnings Per Share
Earnings available to common stockholders.......... $ 4,926 9,665 $ 0.51
Assumed exercise of options (treasury method)...... -- 211 --
------- ------- -------
Diluted Earnings Per Share
Earnings available to common stockholders.......... $ 4,926 9,876 $ 0.50
======= ======= =======
For the year ended November 2, 1996
Net Earnings from Continuing Operations.............. $ 7,001 -- $ --
======= ======= =======
Basic Earnings Per Share
Earnings available to common stockholders.......... $ 7,001 9,591 $ 0.73
Assumed exercise of options (treasury method)...... -- 202 --
------- ------- -------
Diluted Earnings Per Share
Earnings available to common stockholders..... $ 7,001 9,793 $ 0.71
======= ======= =======
</TABLE>
Basic earnings per share was computed by dividing Earnings available to
common stockholders by the weighted average shares of common stock outstanding
during the year. Diluted Earnings available to common stockholders was
determined assuming the options issued and outstanding were exercised as of the
first day of the respective year of the grant date. Options to purchase 386,850
shares at a weighted average exercise price of $14.23 per share, 155,400 shares
at a weighted average exercise price of $14.51 per share and 5,000 shares at a
weighted average exercise price of $14.50 were outstanding during 1998, 1997 and
1996, respectively but were not included in the computation of diluted earnings
per share because the exercise price was greater than the average market price
of the common stock. As a result of adoption of SFAS No. 128, the Company
restated reported earnings per share for 1997 and 1996. This accounting change
had no impact of previously reported per share data.
F-15
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Note 10 - Pension Plans
The Company has two noncontributory defined benefit pension plans
covering certain hourly and substantially all salaried domestic personnel. In
connection with the Howe acquisition, the Company acquired the curtailed pension
plan of Howe, whose assets exceed the accumulated benefits. For the Company's
non-curtailed plan, normal retirement age is 65, but provision is made for
earlier retirement. Benefits are based on 1.5% of average annual compensation
for each year of service. Full vesting occurs upon completion of five years of
service. Assets of the plan consist entirely of an investment in a group annuity
contract with an insurance company.
The following actuarial assumptions were used in determining the
Company's net periodic pension cost and projected benefit obligation:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Discount rate....................................... 7.25% 7.25% 7.25%
Rate of salary increase............................. 5.00% 5.00% 5.50%
Expected long-term rate of return on plan assets.... 9.00% 9.00% 9.00%
Net periodic pension cost of the plan, is as follows:
(In thousands) 1998 1997 1996
-------- ------- ------
Service cost - benefits earned during the period. $ 619 $ 473 $ 421
Interest cost on projected benefit obligation..... 369 279 257
Return on plan assets............................. 704 (641) (389)
Net total of other components..................... (1,108) 345 137
------- ------- -------
Net periodic pension cost......................... $ 584 $ 456 $ 426
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The funded status of the defined benefit pension plans is as follows:
(In thousands) 1998 1998 1997
---------- ---------- -------
Plan Whose Plan Whose
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
---------- -----------
<S> <C> <C> <C>
Vested benefit obligation...................................... $ (1,059) $ (4,359) $ (3,643)
Non-vested benefits............................................ -- (380) (631)
---------- --------- ---------
Accumulated benefit obligation................................. (1,059) (4,739) (4,274)
Effect of projected future compensation levels................. (114) (611) (467)
--------- --------- ---------
Projected benefit obligation................................... (1,173) (5,350) (4,741)
Plan assets at fair value...................................... 1,438 4,447 4,018
---------- ---------- ----------
Plan assets greater (less) than projected benefit obligation... 265 (903) (723)
Unrecognized net loss due to past experience different from
assumptions................................................. 89 676 130
Unrecognized prior service cost................................ -- 513 586
Unrecognized net asset......................................... -- (49) (89)
---------- ---------- ----------
Prepaid (accrued) pension cost................................. $ 354 $ 237 $ (96)
========== ========== ==========
</TABLE>
F-16
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
Note 11 - Transactions with Related Parties
Certain of the Company's directors or their affiliates provide various
consulting and other professional services to the Company or receive commissions
as sales representatives. During 1998, 1997 and 1996, the Company incurred
expenses of approximately $222, $99 and $220 thousand, respectively, for such
services.
Note 12 - Contingencies
The Company is subject to various lawsuits and claims with respect to
such matters as patents, product liabilities, government regulations, and other
actions arising in the normal course of business. In the opinion of management,
the ultimate liabilities resulting from such lawsuits and claims will not have a
material adverse effect on the Company's financial condition and results of
operations.
Note 13 - Domestic and Foreign Subsidiaries
Following is condensed consolidating financial statements of Falcon
Products, Inc. and its domestic subsidiaries (Domestic) and Falcon Products,
Inc.'s foreign subsidiaries (Foreign):
<TABLE>
<CAPTION>
Consolidating Statement of Earnings
For the Year Ended October 31, 1998
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
Net sales...................................... $ 135,742 $ 20,665 $ (12,981) $ 143,426
Cost of sales, including nonrecurring items.... 97,801 18,247 (12,981) 103,067
Special and nonrecurring items................. 271 -- -- 271
---------- ---------- ---------- ----------
Gross margin.............................. 37,670 2,418 -- 40,088
Selling, general and adminstrative expenses.... 27,225 2,257 -- 29,482
---------- ---------- ---------- ----------
Operating profit.......................... 10,445 161 -- 10,606
Minority interest in consolidated subsidiary... 64 -- -- 64
Interest income (expense)...................... (546) (73) -- (619)
---------- ---------- ---------- ----------
Earnings before income taxes.............. 9,963 88 -- 10,051
Income tax expense............................. 3,668 33 -- 3,701
---------- ---------- ---------- ----------
Net earnings.............................. $ 6,295 $ 55 $ -- $ 6,350
========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Consolidating Balance Sheet
October 31, 1998
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents............................. $ 3,666 $ 1,520 $ -- $ 5,186
Accounts receivable................................... 20,472 2,211 -- 22,683
Inventories, net...................................... 20,922 3,955 -- 24,877
Other assets 2,760 321 -- 3,081
---------- ---------- ---------- ----------
Total current assets........................ 47,820 8,007 -- 55,827
Property plant and equipment, net..................... 18,362 9,136 -- 27,498
Investment in subsidiaries............................ 7,150 -- (7,150) --
Goodwill and other assets............................. 28,649 -- -- 28,649
---------- ---------- ---------- ----------
Total assets................................ $ 101,981 $ 17,143 $ (7,150) $ 111,974
========== ========== =========== ==========
Liabilities and Stockholders' Equity
Current liabilities................................... $ 16,143 $ 3,928 $ -- $ 20,071
Long-term debt........................................ 17,208 -- -- 17,208
Other long-term liabilities........................... 2,749 -- -- 2,749
Intercompany payable (receivable)..................... (6,065) 6,065 -- --
------------ ---------- ---------- ----------
Total liabilities........................... 30,035 9,993 -- 40,028
---------- ---------- ---------- ----------
Stockholders' equity
Common stock..................................... 198 6,446 (6,446) 198
Additional paid-in capital....................... 47,376 925 (925) 47,376
Treasury stock................................... (13,557) -- -- (13,557)
Cumulative translation adjustment................ (19) -- -- (19)
Retained earnings................................ 37,948 (221) 221 37,948
---------- ----------- ---------- ----------
Total stockholders' equity.................. 71,946 7,150 (7,150) 71,946
---------- ---------- ----------- ----------
Total liabilities and stockholders' equity. $ 101,981 $ 17,143 $ (7,150) $ 111,974
========== =========== ============ ==========
</TABLE>
F-18
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Consolidating Statement of Cash Flows
For the Year Ended October 31, 1998
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities...... $ (452) $ 1,079 $ -- $ 627
---------- ---------- ---------- ----------
Cash flows from investing activities
Acquisition, net of cash............................ (16,457) 495 -- (15,962)
Additions to property, plant and equipment, net..... (845) (579) -- (1,424)
---------- ---------- ---------- ----------
Net cash used in investing activities.......... (17,302) (84) -- (17,386)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Common stock issuance............................... 137 -- -- 137
Treasury stock purchases............................ (7,473) -- -- (7,473)
Cash dividends...................................... (1,457) -- -- (1,457)
Additions to (repayment of) long-term debt, net..... 14,777 -- -- 14,777
Change in pension liability......................... (333) -- -- (333)
----------- ---------- ---------- ----------
Net cash provided by financing activities...... 5,651 -- -- 5,651
---------- ---------- ---------- ----------
Net change in cash and cash equivalents........ $ (12,103) $ 995 $ -- $ (11,108)
========== ========== ========== ===========
Consolidating Statement of Earnings
For the Year Ended November 1, 1997
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
Net sales........................................... $ 109,105 $ 13,917 $ (10,012) $ 113,010
Cost of sales, including nonrecurring items......... 76,003 13,516 (10,012) 79,507
Special and nonrecurring items................. 3,700 -- -- 3,700
---------- ----------- ---------- ----------
Gross margin................................... 29,402 401 -- 29,803
Selling, general and adminstrative expenses......... 21,797 247 -- 22,044
---------- ---------- ---------- ----------
Operating profit............................... 7,605 154 -- 7,759
Minority interest in consolidated subsidiary........ 47 -- -- 47
Interest income (expense)........................... (154) -- 139
---------- ---------- ---------- ----------
Earnings before income taxes................... 7,945 -- -- 7,945
Income tax expense.................................. 3,019 -- -- 3,019
---------- ---------- ---------- ----------
Net earnings from continuing operations........ $ 4,926 $ -- $ -- $ 4,926
========== ========== ========== ==========
</TABLE>
F-19
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Consolidating Balance Sheet
November 1, 1997
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Assets
Cash and cash equivelants............................. $ 15,769 $ 525 $ -- $ 16,294
Accounts receivable................................... 17,986 639 -- 18,625
Inventories, net...................................... 18,638 4,049 -- 22,687
Other assets ......................................... 3,241 491 -- 3,732
---------- ---------- ---------- ----------
Total current assets........................ 55,634 5,704 -- 61,338
Property plant and equipment, net..................... 16,780 8,431 -- 25,211
Investment in subsidiaries............................ 5,527 -- (5,527) --
Goodwill and other assets............................. 12,808 -- -- 12,808
---------- ---------- ---------- ----------
Total assets................................ $ 90,749 $ 14,135 $ (5,527) $ 99,357
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities................................... $ 20,465 $ 2,182 $ -- $ 22,647
Long-term debt........................................ 321 -- -- 321
Other long-term liabilities........................... 3,125 -- -- 3,125
Intercompany payable (receivable)..................... (6,426) 6,426 -- --
---------- ---------- ---------- ----------
Total liabilities........................... 17,485 8,608 -- 26,093
---------- ---------- ---------- ----------
Stockholders' equity
Common stock..................................... 198 5,726 (5,726) 198
Additional paid-in capital....................... 47,376 77 (77) 47,376
Treasury stock................................... (6,855) -- -- (6,855)
Cumulative translation adjustment................ (727) -- -- (727)
Retained earnings................................ 33,272 (276) 276 33,272
---------- ---------- ---------- ----------
Total stockholders' equity.................. 73,264 5,527 (5,527) 73,264
---------- ---------- ----------- ----------
Total liabilities and stockholders' equity.. $ 90,749 $ 14,135 $ (5,527) $ 99,357
========== ========== ========== ==========
</TABLE>
F-20
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Consolidating Statement of Cash Flows
For the Year Ended November 1, 1997
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities............. $ 4,991 $ (1,586) $ -- $ 3,405
---------- ----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of discontinued operations.............. 17,711 -- -- 17,711
Additions to property, plant and equipment, net............ (3,807) -- -- (3,807)
---------- ---------- ---------- ----------
Net cash provided by investing activities............. 13,904 -- -- 13,904
---------- ---------- ---------- ----------
Cash flows from financing activities:
Common stock issuance...................................... (114) 1,689 -- 1,575
Treasury stock purchases................................... (7,202) -- -- (7,202)
Cash dividends............................................. (1,348) -- -- (1,348)
Additions to (repayment of) long-term debt, net............ 389 -- -- 389
Change in pension liability................................ (143) -- -- (143)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... (8,418) 1,689 -- (6,729)
---------- ---------- ---------- ----------
Net change in cash and cash equivalents............... $ 10,477 $ 103 $ -- $ 10,580
=========== ========== ========== ==========
Consolidating Statement of Earnings
For the Year Ended November 2, 1996
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 96,838 $ 11,446 $ (7,582) $ 100,702
Cost of sales.......................................... 65,904 10,803 (7,582) 69,125
---------- ---------- ---------- ----------
Gross margin...................................... 30,934 643 -- 31,577
Selling, general and adminstrative expenses............ 19,757 712 -- 20,469
---------- ---------- ---------- ----------
Operating profit.................................. 11,177 (69) -- 11,108
Minority interest in consolidated subsidiary........... 89 -- -- 89
Interest income (expense).............................. 288 (193) -- 95
---------- ---------- ---------- ----------
Earnings before income taxes...................... 11,554 (262) -- 11,292
Income tax expense..................................... 4,391 (100) -- 4,291
---------- ---------- ---------- ----------
Net earnings from continuing operations........... $ 7,163 $ (162) $ -- $ 7,001
========== ========== ========== ==========
</TABLE>
F-21
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Consolidating Statement of Cash Flows
For the Year Ended November 2, 1996
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Net cash provided by operating activities....................... $ 4,148 $ 3,285 $ -- $ 7,433
---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition, net of cash................................... (1,189) -- -- (1,189)
Additions to property, plant and equipment, net............ (851) (3,598) -- (4,449)
---------- ---------- ---------- ----------
Net cash used in investing activities................. (2,040) (3,598) -- (5,638)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Common stock issuance...................................... 1,389 7 -- 1,396
Treasury stock purchases................................... (2,791) -- -- (2,791)
Cash dividends............................................. (958) -- -- (958)
Additions to (repayment of) long-term debt, net............ (634) -- -- (634)
Change in pension liability................................ (64) -- -- (64)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... (3,058) 7 -- (3,051)
---------- ---------- ---------- ----------
Net change in cash and cash equivalents............... $ (950) $ (306) $ -- $ (1,256)
========== =========== ========== ==========
</TABLE>
F-22
<PAGE>
FALCON PRODUCTS, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Note 14 - Quarterly Financial Information (Unaudited)
(In thousands, except for share data) First Second Third Fourth
-------- -------- ------- -------
<S> <C> <C> <C> <C>
1998
Net sales........................................ $28,060 $33,651 $41,297 $40,418
Special and nonrecurring items................... -- -- 111 160
Gross margin..................................... 8,134 9,525 9,113 13,316
Net earnings..................................... 1,782 1,838 216 2,514
Earnings per share - Diluted:
Net earnings per share...................... $ .19 $ .20 $ .02 $ .28
First Second Third Fourth
1997
Net sales........................................ $26,733 $26,850 $28,570 $30,857
Special and nonrecurring items................... -- -- -- 3,700
Gross margin..................................... 7,658 7,844 8,371 5,930
Net earnings from continuing operations.......... 1,688 1,580 1,653 5
Net earnings from discontinued operations........ 179 362 397 --
Gain on sale of discontinued operations.......... -- -- -- 6,770
Net earnings..................................... 1,867 1,942 2,050 6,775
Earnings per share - Diluted:
Continuing operations....................... $ .17 $ .16 $ .17 $ --
Discontinued operations..................... .02 .04 .04 --
Gain on sale of discontinued operations..... -- -- -- .69
Net earnings per share...................... .19 .20 .21 .69
First Second Third Fourth
------- ------- ------- -------
1996
Net sales........................................ $23,239 $23,266 $25,228 $28,969
Gross margin..................................... 6,855 7,604 7,619 9,499
Net earnings from continuing operations.......... 1,459 1,730 1,699 2,113
Net earnings from discontinued operations........ 164 397 346 525
Net earnings..................................... 1,623 2,127 2,045 2,638
Earnings per share - Diluted:
Continuing operations....................... $ .15 $ .18 $ .17 $ .22
Discontinued operations..................... .02 .04 .04 .05
Net earnings per share...................... .17 .22 .21 .27
</TABLE>
F-23
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks
Thirteen Weeks Ended Ended
May 1, May 2, May 1, May 2,
(In thousands, except per share data) 1999 1998 1999 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net sales....................................... $36,469 $33,651 $71,064 $61,711
Cost of sales................................... 25,797 24,126 50,490 44,052
------ ------- ------- -------
Gross margin............................... 10,672 9,525 20,574 17,659
Selling, general and administrative expenses.... 7,220 6,465 13,833 11,813
------- ------- ------- -------
Operating profit........................... 3,452 3,060 6,741 5,846
Interest (expense) income, net.................. (307) (90) (596) 7
Minority interest in consolidated subsidiary.... 8 19 14 34
------- ------- ------- -------
Earnings before income taxes............... 3,153 2,989 6,159 5,887
Income tax expense.............................. 1,183 1,151 2,325 2,267
------- ------- ------- -------
Net earnings............................... $ 1,970 $ 1,838 $ 3,834 $ 3,620
======= ======= ======= =======
Basic and diluted earnings per share:........... $ .23 $ .20 $ .43 $ .38
======= ======= ======= =======
</TABLE>
F-24
See accompanying notes to consolidated financial statements.
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 1, October 31,
(In thousands, except share data) 1999 1998
--------- -------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents........................ $ 1,162 $ 5,186
Accounts receivable, less allowances of
$421 and $672, respectively.................... 20,567 22,683
Inventories...................................... 27,761 24,877
Prepayments and other current assets............. 3,421 3,081
-------- --------
Total current assets........................ 52,911 55,827
-------- --------
Property, plant and equipment:
Land 2,116 2,116
Buildings and improvements....................... 11,451 11,395
Machinery and equipment.......................... 34,190 32,154
-------- --------
47,757 45,665
Less accumulated depreciation.................... (19,403) (18,167)
-------- --------
Total property, plant and equipment......... 28,354 27,498
-------- --------
Other assets, net of accumulated amortization:
Goodwill......................................... 24,749 23,243
Other ......................................... 5,717 5,406
-------- --------
Total other assets.......................... 30,466 28,649
-------- --------
Total Assets $111,731 $111,974
======== ========
Liabilities and Stockholders' Equity Current
liabilities:
Accounts Payable................................. $ 10,528 $ 11,695
Accrued liabilities.............................. 5,018 6,769
Current maturities of long-term debt............. 2,079 1,607
-------- --------
Total current liabilities................... 17,625 20,071
Long-term obligations:
Long-term debt................................... 19,249 17,208
Deferred income taxes............................ 876 876
Minority interest in consolidated subsidiary..... 796 810
Other ......................................... 759 1,063
-------- --------
Total liabilities........................... 39,305 40,028
-------- --------
Stockholders' equity:
Common stock, $.02 par value: authorized
20,000,000 shares;
9,915,117 shares issued....................... 198 198
Additional paid-in capital....................... 47,376 47,376
Treasury stock, at cost (942,540 and 992,777
shares, respectively).......................... (15,685) (13,557)
Cumulative translation adjustment................ (196) (19)
Retained earnings................................ 40,733 37,948
-------- --------
Total stockholders' equity.................. 72,426 71,946
-------- --------
Total Liabilities and Stockholders' Equity............ $111,731 $111,974
======== ========
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Twenty-Six Weeks Ended May 1, 1999, and May 2, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative Total
Common Pain-in Treasury Translation Retained Stockholders'
(In thousands) Stock Capital Stock Adjustments Earnings Equity
----------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1997............. $ 198 $ 47,376 $ (6,855) $ (727) $ 33,272 $ 73,264
Net earnings..................... -- -- -- -- 3,620 3,620
Exercise of stock options........ -- -- 219 -- (139) 80
Issuance of stock to Employee
Stock Purchase Plan........... -- -- 30 -- -- 30
Translation adjustments.......... -- -- -- (176) -- (176)
Cash dividends................... -- -- -- -- (734) (734)
Treasury stock purchases......... -- -- (5,900) -- -- (5,900)
Issuance of stock for business
acquisition................... -- -- 243 -- -- 243
---------- --------- ---------- ---------- --------- ----------
Balance, May 2, 1998.................. $ 198 $ 47,376 $ (12,263) $ (903) $ 36,019 $ 70,427
========== ========= ========== ========== ========= ==========
Balance, October 31, 1998............. $ 198 $ 47,376 $ (13,557) $ (19) $ 37,948 $ 71,946
Net earnings..................... -- -- -- -- 3,834 3,834
Exercise of stock options........ -- -- 139 -- (67) 72
Issuance of stock to Employee
Stock Purchase Plan........... -- -- 574 -- (226) 348
Translation adjustments.......... -- -- -- (177) -- (177)
Cash dividends................... -- -- -- -- (710) (710)
Treasury stock purchases......... -- -- (3,025) -- -- (3,025)
Issuance of stock for business
acquisition................... -- -- 184 -- (46) 138
------------- --------- ---------- ---------- ---------- ----------
Balance, May 1, 1999.................. $ 198 $ 47,376 $ (15,685) $ (196) $ 40,733 $ 72,426
========== ========= ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Twenty-Six Weeks Ended
May 1, May 2,
(In thousands) 1999 1998
-------- ------
Cash flows from operating activities:
Net earnings $ 3,834 $ 3,620
Adjustments to reconcile net earnings to net
cash provided by (used in)
operating activities:
Depreciation and amortization................... 1,721 1,823
Translation adjustments......................... (177) (176)
Minority interest in consolidated subsidiary.... (14) (34)
Change in assets and liabilities:
Accounts receivable, net................... 2,116 2,166
Inventories................................ (2,884) (1,429)
Prepayments and other current assets....... (340) (1,127)
Other assets, net.......................... (221) (221)
Accounts payable........................... (1,167) (1,082)
Accrued liabilities........................ (1,751) (6,510)
Other liabilities.......................... (304) --
-------- -------
Net cash used in operating activities........... (1,857) (2,970)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment, net...... (1,503) (3,931)
Acquisition, net of cash............................. -- (15,962)
------- -------
Net cash used in investing activities........... (1,503) (19,893)
------- --------
Cash flows from financing activities:
Additions to (repayment of) long-term debt, net...... 2,513 15,150
Common stock issuances............................... 558 110
Cash dividends....................................... (710) (734)
Treasury stock purchases............................. (3,025) (5,900)
-------- --------
Net cash provided by (used in)
financing activities.......................... (664) 8,626
-------- -------
Net decrease in cash and cash equivalents................. (4,024) (14,237)
Cash and cash equivalents-beginning of period............. 5,186 16,294
------- -------
Cash and cash equivalents-end of period................... $ 1,162 $ 2,057
======= =======
Supplemental Cash Flow Information:
Cash paid for interest............................... $ 578 $ 277
======= =======
Cash paid for income taxes........................... $ 2,745 $ 9,770
======= =======
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Twenty-six Weeks Ended May 1, 1999
Note 1 - Interim Results
The financial statements contained herein are unaudited. In the opinion
of management, these financial statements reflect all adjustments, consisting
only of normal recurring adjustments, which are necessary for fair presentation
of the results of the interim periods presented. Reference is made to the
footnotes to the consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the year ended October 31, 1998, filed with the
Securities and Exchange Commission.
Note 2 - Business Acquisition
The Company's results for the thirteen and twenty-six weeks ended May
1, 1999 include Howe Furniture Corporation and its subsidiaries ("Howe"). Howe
was acquired during March 1998, and therefore Howe's results of operation are
not included in the reported results for a portion of the thirteen and
twenty-six weeks ended May 2, 1998.
Note 3 - Comprehensive Income
In June 1997, the Financial Accounting Standards Board adopted
Statements of Financial Accounting Standards, "Reporting Comprehensive Income"
(SFAS) No. 130, which is the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources; it includes all changes in equity during the period except those
resulting from investments by owners and distribution to owners. Comprehensive
income is the total of all components of comprehensive income and other
comprehensive income, including net income. Other comprehensive income refers to
revenues, expenses, gains and losses that under GAAP are excluded from net
income. Effective November 1, 1998, the Company adopted SFAS No. 130. For the
Company, the only element of other comprehensive income is cumulative
translation adjustments, arising from the translation of certain balance sheet
accounts from local currency to functional currency. Comprehensive income was
$2.1 million and $1.9 million for the thirteen weeks ended May 1, 1999 and May
2, 1998, respectively and $3.7 million and $3.4 million for the twenty-six weeks
ended May 1, 1999 and May 2, 1998, respectively.
Note 4 - Subsequent Event
On May 5, 1999, the Company entered into a merger agreement to acquire
all of the outstanding shares of Shelby Williams Industries, Inc. ("Shelby
Williams") for $16.50 per share in cash. The aggregate purchase price, including
transaction costs, for the outstanding Shelby Williams common stock and the cost
of redemption of outstanding Shelby Williams stock options is expected to be
approximately $149.3 million. The acquisition will be funded by senior secured
credit facilities comprised of a $70 million term loan and a $50 million
revolving credit facility in addition to an offering of $100 million of senior
subordinated notes (at the closing, it is expected that the outstanding current
revolver amount of $19.2 million will be paid off and that the term loan and the
notes will be drawn in full and the revolving credit facility will be undrawn.)
The Company's domestic subsidiaries will guarantee the notes on a senior
subordinated basis.
The following condensed consolidating financial statements of the
Company include the combined accounts of the Company and its domestic
subsidiaries and the combined accounts of the foreign subsidiaries. Given the
size of the foreign subsidiaries, relative to the Company and its domestic
subsidiaries on a consolidated basis, separate financial statements of the
respective Company and its domestic subsidiaries are not presented because
management has determined that such information is not material in assessing the
Company and its domestic subsidiaries.
F-28
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 1, 1999
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
<S> <C> <C> <C> <C>
Net sales....................................... $ 35,161 $ 4,472 $ (3,164) $ 36,469
Cost of sales................................... 24,940 4,021 (3,164) 25,797
---------- ---------- ---------- ----------
Gross margin............................... 10,221 451 -- 10,672
Selling, general and administrative expenses.... 7,179 41 -- 7,220
---------- ---------- ---------- ----------
Operating profit........................... 3,042 410 -- 3,452
Minority interest in consolidated subsidiary.... 8 -- -- 8
Interest income (expense)....................... (282) (25) -- (307)
---------- ---------- ---------- ----------
Earnings before income taxes............... 2,768 385 -- 3,153
Income tax expense.............................. 1,095 88 -- 1,183
---------- ---------- ---------- ----------
Net earnings............................... $ 1,673 $ 297 $ -- $ 1,970
========== ========== ========== ==========
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 2, 1998
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
Net sales....................................... $ 31,525 $ 5,145 $ (3,019) $ 33,651
Cost of sales................................... 22,432 4,713 (3,019) 24,126
---------- ---------- ---------- ----------
Gross margin............................... 9,093 432 -- 9,525
Selling, general and administrative............. 6,022 443 -- 6,465
---------- ---------- ---------- ----------
Operating profit........................... 3,071 (11) -- 3,060
Minority interest in consolidated subsidiary.... 19 -- -- 19
Interest income (expense)....................... (75) (15) -- (90)
---------- ---------- ---------- ----------
Earnings before income taxes............... 3,015 (26) -- 2,989
Income tax expense.............................. 1,161 (10) -- 1,151
---------- ---------- ---------- ----------
Net earnings............................... $ 1,854 $ (16) $ -- $ 1,838
========== ========== ========== ==========
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Twenty-six Weeks Ended May 1, 1999
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
Net sales....................................... $ 67,786 $ 9,606 $ (6,328) $ 71,064
Cost of sales................................... 48,440 8,378 (6,328) 50,490
---------- ---------- ---------- ----------
Gross margin............................... 19,346 1,228 -- 20,574
Selling, general and administrative............. 13,306 527 -- 13,833
---------- ---------- ---------- ----------
Operating profit........................... 6,040 701 -- 6,741
Minority interest in consolidated subsidiary.... 14 -- -- 14
Interest income (expense)....................... (566) (30) -- (596)
---------- ---------- ---------- ----------
Earnings before income taxes............... 5,488 671 -- 6,159
Income tax expense.............................. 2,168 157 -- 2,325
---------- ---------- ---------- ----------
Net earnings............................... $ 3,320 $ 514 $ -- $ 3,834
========== ========== ========== ==========
F-29
<PAGE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Twenty-six Weeks Ended May 2, 1998
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
Net sales...................................... $ 58,201 $ 8,957 $ (5,447) $ 61,711
Cost of sales.................................. 40,970 8,529 (5,447) 44,052
---------- ---------- ---------- ----------
Gross margin.............................. 17,231 428 -- 17,659
Selling, general and administrative............ 11,304 509 -- 11,813
---------- ---------- ---------- ----------
Operating profit.......................... 5,927 (81) -- 5,846
Minority interest in consolidated subsidiary... 34 -- -- 34
Interest income (expense)...................... 45 (38) -- 7
---------- ---------- ---------- ----------
Earnings before income taxes.............. 6,006 (119) -- 5,887
Income tax expense............................. 2,312 (45) -- 2,267
---------- ---------- ---------- ----------
Net earnings.............................. $ 3,694 $ (74) $ -- $ 3,620
========== ========== ========== ==========
Falcon Products, Inc.
Consolidating Balance Sheet
May 1, 1999
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -------
Assets
Cash and cash equivalents............................. $ (31) $ 1,193 $ -- $ 1,162
Accounts receivable................................... 18,185 2,382 -- 20,567
Inventories ......................................... 22,902 4,859 -- 27,761
Other assets ......................................... 2,891 530 -- 3,421
---------- ---------- ---------- ----------
Total current assets........................ 43,947 8,964 -- 52,911
Property, plant and equipment, net.................... 19,329 9,025 -- 28,354
Investment in subsidiaries............................ 7,664 -- (7,664) --
Intangibles and other assets.......................... 30,466 -- -- 30,466
---------- ---------- ---------- ----------
Total assets................................ $ 101,406 $ 17,989 $ (7,664) $ 111,731
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities................................... $ 13,056 $ 4,569 $ -- $ 17,625
Long-term debt........................................ 19,249 -- -- 19,249
Other long-term liabilities........................... 2,431 -- -- 2,431
Intercompany payable (receivable)..................... (5,756) 5,756 -- --
---------- ---------- ---------- ----------
Total liabilities........................... 28,980 10,325 -- 39,305
---------- ---------- ---------- ----------
Stockholders' equity
Common stock..................................... 198 6,446 (6,446) 198
Additional paid-in capital....................... 47,376 925 (925) 47,376
Treasury stock................................... (15,685) -- -- (15,685)
Cumulative translation adjustment................ (196) -- -- (196)
Retained earnings................................ 40,733 293 (293) 40,733
Total stockholders' equity.................. 72,426 7,664 (7,664) 72,426
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity. $ 101,406 $ 17,989 $ (7,664) $ 111,731
========== ========== ========== ==========
F-30
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements--(Continued)
Consolidating Balance Sheet
October 31, 1998
Total Total
Domestic Foreign Eliminations Total
--------- -------- ------------ --------
Assets
Cash and cash equivalents............................. $ 3,666 $ 1,520 $ -- $ 5,186
Accounts receivable................................... 20,472 2,211 -- 22,683
Inventories, net...................................... 20,922 3,955 -- 24,877
Other assets 2,760 321 -- 3,081
--------- --------- ---------- ----------
Total current assets........................ 47,820 8,007 -- 55,827
Property plant and equipment, net..................... 18,362 9,136 -- 27,498
Investment in subsidiaries............................ 7,150 -- (7,150) --
Goodwill and other assets............................. 28,649 -- -- 28,649
---------- ---------- ---------- ----------
Total assets................................ $ 101,981 $ 17,143 $ (7,150) $ 111,974
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities................................... $ 16,143 $ 3,928 $ -- $ 20,071
Long-term debt........................................ 17,208 -- -- 17,208
Other long-term liabilities........................... 2,749 -- -- 2,749
Intercompany payable (receivable)..................... (6,065) 6,065 -- --
---------- ---------- ---------- ----------
Total liabilities........................... 30,035 9,993 -- 40,028
---------- ---------- ---------- ----------
Stockholders' equity
Common stock..................................... 198 6,446 (6,446) 198
Additional paid-in capital....................... 47,376 925 (925) 47,376
Treasury stock................................... (13,557) -- -- (13,557)
Cumulative translation adjustment................ (19) -- -- (19)
Retained earnings................................ 37,948 (221) 221 37,948
---------- ---------- ---------- ----------
Total stockholders' equity.................. 71,946 7,150 (7,150) 71,946
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity.. $ 101,981 $ 17,143 $ (7,150) $ 111,974
========== ========== ========== ==========
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended May 1, 1999
Total Total
Domestic Foreign Eliminations Total
--------- -------- ------------ --------
Net cash from operating activities..................... $ (1,444) $ (413) $ -- $ (1,857)
---------- ---------- ---------- ----------
Cash flows used in investing activities
Capital expenditures, net.......................... (1,589) 86 -- (1,503)
---------- ---------- ---------- ---------
Net cash used in investing activities.................. (1,589) 86 -- (1,503)
---------- ---------- ---------- ---------
Cash flows used in financing activities
Common stock issuance............................. 558 -- -- 558
Treasury stock purchases.......................... (3,025) -- -- (3,025)
Cash dividends.................................... (710) -- -- (710)
Additions to (repayment of) long-term debt, net... 2,513 -- -- 2,513
---------- ---------- ---------- ----------
Net cash used in financing activities.................. (664) -- -- (664)
---------- ---------- ---------- ----------
Net change in cash and cash equivalents................ $ (3,697) $ (327) $ -- $ (4,024)
========== ========== ========== ==========
F-31
<PAGE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements--(Continued)
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended May 2, 1998
Total Total
Domestic Foreign Eliminations Total
--------- --------- ------------ --------
Net cash from operating activities..................... $ (1,411) $ (1,559) $ -- $ (2,970)
---------- ---------- ---------- ----------
Cash flows used in investing activities
Acquisition, net of cash.......................... (15,962) -- -- (15,962)
Capital expenditures, net......................... (4,548) 617 -- (3,931)
---------- ---------- ---------- ----------
Net cash used in investing activities.................. (20,510) 617 -- (19,893)
---------- ---------- ---------- ----------
Cash flows used in financing activities
Common stock issuance............................. 110 -- -- 110
Treasury stock purchases.......................... (5,900) -- -- (5,900)
Cash dividends.................................... (734) -- -- (734)
Additions to (repayment of) long-term debt, net... 15,150 -- -- 15,150
---------- ---------- ---------- ----------
Net cash used in financing activities.................. 8,626 -- -- 8,626
---------- ---------- ---------- ----------
Net change in cash and cash equivalents................ $ (13,295) $ (942) $ -- $ (14,237)
========== ========== ========== ==========
</TABLE>
F-32
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Shelby Williams Industries, Inc.
We have audited the accompanying consolidated balance sheets of Shelby
Williams Industries, Inc., as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shelby
Williams Industries, Inc., as of December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 29, 1999
Atlanta, Georgia
F-33
<PAGE>
<TABLE>
<CAPTION>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Income
Years Ended December 31,
1998 1997 1996
------------- ------------- ---------
<S> <C> <C> <C>
Net sales................................ $ 165,937,000 $ 157,779,000 $ 149,481,000
Cost of goods sold....................... 126,388,000 120,849,000 114,998,000
Selling, general and administrative
expenses............................... 22,994,000 22,268,000 22,100,000
------------- ------------- -------------
16,555,000 14,662,000 12,383,000
Other deductions (income):
Interest expense......................... 391,000 622,000 969,000
Interest income.......................... (539,000) (614,000) (18,000)
Miscellaneous income..................... (102,000) (89,000) (44,000)
------------- ------------- -------------
(250,000) (81,000) 907,000
------------- ------------- -------------
Income from continuing operations
before income taxes.................... 16,805,000 14,743,000 11,476,000
Income taxes:
Current.................................. 7,626,000 4,926,000 3,247,000
Deferred................................. (1,435,000) 140,000 473,000
------------- ------------- -------------
6,191,000 5,066,000 3,720,000
------------- ------------- -------------
Income from continuing operations........ 10,614,000 9,677,000 7,756,000
Discontinued operations:
Income (loss) from discontinued
operations, net of taxes............... (48,000) 915,000 661,000
Loss on disposal of discontinued
operations, net of taxes............... (7,081,000) -- --
------------- ------------- -------------
Net income............................... $ 3,485,000 $ 10,592,000 $ 8,417,000
============= ============= =============
Income per share:
Continuing operations.................... $ 1.17 $ 1.05 $ 0.88
Income (loss) from discontinued
operations, net of taxes............... (0.01) 0.10 0.08
Loss on disposal of discontinued
operations, net of taxes............... (0.78) -- --
------------- ------------- -------------
Net income............................... $ 0.38 $ 1.15 $ 0.96
============= ============= =============
Income per share-assuming dilution:
Continuing operations.................... $ 1.17 $ 1.05 $ 0.88
Income (loss) from discontinued
operations, net of taxes............... (0.01) 0.10 0.07
Loss on disposal of discontinued
operations, net of taxes............... (0.78) -- --
------------- ------------- -------------
Net income............................... $ 0.38 $ 1.15 $ 0.95
============= ============= =============
Weighted average number of common
shares outstanding..................... 9,078,000 9,198,000 8,805,000
============= ============= =============
Weighted average number of common
shares outstanding-assuming dilution... 9,108,000 9,250,000 8,838,000
============= ============= =============
</TABLE>
See accompanying notes.
F-34
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Balance Sheets
December 31,
1998 1997
------------- ---------
Assets
Current assets:
Cash and cash equivalents...................... $ 6,355,000 $ 11,124,000
Accounts receivable, less allowance for
doubtful accounts of $375,000 in 1998
and $325,000 in 1997........................ 28,025,000 26,165,000
Inventories:
Raw materials............................. 11,818,000 8,147,000
Work in process........................... 5,492,000 4,978,000
Finished goods............................ 5,234,000 4,643,000
------------ ------------
22,544,000 17,768,000
Prepaid expenses............................... 5,187,000 5,015,000
Net assets of discontinued operations.......... -- 8,857,000
------------ ------------
Total current assets........................... 62,111,000 68,929,000
Net assets of discontinued operations.......... -- 2,335,000
Excess of cost over net assets of acquired
companies................................... 151,000 160,000
Property, plant and equipment, at cost:
Land and land improvements................ 2,560,000 2,392,000
Buildings and leasehold improvements...... 20,974,000 20,176,000
Machinery and equipment................... 26,746,000 22,720,000
Construction in progress.................. -- 1,690,000
------------ ------------
50,280,000 46,978,000
Less accumulated depreciation and
amortization........................... 24,295,000 22,367,000
------------ ------------
25,985,000 24,611,000
Other assets................................... 1,386,000 1,203,000
------------ ------------
$ 89,633,000 $ 97,238,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................... $ 7,063,000 $ 4,730,000
Customer deposits on orders in process......... 5,717,000 4,225,000
Accrued liabilities............................ 6,278,000 5,629,000
Income taxes................................... 889,000 1,851,000
Current portion of long-term debt.............. 3,000,000 4,000,000
------------ ------------
Total current liabilities...................... 22,947,000 20,435,000
Long-term debt................................. -- 3,000,000
Deferred income taxes.......................... 1,991,000 2,031,000
Commitments (see notes)
Stockholders' equity:
Common stock, $.05 par value; authorized
30,000,000 shares; issued
11,876,000 shares (1997-11,848,000).... 593,000 592,000
Capital in excess of par value............ 10,128,000 9,837,000
Retained earnings......................... 77,012,000 76,820,000
------------ ------------
87,733,000 87,249,000
Less common stock held in treasury;
3,025,000 shares at cost
(1997-2,500,000)....................... 23,038,000 15,477,000
------------ ------------
Total stockholders' equity..................... 64,695,000 71,772,000
------------ ------------
$ 89,633,000 $ 97,238,000
============ ============
See accompanying notes.
F-35
<PAGE>
<TABLE>
<CAPTION>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Years Ended December 31,
1998 1997 1996
------------- ------------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 3,485,000 $ 10,592,000 $ 8,417,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 2,478,000 2,298,000 2,457,000
Provision for losses on accounts receivable.................. 207,000 110,000 136,000
Change in net assets of discontinued operations.............. 9,692,000 (468,000) (314,000)
Changes in assets and liabilities net of effects
from sale of facility:
Accounts receivable........................................ (2,067,000) (2,953,000) (540,000)
Inventories................................................ (4,776,000) 2,380,000 (640,000)
Prepaid expenses........................................... (172,000) (2,051,000) (267,000)
Accounts payable and accrued liabilities................... 4,474,000 (818,000) (2,706,000)
Income taxes payable....................................... (962,000) 147,000 921,000
Increase (decrease) in deferred taxes........................... (40,000) (106,000) 34,000
Pension liability adjustment.................................... -- 789,000 119,000
Other ........................................................ (183,000) 168,000 452,000
------------ ------------ ------------
Net cash provided by operating activities............................ 12,136,000 10,088,000 8,069,000
Cash flows from investing activities:
Proceeds from sale of business and facility..................... 1,500,000 -- 2,000,000
Proceeds from disposal of property, plant and equipment......... 76,000 133,000 5,000
Capital expenditures............................................ (3,919,000) (3,557,000) (1,189,000)
------------ ------------ ------------
Net cash provided (used) by investing activities .................... (2,343,000) (3,424,000) 816,000
Cash flows from financing activities:
Sale of treasury stock at public offering....................... -- 7,953,000 --
Repayment of short-term borrowings.............................. -- -- (5,900,000)
Principal payments of long-term debt............................ (4,000,000) (1,000,000) (32,000)
Sale of common stock under stock option plan.................... 292,000 296,000 290,000
Purchase of common stock for the treasury....................... (7,561,000) (884,000) (1,937,000)
Dividends declared and paid..................................... (3,293,000) (2,944,000) (2,643,000)
------------ ------------ ------------
Net cash provided (used) by financing activities..................... (14,562,000) 3,421,000 (10,222,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents............ (4,769,000) 10,085,000 (1,337,000)
Cash and cash equivalents at beginning of year.................. 11,124,000 1,039,000 2,376,000
------------ ------------ ------------
Cash and cash equivalents at end of year............................. $ 6,355,000 $ 11,124,000 $ 1,039,000
============ ============ ============
Supplemental cash flow information:
Cash paid during the year for:
Interest..................................................... $ 447,000 $ 632,000 $ 969,000
Income taxes................................................. 4,557,000 6,104,000 3,277,000
------------ ------------ ------------
$ 5,004,000 $ 6,736,000 $ 4,246,000
============ ============ ============
</TABLE>
See accompanying notes.
F-36
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1998, 1997 and 1996
----------------------------------------------------------------------------------------
Common Stock Accumulated
------------ Capital in other
Shares excess of Retained comprehensive Treasury
Issued Amount par value earnings income stock, at cost Total
------ ------ ---------- -------- ------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 ...................... 11,779,000 $ 589,000 $ 7,855,000 $ 63,398,000 $ (908,000) $(19,210,000) $ 51,724,000
Net income.................... -- -- -- 8,417,000 -- -- 8,417,000
Other comprehensive
income:
Pension liability
adjustment............ -- -- -- -- 198,000 -- 198,000
Tax expense.............. -- -- -- -- (79,000) -- (79,000)
------------ ----------- ------------
Comprehensive income.......... -- -- -- 8,417,000 119,000 -- 8,536,000
Sale of common stock under
stock option plan.......... 35,000 2,000 288,000 -- -- -- 290,000
Common stock purchased for
treasury (168,000
shares).................... -- -- -- -- -- (1,937,000) (1,937,000)
Cash dividends - $.30 per
share...................... -- -- -- (2,643,000) -- -- (2,643,000)
------------ ----------- ----------- ------------ ----------- ----------- ------------
Balance at December 31,
1996 ...................... 11,814,000 591,000 8,143,000 69,172,000 (789,000) (21,147,000) 55,970,000
Net income.................... -- -- -- 10,592,000 -- -- 10,592,000
Other comprehensive
income:
Pension liability
adjustment............ -- -- -- -- 1,315,000 -- 1,315,000
Tax expense.............. -- -- -- -- (526,000) -- (526,000)
------------- ----------- - ------------
Comprehensive income.......... -- -- -- 10,592,000 789,000 -- 11,381,000
Sale of treasury stock at
public offering (619,000
shares).................... -- -- 1,399,000 -- -- 6,554,000 7,953,000
Sale of common stock under
stock option plan.......... 34,000 1,000 295,000 -- -- -- 296,000
Common stock purchased for
treasury (72,000 shares)... -- -- -- -- -- (884,000) (884,000)
Cash dividends - $.32 per
share...................... -- -- -- (2,944,000) -- -- (2,944,000)
------------ ----------- ----------- ------------ ----------- ----------- ------------
Balance at December 31,
1997 ...................... 11,848,000 592,000 9,837,000 76,820,000 0 (15,477,000) 71,772,000
Net income and
comprehensive income....... -- -- -- 3,485,000 -- -- 3,485,000
Sale of common stock under
stock option plan.......... 28,000 1,000 291,000 -- -- -- 292,000
Common stock purchased for
treasury (525,000
shares).................... -- -- -- -- -- (7,561,000) (7,561,000)
Cash dividends - $.36 per
share...................... -- -- -- (3,293,000) -- -- (3,293,000)
------------ ----------- ----------- ------------ ----------- ----------- ------------
Balance at December 31,
1998 ...................... 11,876,000 $ 593,000 $10,128,000 $ 77,012,000 $ 0 $(23,038,000) $ 64,695,000
============ =========== =========== ============= =========== ============ ============
</TABLE>
See accompanying notes.
F-37
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Description of Business
Shelby Williams designs, manufactures and distributes products for the
contract furniture market. The Company has a significant position in the
hospitality and food service markets through its "Shelby Williams" seating line,
"King Arthur" line of function room furniture and "Sterno" accessories. It
serves the health care, university, and other institutional markets through its
"Thonet" division with health care and university furniture, including chairs,
tables, and other institutional products. The Company also processes and
distributes vinyl wallcoverings for residential, hotel and office use under the
name "Sellers & Josephson."
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
items and transactions are denominated in U.S. dollars and have been eliminated
in consolidation.
Revenue Recognition
Sales are recognized when the products are shipped.
Income Taxes
Income tax expense includes Federal and state income taxes currently
payable and deferred taxes arising from temporary differences between the tax
bases of assets or liabilities and their reported amounts in the financial
statements.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments, with original
maturities of three months or less, that are readily convertible to known
amounts of cash.
Inventories
Inventories are carried at the lower of cost or market, determined by
the last-in, first-out (LIFO) method. The current replacement cost of
inventories exceeded carrying value by approximately $10,828,000 at December 31,
1998 and $9,997,000 at December 31, 1997.
As a result of the difference between the method of allocating the cost
of acquisitions in 1976, 1987 and 1988 for financial reporting purposes, and the
method used for income tax purposes, the Company's tax basis in the inventories
is approximately $20,204,000 at December 31, 1998 and $22,278,000 at December
31, 1997. Related 1998 disposition cost of $616,000 was not a deduction for tax.
F-38
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is
provided using the straight-line method over the estimated useful lives of the
respective assets.
Post-employment Benefits
The Company provides certain post-employment benefits. Payments of
these benefits in the past have been infrequent and are not estimable, thus the
Company records these benefits on an event basis.
Other Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. As a result of significant deductibles in its insurance
coverage for liability and worker's compensation claims, the Company provides
amounts which management believes are sufficient to cover the associated
liabilities.
Commitments
Leases
The Company leases certain manufacturing facilities under operating
leases which expire over the next seven years. The Company also leases showroom
space under operating leases expiring over the next five years.
Future minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1998 are:
Year ending
December 31,
-------------
1999.......................................................... $ 1,058,000
2000.......................................................... 968,000
2001.......................................................... 573,000
2002.......................................................... 532,000
2003.......................................................... 469,000
Subsequent to 2003............................................ 62,000
------------
Total minimum lease payments.................................. $ 3,662,000
============
Total rental expense for all operating leases aggregated $1,899,000 in
1998, $1,955,000 in 1997, and $1,912,000 in 1996.
Short-Term Borrowings
The Company has unsecured lines of credit amounting to $20,000,000 at
interest rates of prime or less. At December 31, 1998, all of these lines were
unused.
F-39
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
Long-Term Debt
Long-term debt at December 31, 1998, and 1997 consisted of the
following:
1998 1997
----------------------------
7.8% senior notes due in quarterly
installments through July 1999............ $ 3,000,000 $ 7,000,000
Less amounts due within one year............ 3,000,000 4,000,000
------------ ------------
$ -- $ 3,000,000
============ ============
The terms of the senior note agreement contain certain restrictions. At
December 31, 1998, the Company was in compliance with all such restrictions. The
final $863,000 of a capitalized lease obligation was discharged by assignment
with sale of the related facility in August 1996.
Common Stock Information (unaudited)
The following table sets forth the high and low sales prices of the
Company's common stock as reported by the New York Stock Exchange.
Sales
Prices High Low
------ ---- -----
1998 1st Quarter................................ 17 1/8 14 5/8
2nd Quarter................................ 16 1/8 14 5/8
3rd Quarter................................ 15 3/4 11
4th Quarter................................ 13 1/8 11
1997 1st Quarter................................ 17 11 7/8
2nd Quarter................................ 14 3/8 11 3/8
3rd Quarter................................ 19 7/8 13 3/4
4th Quarter................................ 20 5/8 14 3/4
At December 31, 1998, there were approximately 3,000 holders of record
of the Company's common stock, including individual participants in security
position listings.
The Company declared and paid cash dividends on its common stock during
the last two fiscal years as follows:
Cash Dividend
per
Common Share
-----------------
Period 1998 1997
------ -----------------
1st Quarter....................................... $ 0.09 $ 0.08
2nd Quarter....................................... 0.09 0.08
3rd Quarter....................................... 0.09 0.08
4th Quarter....................................... 0.09 0.08
------ ------
$ 0.36 $ 0.32
====== ======
F-40
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Quarterly Results (unaudited)
Summarized quarterly results for the two years ended December 31, 1998
follows (dollars in thousands, except for per share amounts):
1998 1997
-----------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $ 44,237 $ 42,387 $ 40,829 $ 38,484 $ 41,966 $ 39,608 $ 39,749 $ 36,456
Gross profit................ 10,962 10,095 9,937 8,555 10,256 9,435 9,182 8,057
Income from continuing
operations............... 3,120 2,727 2,689 2,078 2,862 2,532 2,450 1,833
Net income (loss)........... 3,120 2,727 (4,476) 2,114 2,985 2,734 2,707 2,166
Income (loss) per share
(basic and diluted):
Continuing operations.... 0.35 0.30 0.29 0.22 0.31 0.27 0.26 0.21
Net income (loss)........ 0.35 0.30 (0.49) 0.23 0.32 0.29 0.29 0.25
</TABLE>
Stock Option Plans
Under the Company's incentive stock option plan and directors' stock
option plan, options are granted to key employees and directors to purchase the
Company's common stock at not less than fair market value at date of grant. At
December 31, 1998 and 1997, there were 276,000 and 308,000 shares, respectively,
reserved for issuance under the plans. Of options granted, 20,000 in 1997 and
16,000 in 1996 have five year terms and vest and become fully exercisable at the
end of six months service. The remaining options granted in 1997 and 1996 and
all of the options granted in 1998 have five year terms and vest and become
exercisable in 1/3 increments after 15 months, 30 months, and 45 months,
respectively, of continued employment.
The intrinsic value method is used in accounting for stock-based awards
under the Company's stock option plans. Because the exercise price of the
Company's stock options at least equals the market price of the under-lying
stock on the date of grant, no compensation expense is recognized.
A summary of the Company's stock option activity, and related
information for years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year................... 217 $ 12.17 147 $ 9.97 119 $ 8.30
Granted........................................... 43 16.69 107 13.96 63 12.25
Exercised......................................... (28) 10.37 (34) 8.61 (35) 8.38
Forfeited......................................... (4) 14.00 (3) 8.38 -- --
----- ------- ----- ------- ----- ------
Outstanding - end of year......................... 228 $ 13.21 217 $ 12.17 147 $ 9.97
===== ======= ===== ======= ===== ======
Exercisable at end of year........................ 111 $ 11.62 88 $ 10.89 79 $ 9.14
===== ======= ===== ======= ===== ======
Weighted-average fair value of options granted
during the year................................ $ 5.17 $ 4.05 $ 3.68
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged
from $7.94 to $8.73 for 33,000 options and $12.12 to $18.15 for 195,000 options,
with weighted-average exercise prices of $8.03 and $14.10, respectively. The
weighted-average remaining contractual life of those options is 1 year and 3
years, respectively, or 2.7 years as a whole. Exercise prices for options
exercisable at December 31, 1998 ranged from $7.94 to $8.73 for 33,000 shares
and $12.12 to $15.25 for 78,000 shares, with weighted-average exercise prices of
$8.03 and $13.15, respectively.
F-41
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998, respectively: risk-free interest rates of
6.5%, 6.2% and 5.3%; dividend yields of 2.7%, 2.6% and 2.2%; volatility factors
of the expected market price of the Company's common stock of .32, .31 and .35;
and a weighted-average expected life of the option of five years.
The effect of applying the fair value method to the Company's
stock-based awards results in net income and earnings per share that are not
materially different from amounts reported. The assumed dilutive effect of stock
options, which were the only dilutive securities outstanding in 1998, 1997 and
1996, was 30,000, 52,000 and 33,000 shares, respectively.
Restructuring Charge
Due to increases in lumber prices and increased competition primarily
from imported products, the Company made changes in its product and
manufacturing strategies during December 1994, designed to make the Company more
competitive in the industry. The plan was to exit certain portions of the
Company's enterprise by selling an upholstery business with a related
manufacturing facility and discontinuing a part of the product lines in the
health care, university and office markets, resulting in closure of another
plant. The Company anticipated completing the restructuring by December 31,
1995; however, the sale of the upholstery business was not completed until
August 1996.
At December 31, 1995, accrued liabilities included $439,000 related to
the plan. These costs were paid and charged against the liability in 1996,
completing the plan. In 1996, revenues and net operating income for the
upholstery business that was sold amounted to $5,858,000 and $182,000,
respectively.
Discontinued Operations
On July 14, 1998, the Company's Board of Directors approved
management's plan to discontinue the Company's distribution operations of
textile and floor covering products manufactured by outside suppliers. Of the
two businesses comprising these operations, one was sold and one was liquidated.
The plan was completed in December, 1998. During the second quarter 1998, the
Company recorded a loss on the disposition of these operations of $9,698,000, or
$7,081,000 after taxes, including a provision for losses prior to disposal,
which is summarized below:
Reduction of inventory value.......................... $ 4,706,000
Reduction of property to net realizable value......... 2,198,000
Reduction of accounts receivable and prepaids value... 629,000
Other liabilities..................................... 1,445,000
Losses through disposition............................ 720,000
------------
Total................................................. 9,698,000
Income tax benefit.................................... 2,617,000
------------
$ 7,081,000
============
The operating results of the discontinued operations are summarized as
follows:
Year ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Net sales..........................$ 6,981,000 $ 21,849,000 $ 22,950,000
Income (loss) before income taxes.. (77,000) 1,474,000 1,052,000
Income taxes (benefit)............. (29,000) 559,000 391,000
Net income (loss).................. (48,000) 915,000 661,000
Net income (loss) per share........ (0.01) 0.10 0.08
Net income (loss) per
share-assuming dilution.......... (0.01) 0.10 0.07
F-42
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
The net assets of the discontinued operations follows:
As of
December 31, 1997
-----------------
Current assets......................................... $ 9,947,000
Current liabilities.................................... 1,090,000
------------
Net assets of discontinued operations, current......... $ 8,857,000
============
Property, net.......................................... $ 2,235,000
------------
Net assets of discontinued operations, non-current..... $ 2,235,000
============
The consolidated financial statements of the Company have been restated
to reflect the results of operations and net assets of these operations as a
discontinued operation in accordance with generally accepted accounting
principles. The losses recorded on the disposition of these operations were not
materially different from those incurred on the actual amounts realized in the
sale and liquidation process.
Retirement Plans
The Company has several defined pension plans covering essentially all
of its employees in the United States. These plans held 66,000 shares of the
Company's common stock at December 31, 1998 and December 31, 1997.
Weighted-average assumptions used in the accounting were as follows:
As of
December 31,
---------------
1998 1997
---- ----
Discounts rates............................... 7.0% 8.3%
Rates of compensation increase................ 3.5% 3.5%
Expected return on plan assets................ 8.5% 8.5%
<TABLE>
<CAPTION>
Components of net periodic benefit cost are as follows:
Year ended December 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Benefit cost:
Service cost.................................................... $ 1,062,000 $ 964,000 $ 966,000
Interest cost................................................... 1,496,000 1,354,000 1,151,000
Expected return on plan assets.................................. (1,654,000) (1,350,000) (1,143,000)
Amortization:
Transition asset........................................... (25,000) (25,000) (25,000)
Net actuarial loss......................................... -- 38,000 102,000
------------ ------------ ------------
Net benefit cost................................................ $ 879,000 $ 981,000 $ 1,051,000
============ ============ ============
</TABLE>
F-43
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
Changes in plan assets and benefit obligation, indicating the end of
year funded status and prepaid pension, included in prepaid expenses of the
accompanying consolidated balance sheets, were as follows:
Year ended December 31,
---------------------------------
1998 1997
---------------------------------
Fair value of plan assets:
Beginning of year....................... $ 19,485,000 $ 15,142,000
Actual return on plan assets............ 2,318,000 3,169,000
Employer contribution................... 1,462,000 1,858,000
Benefits paid........................... (809,000) (684,000)
------------- -------------
End of year............................. 22,456,000 19,485,000
------------- -------------
Benefit obligation:
Beginning of year....................... 18,484,000 15,983,000
Service cost............................ 1,062,000 964,000
Interest cost........................... 1,496,000 1,354,000
Actuarial loss.......................... 3,859,000 867,000
Benefits paid........................... (809,000) (684,000)
------------- -------------
End of year............................. 24,092,000 18,484,000
------------- -------------
Funded status........................... (1,636,000) 1,001,000
Unrecognized net asset.................. (137,000) (163,000)
Unrecognized net loss................... 4,184,000 989,000
Unrecognized prior service cost......... 60,000 61,000
------------- -------------
Prepaid pension at end of year.......... $ 2,471,000 $ 1,888,000
============= =============
The Company has an employee stock ownership plan covering essentially
all salaried employees. The contributions were $83,000 for 1998, $69,000 for
1997, and $63,000 for 1996. The plan held 52,000 shares of the Company's common
stock at December 31, 1998 and 44,000 shares at December 31, 1997.
Retirement plan expense was $962,000, $1,050,000, and $1,114,000 for
1998, 1997, and 1996 respectively.
Operating Segments
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Applying the criteria from this statement,
the Company has three segments. The hotel and food service furniture segment
manufactures and distributes chairs, tables, and guest, banquet and function
room furnishings, along with specialty items for banquet use, for the
hospitality market. The healthcare and university furniture segment produces and
markets seating products used for healthcare, university and other institutional
facilities. The wall coverings segment processes and distributes vinyl wall
coverings for the hospitality and other markets.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Cash and cash equivalents are
considered corporate assets and interest expense and interest income are
unallocated. Intersegment sales are not significant. The Company evaluates
performance based on income before income taxes.
The Company's segments are strategic business units that offer
different products or serve different markets. They are managed separately
because each requires different technology and marketing strategies, which are
coordinated to the extent practical.
F-44
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
<TABLE>
<CAPTION>
Segment information follows:
December 31, Hotel and Healthcare
and year food service and university
then ended furniture furniture Wall coverings Total
---------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales: 1998 $126,726,000 $23,478,000 $15,733,000 $165,937,000
1997 117,707,000 24,868,000 15,204,000 157,779,000
1996 113,436,000 22,135,000 13,910,000 149,481,000
Depreciation and amortization: 1998 1,564,000 431,000 483,000 2,478,000
1997 1,396,000 417,000 485,000 2,298,000
1996 1,501,000 419,000 537,000 2,457,000
Segment profit: 1998 13,990,000 1,022,000 1,645,000 16,657,000
1997 11,991,000 1,178,000 1,582,000 14,751,000
1996 10,626,000 504,000 1,297,000 12,427,000
Capital expenditures: 1998 2,390,000 684,000 845,000 3,919,000
1997 2,737,000 465,000 355,000 3,557,000
1996 751,000 115,000 323,000 1,189,000
Segment assets: 1998 59,685,000 15,797,000 7,796,000 83,278,000
1997 52,387,000 15,346,000 7,189,000 74,922,000
</TABLE>
Reconciliation of segment profits to consolidated income from
continuing operations before income taxes, follows:
Year ended December 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
Total profit for segments...... $ 16,657,000 $ 14,751,000 $ 12,427,000
Unallocated:
Interest expense.......... (391,000) (622,000) (969,000)
Interest income........... 539,000 614,000 18,000
------------ ------------ ------------
Income from continuing
operations before
income taxes................ $ 16,805,000 $ 14,743,000 $ 11,476,000
============ ============ ============
Reconciliation of segment assets to consolidated assets, follows:
As of December 31,
-----------------------------
1998 1997
-----------------------------
Total assets for segments.................. $ 83,278,000 $ 74,922,000
Net assets of discontinued operations...... -- 11,192,000
Cash and cash equivalents.................. 6,355,000 11,124,000
------------ ------------
Consolidated assets........................ $ 89,633,000 $ 97,238,000
============ ============
F-45
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
Geographic information for net sales follows:
Year ended December 31,
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
Net sales:
United States......... $ 151,727,000 $ 140,834,000 $ 135,025,000
Foreign (exports)..... 14,210,000 16,945,000 14,456,000
------------- ------------- -------------
Total ................... $ 165,937,000 $ 157,779,000 $ 149,481,000
============= ============= =============
Geographic information for long-lived assets follows:
As of December 31,
----------------------------
1998 1997
----------------------------
Long-lived assets:
United States......................... $ 23,070,000 $ 21,527,000
Mexico................................ 3,066,000 3,244,000
------------ ------------
Total.................................... $ 26,136,000 $ 24,771,000
============ ============
Income Taxes
Deferred income tax liabilities (assets) for differences in tax bases
and amounts in the financial statements were as follows:
As of December 31,
----------------------------
1998 1997
----------------------------
Current:
Allocated costs of acquisition inventories... $ 796,000 $ 1,005,000
Prepaid pension.............................. 850,000 763,000
Other - net.................................. (1,641,000) (368,000)
------------ ------------
Total included in current income taxes.......... 5,000 1,400,000
Noncurrent:
Property, plant and equipment................ 1,991,000 2,031,000
------------ ------------
Net deferred tax liabilities.................... $ 1,996,000 $ 3,431,000
============ ============
The components of income tax expense are as follows:
Year ended December 31,
-------------------------------------------
1998 1997 1996
-------------------------------------------
Current:
Federal..................... $ 6,806,000 $ 4,414,000 $ 2,790,000
State....................... 820,000 512,000 457,000
------------ ------------ ------------
7,626,000 4,926,000 3,247,000
Deferred:
Federal..................... (1,435,000) 140,000 473,000
------------ ------------ ------------
$ 6,191,000 $ 5,066,000 $ 3,720,000
============ ============ ============
F-46
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Consolidated Financial Statements--(Continued)
Income tax expense differs from amounts computed by applying the
Federal statutory tax rate to income before income taxes as follows:
Year ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Statutory rate................. $ 5,714,000 $ 5,013,000 $ 3,902,000
State income taxes, net of
Federal tax benefit......... 541,000 337,000 302,000
Other.......................... (64,000) (284,000) (484,000)
------------ ------------ ------------
$ 6,191,000 $ 5,066,000 $ 3,720,000
============ ============ ============
Effective rate................. 36.8% 34.4% 32.4%
F-47
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Income
Three Months Ended
March 31,
--------------------
(Amounts in thousands, except per share data) 1999 1998
--------------------
(Unaudited)
Net sales............................................ $43,128 $38,484
Cost of goods sold................................... 34,081 29,929
------- -------
Gross profit......................................... 9,047 8,555
Selling, general and administrative expenses......... 5,548 5,302
------- -------
3,499 3,253
Other deductions (income):
Interest expense..................................... 46 125
Interest and dividend income......................... (107) (188)
Miscellaneous expense................................ 22 18
------- -------
(39) (45)
------- -------
Income from continuing operations before
income taxes...................................... 3,538 3,298
Income taxes:
Current.............................................. 1,256 1,202
Deferred............................................. 18 18
------- -------
1,274 1,220
------- -------
Income from continuing operations.................... 2,264 2,078
Income from discontinued operations,
net of taxes...................................... -- 36
------- -------
Net income........................................... $ 2,264 $ 2,114
======= =======
Income per share (basic and diluted):
Continuing operations................................ $ 0.26 $ 0.22
Income from discontinued operations,
net of taxes...................................... -- 0.01
------- -------
Net income........................................... $ 0.26 $ 0.23
======= =======
Weighted average number of common shares
outstanding....................................... 8,786 9,296
======= =======
F-48
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Balance Sheets
March 31, December 31,
(Amounts in thousands, except per share data) 1999 1998
-------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................. $ 6,282 $ 6,355
Accounts receivable, less allowance for doubtful
accounts of $337 at March 31, 1999
and $375 at December 31, 1998...................... 27,237 28,025
Inventories:
Raw materials.................................... 11,772 11,818
Work in process.................................. 5,072 5,492
Finished goods................................... 6,463 5,234
--------- ---------
23,307 22,544
Prepaid expense....................................... 4,591 5,187
--------- ---------
Total current assets.................................. 61,417 62,111
Excess of cost over net assets of acquired company.... 149 151
Property, plant and equipment at cost:
Land and land improvements....................... 2,560 2,560
Buildings and leasehold improvements............. 20,980 20,974
Machinery and equipment.......................... 27,239 26,746
Construction in progress......................... 43 --
--------- ---------
50,822 50,280
Less accumulated depreciation and amortization... 24,896 24,295
--------- ---------
25,926 25,985
Other assets.......................................... 1,153 1,386
--------- ---------
$ 88,645 $ 89,633
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................... $ 5,415 $ 7,063
Customer deposits on orders in process................ 6,033 5,717
Accrued liabilities................................... 6,189 6,278
Income taxes.......................................... 1,975 889
Current portion of long-term debt..................... 2,000 3,000
--------- ---------
Total current liabilities............................. 21,612 22,947
Deferred income taxes................................. 2,009 1,991
Stockholder's equity:
Common stock, $.05 par value; authorized
30,000 shares; issued 11,877 shares
(1998--11,876 shares)......................... 594 593
Capital in excess of par value................... 10,135 10,128
Retained earnings................................ 78,479 77,012
--------- ---------
89,208 87,733
Less common stock held in treasury; 3,115
shares at cost (1998--3,025).................. 24,184 23,038
--------- ---------
Total stockholders' equity....................... 65,024 64,695
--------- ---------
$ 88,645 $ 89,633
========= =========
F-49
<PAGE>
<TABLE>
<CAPTION>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
---------------------
(Amounts in thousands) 1999 1998
---------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................................... $ 2,264 $ 2,114
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 681 611
Provision for losses on accounts receivable.................................... 2 31
Change in assets and liabilities of discontinued operations.................... -- 124
Change in assets and liabilities:
Accounts receivable....................................................... 786 838
Inventories............................................................... (763) (505)
Prepaid expenses.......................................................... 596 275
Accounts payable and accrued liabilities.................................. (1,421) 775
Income taxes payable...................................................... 1,086 689
Increase in deferred taxes................................................ 18 18
Other..................................................................... 233 (65)
-------- --------
Net cash provided by operating activities................................................ 3,482 4,905
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment............................. 3 7
Capital expenditures................................................................ (623) (1,608)
-------- --------
Net cash used by investing activities.................................................... (620) (1,601)
Cash flows from financing activities:
Principal payments of long-term debt................................................ (1,000) (1,000)
Sale of common stock under stock option plan........................................ 8 76
Purchase of common stock for the treasury........................................... (1,146) (79)
Dividends declared and paid......................................................... (797) (843)
-------- --------
Net cash used by financing activities.................................................... (2,935) (1,846)
-------- --------
Net increase (decrease) in cash..................................................... (73) 1,458
Cash and cash equivalents at beginning of period.................................... 6,355 11,124
-------- --------
Cash and cash equivalents at end of period............................................... $ 6,282 $ 12,582
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 58 $ 141
Income taxes................................................................... 170 535
-------- --------
$ 228 $ 676
======== ========
</TABLE>
F-50
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
Notes to Unaudited Consolidated Financial Statements
Discontinued Operations
On July 14, 1998, the Company's Board of Directors approved
management's plan to discontinue the Company's distribution operations of
textile and floor covering products manufactured by outside suppliers. Of the
two businesses comprising these operation, one was sold and one was liquidated.
The plan was completed in December, 1998. During the second quarter 1998, the
Company recorded a loss on the disposition of these operations of $9,698,000, or
$7,081,000 after taxes, including a provision for losses prior to disposal,
which is summarized below:
Reduction of inventory value ................................ $ 4,706,000
Reduction of property to net realizable value ............... 2,198,000
Reduction of accounts to net receivable and prepaids value .. 629,000
Other liabilities ........................................... 1,445,000
Losses through disposition................................... 720,000
------------
Total ............................................. 9,698,000
Income tax benefit .......................................... 2,617,000
------------
$ 7,081,000
============
The operating results of the discontinued operations for the three
months ended March 31, 1998, are summarized as follows:
Net sales................................................... $ 3,534,000
Income before income taxes.................................. 58,000
Income taxes................................................ 22,000
Net income.................................................. 36,000
Net income per share (basic and diluted).................... 0.01
The consolidated financial statements of the Company have been restated
to reflect the results of operations and net assets of these operations as a
discontinued operation in accordance with generally accepted accounting
principles. The losses recorded on the disposition of these operations were not
materially different from those incurred on the actual amounts realized in the
sale and liquidation process.
Interim Results
The attached unaudited statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods presented. Except as indicated above, all such adjustments are
of a normal recurring nature.
Operating Segments
Operating Segment information follows (amounts in thousands):
Three Months Ended
March 31,
----------------------
1999 1998
----------------------
Segment revenue:
Hotel and food service furniture.............. $ 34,417 $ 28,193
Healthcare and university furniture........... 3,926 6,005
Wall coverings................................ 4,785 4,286
--------- ---------
Net sales.......................................... $ 43,128 $ 38,484
========= =========
Segments profit (loss):
Hotel and food service furniture.............. $ 3,138 $ 2,577
Healthcare and university furniture........... (271) 177
Wall coverings................................ 610 481
--------- ---------
3,477 3,235
Interest income, net............................... 61 63
--------- ---------
Income from continuing operations before
income taxes.................................... $ 3,538 $ 3,298
========= =========
F-51
<PAGE>
Falcon Products, Inc.
$100,000,000
Offer to Exchange
11 3/8% Senior Subordinated Notes due 2009, Series B
for any and all outstanding
11 3/8% Senior Subordinated Notes due 2009, Series A
PROSPECTUS
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representation as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
<PAGE>
Part II
Information Not Required in the Prospectus
Item 20. Indemnification of Directors and Officers
Indemnification Under the By-Laws of the Registrant.
The By-Laws of Falcon Products, Inc. provide that Falcon, to the
broadest and maximum extent permitted by applicable law, will 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 such
person is or was a director or officer of Falcon, or is or was serving at the
request of Falcon 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. To the extent that a director, officer,
employee or agent of Falcon has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in the preceding
paragraph, or in defense of any claim, issue or matter, such person will be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred by such person. Expenses, including attorneys' fees, incurred by a
director or officer in defending any civil or criminal action, suit or
proceeding may be paid by Falcon in advance of the final disposition of such
action, suit or proceeding, as authorized by the Board of Directors of Falcon,
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such director or
officer was not entitled to be indemnified by Falcon as authorized in the
By-Laws of Falcon. The indemnification and advancement of expenses provided by,
or granted pursuant to, the By-Laws of Falcon will not be deemed exclusive and
are declared expressly to be non-exclusive of any other rights to which those
seeking indemnification or advancements of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding an office, and, unless otherwise provided when authorized
or ratified, will 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 person.
Indemnification Under the Delaware General Corporation Law
Section 145 of the Delaware General Corporation Law, authorizes a
corporation to indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request o 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 the person in connection with such action, suit or proceeding, if the person
acted in good faith and in a manner the person 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 the person's
conduct was unlawful. In addition, the Delaware General Corporation Law does not
permit indemnification in any threatened, pending or completed action or suit by
or in the right of the corporation 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 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 such court
shall deem proper. To the extent that a present or former director or officer of
a corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter, such person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by such person. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Delaware General Corporation Law also allows a corporation to provide for
the elimination or limit of the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director
(1) for any breach of the director's duty of loyalty to the corporation
or its stockholders,
(2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(3) for unlawful payments of dividends or unlawful stock purchases or
redemptions, or
(4) for any transaction from which the director derived an improper
personal benefit. These provisions will not limit the liability of
directors or officers under the federal securities laws of the
United States.
Item 21. Exhibits and Financial Statement Schedules.
Exhibits
Financial Statement Schedules
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to the reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) Every prospectus: (i) that is filed pursuant to the
immediately preceding paragraph or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes
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 that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by then is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falcon
Products, Inc. has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri on the 19th day of July, 1999.
FALCON PRODUCTS, INC.
By: /s/ Franklin A. Jacobs
-------------------------------------
Name: Franklin A. Jacobs
Title: Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Franklin A. Jacobs and Michael T.
Dreller, and each of them, severally (with full power to act alone) as the true
and lawful attorney-in-fact and agent for the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments to 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 each said attorney-in-fact and agent 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 he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute and substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Franklin A. Jacobs
- ------------------------ Chairman of the Board of Directors July 19, 1999
Franklin A. Jacobs and Chief Executive Officer
and Director
/s/ Darryl C. Rosser
- ------------------------ President and Chief Operating July 19, 1999
Darryl C. Rosser Officer and Director
/s/ Michael J. Dreller
- ------------------------ Vice President - Finance, Chief July 19, 1999
Michael J. Dreller Financial Officer, Secretary
and Treasurer
/s/ Raynor E. Baldwin
- ------------------------ Director July 19, 1999
Raynor E. Baldwin
- ------------------------ Director July ___, 1999
Melvin F. Brown
/s/ Donald P. Gallop
- ------------------------ Director July 19, 1999
Donald P. Gallop
- ------------------------ Director July ___, 1999
James L. Hoagland
/s/ S. Lee Kling
- ------------------------ Director July 19, 1999
- ------------------------ Director July ___, 1999
Lee M. Liberman
- ------------------------ Director July ___, 1999
James Schneider
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger dated as of May 5, 1999 among the
Registrant, SY Acquisition, Inc. ("Purchaser") and Shelby Williams
Industries, Inc. (the "Merger Agreement") filed as Exhibit (c)(1) to
the Schedule 14D-1/Schedule 13D filed May 12, 1999 by Purchaser and the
Registrant (the "Schedule") and incorporated herein by this reference.
2.2 Supplement to the Merger Agreement dated May 5, 1999 filed as Exhibit
(c)(2) of the Schedule, and incorporated herein by reference.
3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 27, 1996 (the "April 27, 1996 10-Q").
3.2 Restated Bylaws, filed as Exhibit 3.2 to the April 27, 1996 10-Q.
3.3 Amendment to Restated Bylaws, effective January 16, 1997, filed as
Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year
ended November 2, 1996.
4.1 Form of Stock Certificate for Common Stock, incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Reg. No. 33-61706.
4.2 Indenture, dated as of June 17, 1999, by and among the Registrant, The
Bank of New York and the Guarantors, filed herewith.
4.3 Supplemental Indenture, dated as of June 18, 1999, by and among Shelby
Williams Industries, Inc., Sellers and Josephson Inc., Madison
Furniture Industries, Inc., Registrant, Guarantors and The Bank of New
York, filed herewith.
4.4 Form of Note, filed herewith.
4.5 A/B Exchange Registration Rights Agreement, dated June 17, 1999, by and
among the Registrant, Guarantors and Initial Purchaser, filed herewith.
5.1 Opinion of Gallop, Johnson and Neuman, L.C., filed herewith.
8.1 Tax Opinion of Gallop, Johnson and Neuman, L.C. (included in Exhibit
5.1).
10.1 Lease Agreement dated February 1, 1980, between Lafayette County,
Arkansas and the Company, incorporated herein by reference to Exhibit
10(e) to the Company's Annual Report on Form 10-K for the year ended
October 31, 1980 (the "1980 10-K").
10.2 Assignment and Assumption Agreement dated January 30, 1980, and the
lease thereunder, incorporated herein by reference to Exhibit 10(g) to
1980 10-K.
10.3 Lease Agreement dated as of June 1, 1988, among Burley Builders, Inc.
and Tennessee Tobacco Sales, Incorporated, as lessors, and the Company,
as lessee, incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the year ended October 29,
1988.
10.4 First Amendment to Lease Agreement dated as of November 21, 1991, among
Burley Builders, Inc. and Tennessee Tobacco Sales, Incorporated, as
lessors, and the Company, as lessee, incorporated herein by reference
to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended November 2, 1991 (the "1991 10-K").
10.5 Falcon Products, Inc. 1981 Employee Incentive Stock Option Plan
("ISOP"), incorporated herein by reference to Exhibit 4(h) to the
Company's Registration Statement on Form S-8, Reg. No. 33-15698.
10.6 Form of Stock Option Agreement dated June 9, 1986, regarding options
issued to Directors, incorporated herein by reference to Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the year ended November
1, 1986 (the "1986 10-K").
10.7 First Amendment to the ISOP, adopted June 16, 1987, incorporated herein
by reference to Exhibit 10(1) to the Company's Annual Report on Form
10-K for the year ended October 31, 1987.
10.8 Falcon Products, Inc. Amended and Restated 1991 Stock Option Plan,
incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, Reg. No. 33-46997.
10.9 Falcon Products, Inc. Amended and Restated Stock Purchase Plan,
incorporated herein by reference to Exhibit 10.15 to 1991 10-K.
10.10 Minutes of Meeting of Board of Directors of the Company dated March 14,
1991 (the "Non-Employee Director Plan"), incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8, Reg. No. 33-46998.
10.11 Minutes of Meeting of Board of Directors of the Company dated September
15, 1992, amending the Non-Employee Director Plan, incorporated herein
by reference to Exhibit 10.17 to the 1992 10-K.
10.12 Amendment to the Falcon Products, Inc. Amended and Restated 1991 Stock
Option Plan incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended October 30,
1993 (the "1993 10-K").
10.13 Consulting Agreement dated August 1, 1993, by and between the Company
and AJR Enterprises, Inc., incorporated herein by reference to Exhibit
10.19 to the 1993 10-K.
10.14 Amendment No. 2 to the Falcon Products, Inc. Amended and Restated 1991
Stock Option Plan, incorporated herein by reference to Exhibit 10.23 to
the 1994 10-K.
10.15 Amendment to the Non-Employee Director Stock Option Plan, incorporated
herein by reference to Exhibit 10.26 to the April 27, 1996 10-Q.
10.16 Falcon Products, Inc. Employee Stock Purchase Plan, incorporated herein
by reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended November 1, 1997 (the "1997 10-K").
10.17 Falcon Products, Inc. Non-Employee Directors' Deferred Compensation
Plan, incorporated herein by reference to Exhibit 10.28 to the 1997
10-K.
10.18 Credit Agreement, dated June 17, 1999, of the Registrant, filed
herewith.
11 Computation of Net Earnings Per Share, incorporated by reference to
Exhibit 11 to the Company's Annual Report on Form 10-K for the year
ended October 31, 1998 (the "1998 10-K").
12 Statement regarding Computation of Ratios, filed herewith.
21 Subsidiaries of the Company, filed herewith.
23.1 Consent of Arthur Andersen LLP, filed herewith.
23.2 Consent of Ernst & Young LLP, filed herewith.
24 Power of Attorney (included on Signature Page hereto).
25 Statement of Eligibility and Qualification on Form T-1 of The Bank of
New York, as Trustee, filed herewith.
27 Financial Data Schedule (filed in EDGAR version only).
99.1 Form of Letter of Transmittal, filed herewith.
99.2 Form of Notice of Guaranteed Delivery for Outstanding 11 3/8% Senior
Subordinated Notes due 2009, Series A, in exchange for 11 3/8% Senior
Subordinated Notes due 2009, Series B, filed herewith.
99.3 Form of Letter to Clients of Registered Holder of Tender for all
Outstanding 11 3/8% Senior Subordinated Notes due 2009, Series A, in
exchange for 11 3/8% Senior Subordinated Notes due 2009, Series B,
filed herewith.
99.4 Form of Letter to Registered Holder of Tender for all Outstanding 11
3/8% Senior Subordinated Notes due 2009, Series A, in exchange for 11
3/8% Senior Subordinated Notes due 2009, Series B, filed herewith.
99.5 Form of Instruction to Registered Holder from Beneficial Owner of 11
3/8% Senior Subordinated Notes due 2009, Series A, filed herewith.
================================================================================
INDENTURE
Dated as of June 17, 1999
among
FALCON PRODUCTS, INC.,
Issuer,
FALCON HOLDINGS, INC.,
HOWE FURNITURE CORPORATION,
JOHNSON INDUSTRIES, INC. and
SY ACQUISITION, INC.,
as Guarantors
and
THE BANK OF NEW YORK,
as Trustee
------------------
Up to $150,000,000
11M% Senior Subordinated Notes due 2009, Series A
11M% Senior Subordinated Notes due 2009, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture Indenture
Act Section Section
- --------------- ---------
Section 310(a).................................. 7.03; 7.10; 13.01
(b)....................................... 7.03; 7.10; 13.01;
13.02
(c)....................................... 7.03; 13.01
Section 311(a).................................. 7.11; 13.01
(b)....................................... 7.11; 13.01
(c)....................................... 13.01
Section 312(a).................................. 13.01
(b)....................................... 13.01; 13.03
(c)....................................... 13.01; 13.03
Section 313(a).................................. 7.06; 13.01
(b)(1).................................... 13.01
(b)(2).................................... 7.06; 7.07; 13.01
(c)....................................... 7.06; 13.01; 13.02
(d)....................................... 7.06; 13.01
Section 314(a).................................. 13.01; 13.02
(b)....................................... 13.01
(c)....................................... 13.01
(d)....................................... 13.01
(e)....................................... 13.01
(f)....................................... 13.01
Section 315(a).................................. 13.01
(b)....................................... 13.01; 13.02
(c)....................................... 13.01
(d)....................................... 13.01
(e)....................................... 13.01
Section 316(a)(1)(A)............................ 6.05; 13.01
(a)(1)(B)................................. 13.01
(a)(2).................................... 13.01
(b)....................................... 13.01
(c)....................................... 13.01
Section 317 .................................... 13.01
- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE One
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01...Definitions 1
SECTION 1.02...Incorporation by Reference of
Trust Indenture Act 22
SECTION 1.03...Rules of Construction 22
ARTICLE Two
THE SECURITIES
SECTION 2.01...Form and Dating 23
SECTION 2.02...Execution and Authentication 24
SECTION 2.03...Registrar and Paying Agent 25
SECTION 2.04...Paying Agent to Hold Assets in Trust 25
SECTION 2.05...Holder Lists 26
SECTION 2.06...Transfer and Exchange 26
SECTION 2.07...Replacement Securities 26
SECTION 2.08...Outstanding Securities 27
SECTION 2.09...Treasury Securities 27
SECTION 2.10...Temporary Securities 27
SECTION 2.11...Cancellation 27
SECTION 2.12...Defaulted Interest 28
SECTION 2.13...CUSIP Number 28
SECTION 2.14...Deposit of Moneys 28
SECTION 2.15...Book-Entry Provisions for Global
Securities 29
SECTION 2.16...Registration of Transfers and Exchanges 29
SECTION 2.17...Issuance of Additional Securities 33
ARTICLE Three
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 of Notice of Redemption 35
SECTION 3.05...Deposit of Redemption Price 35
SECTION 3.06...Securities Redeemed in Part 36
SECTION 3.07...Optional Redemption 36
ARTICLE Four
COVENANTS
SECTION 4.01...Payment of Securities 36
SECTION 4.02...Maintenance of Office or Agency 37
SECTION 4.03...Limitations on Transactions with Affiliates 37
SECTION 4.04...Limitation on Incurrence of Additional
Indebtedness and Issuance of Preferred Stock 38
SECTION 4.05...Limitation on Asset Sales 39
SECTION 4.06...Limitation on Restricted Payments 42
SECTION 4.07...Compliance with Laws 44
SECTION 4.08...Payment of Taxes and Other Claims 44
SECTION 4.09...Notice of Defaults 45
SECTION 4.10...Maintenance of Properties and Insurance 45
SECTION 4.11...Compliance Certificate 45
SECTION 4.12...Reports to Holders 45
SECTION 4.13...Waiver of Stay, Extension or Usury Laws 46
SECTION 4.14...Change of Control 47
SECTION 4.15...Prohibition on Incurrence of Senior
Subordinated Indebtedness 48
SECTION 4.16...Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries 48
SECTION 4.17...[This Section has been intentionally
omitted] 50
SECTION 4.18...Limitation on Liens 50
SECTION 4.19...Limitation of Guarantees by Restricted
Subsidiaries 50
SECTION 4.20...Conduct of Business 50
SECTION 4.21...Corporate Existence 50
SECTION 4.22...Limitation on Sale and Leaseback
Transactions 51
SECTION 4.23...Limitation on Issuance and Sales of
Equity Interests in Wholly Owned
Restricted Subsidiaries 51
SECTION 4.24...Designation of Restricted and
Unrestricted Subsidiaries 51
SECTION 4.25...Payments for Consent 52
SECTION 4.26...Future Subsidiary Guarantors 52
ARTICLE Five
MERGERS, CONSOLIDATIONS AND ASSET SALES; SUCCESSORS
SECTION 5.01...Merger, Consolidation and Sale of Assets 52
SECTION 5.02...Successor Substituted 54
ARTICLE Six
DEFAULT AND REMEDIES
SECTION 6.01...Events of Default 54
SECTION 6.02...Acceleration 55
SECTION 6.03...Other Remedies 56
SECTION 6.04...Waiver of Past Default 56
SECTION 6.05...Control by Majority 57
SECTION 6.06...Limitation on Suits 57
SECTION 6.07...Rights of Holders to Receive Payment 57
SECTION 6.08...Collection Suit by Trustee 57
SECTION 6.09...Trustee May File Proofs of Claim 58
SECTION 6.10...Priorities 58
SECTION 6.11...Undertaking for Costs 58
SECTION 6.12...Notice of Defaults 59
ARTICLE Seven
TRUSTEE
SECTION 7.01...Duties of Trustee 59
SECTION 7.02...Certain Rights of Trustee 60
SECTION 7.03...Individual Rights of Trustee 61
SECTION 7.04...Trustee's Disclaimer 61
SECTION 7.05...Notice of Defaults 61
SECTION 7.06...Reports by Trustee to Holders of the
Securities 61
SECTION 7.07...Compensation and Indemnity 62
SECTION 7.08...Replacement of Trustee 63
SECTION 7.09...Successor Trustee by Merger, Etc 63
SECTION 7.10...Eligibility; Disqualification 64
SECTION 7.11...Preferential Collection of Claims
Against Company 64
ARTICLE Eight
SUBORDINATION OF SECURITIES
SECTION 8.01...Securities Subordinated to Senior Debt 64
SECTION 8.02...No Payment on Securities in Certain
Circumstances 65
SECTION 8.03...Payment Over of Proceeds upon
Dissolution, etc 66
SECTION 8.04...Subrogation 67
SECTION 8.05...Obligations of the Company Unconditional 67
SECTION 8.06...Notice to Trustee 68
SECTION 8.07...Reliance on Judicial Order or
Certificate of Liquidating Agent 68
SECTION 8.08...Trustee's Relation to Senior Debt 68
SECTION 8.09...Subordination Rights Not Impaired by
Acts or Omissions of the Company or
Holders of Senior Debt 69
SECTION 8.10...Holders Authorize Trustee to Effectuate
Subordination of Securities 69
SECTION 8.11...This Article Not to Prevent Events of
Default 69
SECTION 8.12...Trustee's Compensation Not Prejudiced 70
SECTION 8.13...No Waiver of Subordination Provisions 70
SECTION 8.14...Subordination Provisions Not Applicable
to Money Held in Trust for Holders 70
SECTION 8.15...Amendments 70
ARTICLE Nine
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01...Termination of the Company's Obligations 70
SECTION 9.02...Legal Defeasance and Covenant Defeasance 72
SECTION 9.03...Conditions to Legal Defeasance or
Covenant Defeasance 73
SECTION 9.04...Application of Trust Money 74
SECTION 9.05...Repayment to Company 75
SECTION 9.06...Reinstatement 75
ARTICLE Ten
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01...Without Consent of Holders 75
SECTION 10.02...With Consent of Holders 76
SECTION 10.03...Compliance with Trust Indenture Act 77
SECTION 10.04...Revocation and Effect of Consents 77
SECTION 10.05...Notation on or Exchange of Securities 78
SECTION 10.06...Trustee to Sign Amendments, etc 78
ARTICLE Eleven
GUARANTEE
SECTION 11.01...Unconditional Guarantee 78
SECTION 11.02...Severability 79
SECTION 11.03...Limitation of Guarantor's Liability 79
SECTION 11.04...Execution of Guarantee 79
SECTION 11.05...Subordination of Subrogation and
Other Rights 79
SECTION 11.06...Release of Guarantor from Subsidiary
Guarantee 80
ARTICLE Twelve
SUBORDINATION OF GUARANTEE
SECTION 12.01...Guarantee Obligations Subordinated to
Senior Debt 80
SECTION 12.02...Payment Over of Proceeds upon Dissolution,
etc.; No Payment in Certain Circumstances 80
SECTION 12.03...Subrogation 82
SECTION 12.04...Obligations of Guarantors Unconditional 83
SECTION 12.05...Notice to Trustee 83
SECTION 12.06...Reliance on Judicial Order or Certificate
of Liquidating Agent 84
SECTION 12.07...Trustee's Relation to Senior Debt of a
Guarantor 84
SECTION 12.08...Subordination Rights Not Impaired by Acts
or Omissions of Holders of Senior Debt 84
SECTION 12.09...Holders Authorize Trustee To Effectuate
Subordination of Guarantee 85
SECTION 12.10...This Article Not to Prevent Events
of Default 85
SECTION 12.11...Trustee's Compensation Not Prejudiced 85
SECTION 12.12...No Waiver of Guarantee Subordination
Provisions 85
SECTION 12.13...Amendments 85
ARTICLE Thirteen
MISCELLANEOUS
SECTION 13.01...Trust Indenture Act Controls 86
SECTION 13.02...Notices 86
SECTION 13.03...Communications by Holders with Other
Holders 87
SECTION 13.04...Certificate and Opinion as to Conditions
Precedent 87
SECTION 13.05...Statements Required in Certificate or
Opinion 87
SECTION 13.06...Rules by Trustee, Paying Agent, Registrar 88
SECTION 13.07...Governing Law 88
SECTION 13.08...No Recourse Against Others 88
SECTION 13.09...Successors 88
SECTION 13.10...Counterpart Originals 88
SECTION 13.11...Severability 88
SECTION 13.12...No Adverse Interpretation of Other
Agreements 89
SECTION 13.13...Legal Holidays 89
SECTION 13.14...No Personal Liability of Directors,
Officers, Employees and Stockholders 89
SIGNATURES........................................... S-1
EXHIBIT A Form of Series A Security........................ A-1
EXHIBIT B Form of Series B Security........................ B-1
EXHIBIT C Form of Legend for Global Securities............. C-1
EXHIBIT D Form of Transfer Certificate..................... D-1
EXHIBIT E Form of Transfer Certificate for Institutional
Accredited Investors............................. E-1
EXHIBIT F Form of Supplemental Indenture................... F-1
EXHIBIT G Form of Officer's Certificate.................... G-1
- -----------------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
INDENTURE dated as of June 17, 1999, among FALCON PRODUCTS, INC., a
Delaware corporation (the "Company" or "Falcon"), as issuer, the GUARANTORS
named herein and THE BANK OF NEW YORK, a New York banking corporation, as
trustee (the "Trustee").
The Securities are being sold in connection with the acquisition by the
Company of Shelby Williams Industries, Inc., a Delaware corporation ("Shelby"),
pursuant to that certain Agreement and Plan of Merger (the "Merger Agreement"),
dated May 5, 1999, among the Company, Shelby and SY Acquisition, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("SY
Acquisition"). The Merger Agreement provides for the merger (the "Merger") of SY
Acquisition with and into Shelby, with Shelby surviving the Merger.
The Company has executed that certain Purchase Agreement, dated as of
June 14, 1999, by and among the Company, the guarantors listed therein and the
Initial Purchaser (the "Purchase Agreement"). The Company has also executed that
certain A/B Exchange Registration Rights Agreement, dated as of the date hereof,
by and among the Company, the guarantors listed therein and the Initial
Purchaser (the "Registration Rights Agreement"). As soon as practicable after
the consummation of the Merger, Falcon will cause Shelby and its Domestic
Subsidiaries to deliver a fully executed Supplemental Indenture substantially in
the form of Exhibit F attached hereto, guaranteeing the Obligations under the
Securities pursuant to the terms and conditions contained in this Indenture.
Each party hereto agrees as follows for the benefit of each other party
and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions
"Acceleration Notice" see Section 6.02.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"Additional Securities" means, subject to the Company's compliance with
Sections 3 and 13, 11M% Senior Subordinated Notes due 2009 issued from time to
time after the Issue Date up to a maximum aggregate amount of $50,000,000 (other
than pursuant to Sections 2.06, 2.07, 3.06 and 4.05 of this Indenture and other
than Exchange Securities issued pursuant to the Exchange Offer).
"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 purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Affiliate Transaction" see Section 4.03.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets
or rights, other than sales of Cash Equivalents or inventory in the ordinary
course of business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions described under Section 4.14 and/or the provisions described above
under Article 5 and not by the provisions of Section 4.05; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Sales:
(a) any single transaction or series of related transactions that:
(i) involves assets having a fair market value of less than $1.0 million; or
(ii) results in net proceeds to the Company and its Restricted Subsidiaries of
less than $1.0 million;
(b) a transfer of assets (i) between or among the Company and any
Guarantor or (ii) between or among a Restricted Subsidiary of the Company that
is not a Subsidiary Guarantor to another Restricted Subsidiary of the Company
that is not a Subsidiary Guarantor;
(c) an issuance of Equity Interests (i) by a Guarantor to the
Company or to another Guarantor or (ii) by a Restricted Subsidiary of the
Company that is not a Subsidiary Guarantor to another Restricted Subsidiary of
the Company that is not a Subsidiary Guarantor; and
(d) a Restricted Payment that is permitted by the covenant
described under Section 4.06.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"Calculation Date" has the meaning ascribed such term in the definition
of "Fixed Charge Coverage Ratio" in this Section 1.01.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250.0 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds with assets of $100.0 million or greater which invest substantially
all their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act);
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), becomes the Beneficial Owner, directly or
indirectly, of more than 35% of the Voting Stock of the Company, measured by
voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of the
Company outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person immediately after giving
effect to such issuance.
"Change of Control Offer" see Section 4.14(a).
"Change of Control Payment Date" see Section 4.14(c).
"Company" has the meaning ascribed to such term in the introductory
paragraphs to this Indenture.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance Financings, and net payments,
if any, pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of the Company shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of the Company only to
the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded
to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary
shall be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles
shall be excluded. "Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of:
(1) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet
as of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
stock.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date hereof is located at 101 Barclay
Street, Floor 21 West, New York, New York 10286, except that, with respect to
presentation of Securities for payment or for registration of transfer or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Covenant Defeasance" has the meaning provided in Section 9.02(c).
"Credit Agreement" means that certain Credit Agreement, dated as of
June 17, 1999, by and among the Company, DLJ Capital Funding, Inc., as
Administrative Agent, and the other parties thereto, providing for revolving
credit and term loans, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, supplemented, extended, renewed, restated,
refunded, replaced or refinanced from time to time, including any amendment,
modification, supplement, extension, renewal, restatement, refunding,
replacement or refinancing that increases the amount borrowable thereunder
provided such Indebtedness could be incurred hereunder or alters the maturity
thereof.
"Credit Facilities" means, with respect to the Company or any
Guarantor, one or more debt facilities or commercial paper facilities,
including, without limitation, the Credit Agreement, in each case with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Defeasance Trust Payment" see Section 8.02.
"Depositary" means, with respect to the Securities issued in the form
of one or more Global Securities, DTC or another Person designated as Depositary
by the Company, which must be a clearing agency registered under the Exchange
Act.
"Designated Senior Debt" means (1) Obligations under the Credit
Agreement and (2) any other Senior Debt permitted under Section 4.04, the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Securities mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described under Section 4.06.
"Domestic Subsidiary" means a Subsidiary that is organized under the
laws of the United States, any state thereof or the District of Columbia.
"DTC" means The Depository Trust Company.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" see Section 6.01.
"Excess Proceeds" see Section 4.05(A).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Exchange Offer" has the meaning provided in the Registration Rights
Agreement.
"Exchange Securities" means the 11M% Senior Subordinated Notes due
2009, Series B, to be issued in exchange for the Initial Securities pursuant to
the Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date, until such amounts are
repaid.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"Final Maturity Date" means June 15, 2009.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments, if any, pursuant
to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividend payments, whether or not in
cash, on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Restricted Subsidiary of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person for such period. In the event that the specified Person or any of its
Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated by giving pro forma
effect to such incurrence, assumption, Guarantee or redemption of Indebtedness,
or such issuance or redemption of preferred stock, as if the same had occurred
at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions that have been made by the specified Person or any
of its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following the Calculation
Date.
For the purpose 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 Fixed Charges associated with any Indebtedness
Incurred in connection therewith, or any other calculation under this
definition, the pro forma calculations will be determined in good faith by a
responsible financial or accounting officer of the Company (including pro forma
expense and cost reductions calculated on a basis consistent with Regulation S-X
under the Securities Act). If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
will 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).
"Foreign Subsidiary" means any Restricted Subsidiary that was organized
under the laws of a jurisdiction outside the United States and substantially all
of whose assets are located and business is conducted outside of the United
States.
"GAAP" means generally accepted accounting principles 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 in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Securities" means one or more Reg. S Global Securities and 144A
Global Securities.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged and
which have a remaining weighted average life to maturity of not less than one
year from the date of investment.
"guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantee" means the guarantee of the Obligations of the Company with
respect to the Securities by each Guarantor pursuant to the terms of this
Indenture, a form of which is attached hereto as part of Exhibits A and B. When
used as a verb, "Guarantee" shall have a corresponding meaning.
"Guarantors" means each of:
(1) the Company's Domestic Subsidiaries; and
(2) any other subsidiary that executes a Subsidiary Guarantee; and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under:
(1) foreign currency exchange agreements, interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements;
and
(2) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency exchange rates.
"Holder" means the registered holder of any Security.
"incur" see Section 4.04.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations, if and to the extent any
of the preceding items (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of the specified Person
prepared in accordance with GAAP. In addition, the term "Indebtedness" includes
all Indebtedness of others secured by a Lien on any asset of the specified
Person (whether or not such Indebtedness is assumed by the specified Person)
and, to the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof in the case of any other
Indebtedness. "Indenture" means this Indenture, as amended or supplemented from
time to time. "Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Initial Securities" means the 11M% Senior Subordinated Notes due
2009, Series A, of the Company.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
June 15 and December 15 of each year, commencing December 15, 1999.
"Interest Record Date" for the interest payable on any Interest Payment
Date (except a date for payment of defaulted interest) means the June 1 or
December 1 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the penultimate paragraph of the covenant described under Section
4.06.
"Issue Date" means June 17, 1999, the date of first issuance of the
Securities.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" has the meaning provided in the Registration
Rights Agreement.
"Merger" has the meaning ascribed to such term in the introductory
paragraphs to this Indenture.
"Merger Agreement" has the meaning ascribed to such term in the
introductory paragraph to this Indenture.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person and its Restricted Subsidiaries, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however:
(1) any gain (but not loss), together with any related provision
for taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case after taking into account any available tax credits
or deductions and any tax sharing arrangements and amounts required to be
applied to the repayment of Indebtedness, other than Senior Debt, secured by a
Lien on the asset or assets that were the subject of such Asset Sale.
"Net Proceeds Offer" see Section 4.05(A).
"Net Proceeds Offer Amount" see Section 4.05(A).
"Net Proceeds Offer Payment Date" see Section 4.05(B).
"Net Proceeds Offer Trigger Date" means the 361st day after an Asset
Sale or such earlier date, if any, as the Board of Directors of the Company or
of such Restricted Subsidiary determines not to apply the Net Proceeds relating
to such Asset Sale as set forth in Section 4.05(A).
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;
(2) 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 (other than the Securities or the Credit Facilities) of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offer and sale of the $100.0 million aggregate
principal amount of Initial Securities to the Initial Purchaser.
"Officer" of any Person means the Chairman of the Board, the President,
any Executive Vice President, Senior Vice President or Vice President (whether
or not such title is preceded or followed by one or more words or phrases), the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
of such Person.
"Officers' Certificate" of any Person means a certificate signed on
behalf of such Person or the general partner, in the case of a limited
partnership, or member, in the case of a limited liability company, of such
Person by the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President (whether or not such title is
preceded or followed by one or more words or phrases) and by the Treasurer or
any Assistant Treasurer or the Secretary or any Assistant Secretary of such
Person, that meets the requirements set forth in Sections 13.04 and 13.05 of
this Indenture.
"144A Global Security" means a permanent global security in registered
form representing the aggregate principal amount of Securities sold in reliance
on Rule 144A.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Company. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Participant" has the meaning set forth in Section 2.15(a).
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Blockage Notice" see Section 8.02.
"Payment Blockage Period" see Section 8.02.
"Payment Default" has the meaning provided in Section 6.01(a).
"Permitted Business" means the manufacture, distribution and marketing
of furniture and related products.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) the incurrence by the Company and any Guarantor of Indebtedness
and letters of credit under one or more Credit Facilities; provided that the
aggregate principal amount of all Indebtedness and letters of credit of the
Company outstanding under all Credit Facilities after giving effect to such
incurrence (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and the Guarantors thereunder)
does not exceed an amount equal to $135.0 million less the aggregate amount
applied by the Company or any of its Subsidiaries since the Issue Date to
permanently repay Indebtedness (and, if any of such Indebtedness is revolving
credit Indebtedness, to reduce commitments with respect thereto) under a Credit
Facility as a result of asset dispositions;
(ii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Securities in an aggregate principal amount of
$100.0 million at any time outstanding and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital 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, plant or equipment used in the business of the Company
or such Restricted Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, Indebtedness (other
than intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph of this covenant or clauses (ii), (iii), (iv)
or (ix) of this paragraph;
(vi) the incurrence by the Company or any Guarantor of intercompany
Indebtedness between or among the Company and any of the Guarantors; provided,
however, that:
(a) such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Securities, in
the case of the Company, or the Subsidiary Guarantee of such Guarantor, in the
case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Guarantor and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Guarantor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or any such Guarantor, as the case may be, that was not permitted by
this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging (a) interest rate risk with respect to any floating rate Indebtedness
or (b) foreign currency valuation risk; in either case, in respect of
Indebtedness that is permitted by the terms of the Indenture to be outstanding;
the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;
the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (ix), not to exceed $7.5 million;
Indebtedness of the Company's Foreign Subsidiaries in an amount not
to exceed $7.5 million at any time outstanding; and
the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, in each such case, that the amount thereof is
included in Fixed Charges of the Company as accrued.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary that is also a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described under Section 4.05;
(5) any acquisition of assets solely in exchange for the issuance
of Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) other Investments in any Person engaged in a Permitted Business
having an aggregate fair market value (measured on the date each such Investment
was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (7) since the
Issue Date, not to exceed $5.0 million;
(8) other Investments in any Foreign Subsidiary having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together with
all other Investments made pursuant to this clause (8) since the Issue Date, not
to exceed $2.5 million;
(9) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits;
(10) accounts receivable and commercially reasonable advances to
customers in the ordinary course of business and extensions of trade credit; and
(11) any Investment acquired by the Company or any of its
Restricted Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or recapitalization
of the issuer of such other Investment or accounts receivable or (b) as a result
of a foreclosure by the Company or any of its Restricted Subsidiaries with
respect to any secured Investment or other transfer of title with respect to any
secured Investment in default.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company; or
(2) debt securities of the Company that are subordinated to all
Senior Debt and any debt securities issued in exchange for Senior Debt to the
same extent as, or to a greater extent than, the Securities and the Subsidiary
Guarantees are subordinated to Senior Debt pursuant to Article Twelve, that have
a final maturity date and a weighted average life to maturity which is the same
as or greater than, the Securities and that are not secured by a Lien on any
assets.
"Permitted Liens" means:
(1) Liens on the assets of the Company and any Guarantor securing
Indebtedness and other Obligations under the Credit Facilities that were
permitted by the terms of Section 4.18 to be incurred;
(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person
is merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) that are otherwise allowed as Permitted Debt and covering only the
assets acquired with such Indebtedness;
(7) Liens existing on the Issue Date;
(8) Liens on Assets of the Company and of the Guarantors to secure
Senior Debt of the Company or any such Guarantors that was permitted by Section
4.18;
(9) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; and
(10) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of premiums, prepayments, penalties and reasonable expenses incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity
date equal to or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Securities, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Securities on terms at least as favorable to the Holders of Securities
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Securities" means one or more certificated Securities in
registered form.
"principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend initially set forth on the
Initial Securities in the form set forth on Exhibit A hereto.
"Purchase Agreement" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"Public Equity Offering" means any underwritten public offering of
common stock of the Company in which the gross proceeds to the Company are at
least $35.0 million.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Redemption Date" when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price" when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
"Reg. S Global Security" means a global security in registered form
representing the aggregate principal amount of Securities sold pursuant to
Regulation S under the Securities Act.
"Registrar" see Section 2.03.
"Registration" means a registered exchange offer for the Securities by
the Company or other registration of the Securities under the Securities Act
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
"Registration Date" see Section 4.12.
"Registration Rights Agreement" has the meaning ascribed to such term
in the introductory paragraphs to this Indenture.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Responsible Officer" shall mean, when used with respect to the
Trustee, any officer within the corporate trust department of the Trustee,
including any vice president, assistant vice president, assistant secretary,
assistant treasurer, trust officer or any other officer of the Trustee who
customarily performs functions similar to those performed by the Persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such person's knowledge of and familiarity with
the particular subject and who shall have direct responsibility for the
administration of this Indenture.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" see Section 4.06.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether or not any Security constitutes a Restricted Security.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Corporation.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities, the Transfer
Restricted Securities and the Unrestricted Securities treated as a single class
of securities, as amended or supplemented from time to time in accordance with
the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto.
"Senior Debt" means:
(1) all Indebtedness and all Obligations (including without
limitation interest accruing after filing of a petition in bankruptcy whether or
not such interest is an allowable claim in such proceeding) of the Company or
its Subsidiaries, including without limitation any Guarantees of such
Obligations, pursuant to the Credit Facilities and all Hedging Obligations with
respect thereto;
(2) any other Indebtedness permitted to be incurred by the Company
or the Guarantors hereunder, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Securities; and
(3) all Obligations with respect to the items listed in the
preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding clauses (1),
(2) and (3), Senior Debt will not include:
(a) any liability for federal, state, local or other taxes owed or
owing by the Company;
(b) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates; (c) any trade payables; or (d) any Indebtedness that is
incurred in violation of the covenants contained herein.
"Shelf Registration Statement" has the meaning provided in the
Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Exchange Act, as such Regulation is in effect on the
date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" 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" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock 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 such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Subsidiary Guarantee" means (a) that certain Subsidiary Guarantee
executed by the Guarantors in accordance with the delivery of the Securities and
(b) any supplemental indenture executed by Restricted Subsidiaries of the
Company pursuant to which such Subsidiaries became Guarantors of the Company's
Obligations under the Securities.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect
on the date of this Indenture (except as provided in Section 10.03) until such
time as this Indenture is qualified under the TIA, and thereafter as in effect
on the date on which this Indenture is qualified under the TIA.
"Tender Offer" has the meaning provided in the Credit Agreement.
"Transfer Restricted Securities" means the Transfer Restricted
Securities as defined in the Registration Rights Agreement and any similar
securities issued in compliance with Section 2.02 in accordance with any other
registration rights agreement.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.
"Trust Officer" means any officer within Corporate Trust Administration
(or any successor group of the Trustee), and also means, with respect to a
particular corporate trust matter, any other officer to whom such trust matter
is referred because of his knowledge of and familiarity with the particular
subject, 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.
"United States Government Obligations" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"United States Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Unrestricted Securities" means one or more Securities that do not and
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A hereto, including, without limitation, the Exchange Securities and any
Securities registered under the Securities Act pursuant to and in accordance
with the Registration Rights Agreement.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described under Section
4.06. If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary and any Indebtedness of such Subsidiary shall
be deemed to be incurred by a Restricted Subsidiary of the Company as of such
date and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under Section 4.04, the Company shall be in default
of such covenant. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1) such
Indebtedness is permitted under the covenant described under Section 4.04,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities and the Guarantees.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, a Guarantor or
any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.03 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 generally accepted accounting principles in
effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP; (3) "or" is not
exclusive; (4) words in the singular include the plural, and words in the plural
include the singular; (5) provisions apply to successive events and
transactions; (6) references to sections of or rules under the Securities Act,
the Exchange Act, the TIA or any other applicable law shall be deemed to include
substitute, replacement of successor sections or rules adopted by the SEC from
time to time; (7) references to any contract, instrument or agreement shall be
deemed to include any amendments, modifications or supplements thereto; and (8)
"herein," "hereof" and other words of similar import refer to this Indenture as
a whole and not to any particular Article, Section or other subdivision.
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating
(1) General. The Initial Securities and the Trustee's certificate
of authentication thereof shall be substantially in the form of Exhibit A
hereto, which is hereby incorporated in and expressly made a part of this
Indenture. The Exchange Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit B hereto,
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 or usage. The Company shall approve the forms of the Securities
and any notation, legend or endorsement on them. Each Security shall be dated
the date of its issuance and shall show the date of its authentication. The
Securities shall be in denominations of $1,000 and integral multiples thereof.
1. The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of the Securities or Subsidiary Guarantee
conflicts with the express provisions of this Indenture, the provisions of this
Indenture shall govern and be controlling. Global Securities shall bear the
legend set forth in Exhibit C hereto. 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, as custodian for the Depositary, as
hereinafter provided.
(2) Global Securities. Each Global Security shall represent such of
the outstanding Exchange Securities as shall be specified therein and each shall
provide that it shall represent the aggregate principal amount of outstanding
Exchange Securities from time to time endorsed thereon and that the aggregate
principal amount of outstanding Exchange Securities represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Exchange
Securities represented thereby shall be made by the Trustee or the Custodian, at
the direction of the Trustee, in accordance with instructions given by the
Holder thereof as required by Section 2.06 hereof.
Section 2.02 Execution and Authentication
One Officer shall sign the Securities of the Company by manual or
facsimile signature. If such Officer whose signature is on a Security was an
Officer at the time of such execution but 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 signs the certificate of authentication on the Security. Such
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture. A Security shall be dated the date of its authentication.
The Trustee shall authenticate (i) Initial Securities issued by Falcon
for original issue in an aggregate principal amount not to exceed $150.0 million
in one or more series; provided that the aggregate principal amount of Initial
Securities on the Issue Date shall not exceed $100.0 million; and provided
further that the Company complies with Section 4.04, (ii) upon cancellation of
the Initial Securities issued by Falcon, Securities issued by Falcon for
original issue in an aggregate amount not to exceed $150.0 million in one or
more series; provided that the aggregate principal amount of Exchange Securities
on the date of exchange of Initial Securities to Exchange Securities shall not
exceed $100.0 million, and provided further that the Company complies with
Section 4.04, (iii) Transfer Restricted Securities from time to time only in
exchange for a like principal amount of the same type of Initial Securities and
(iv) Unrestricted Securities from time to time (A) in exchange for a like
principal amount of the same type of Initial Securities or a like principal
amount of the same type of Transfer Restricted Securities or (B) as the Company
may determine in accordance with this Indenture, in each case upon a written
order of the Company in the form of an Officers' Certificate. Each such written
order shall specify the amount of and the type of Securities to be authenticated
and the date on which the Securities are to be authenticated, whether the
Securities are to be Initial Securities, Exchange Securities, Transfer
Restricted Securities or Unrestricted Securities and whether the Securities are
to be issued as Physical Securities or Global Securities and such other
information as the Trustee may reasonably request. The aggregate principal
amount of Securities outstanding at any time may not exceed $150.0 million,
except as provided in Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clauses (ii) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable best efforts to obtain
the same "CUSIP" number for such Securities as is printed on the Securities
outstanding at such time; provided, however, that if any series of Securities
issued under this Indenture subsequent to the Issue Date is determined, pursuant
to an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee, to be a different class of security than the Securities outstanding at
such time for federal income tax purposes, the Company may obtain a "CUSIP"
number for such Securities that is different than the "CUSIP" number printed on
the Securities then outstanding.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
Section 2.03 Registrar and Paying Agent
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"), (b)
Securities may be presented or surrendered for payment (the "Paying Agent") and
(c) notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent and the term "Registrar" includes
any co-Registrar. Except as provided herein, the Company or any Guarantor may
act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall promptly notify the Trustee of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. The Company initially appoints DTC to act as Depositary with respect
to the Global Securities. The Company may appoint a successor Registrar and/or
Paying Agent without prior notice to the Holders and the Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
Section 2.04 Paying Agent to Hold Assets in Trust
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other than the Company), the Paying Agent shall have no further liability for
such assets. If the Company or any Guarantor or any of their respective
Affiliates acts as Paying Agent, it shall, on or before each due date of the
principal of or interest on the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Section 2.05 Holder 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
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee at least five days before each Interest Record Date and at such other
times as the Trustee may request in writing a list as of such date and in such
form as the Trustee may reasonably require of the names and addresses of
Holders, which list may be conclusively relied upon by the Trustee.
Section 2.06 Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar with a request to register the transfer of such
Securities or to exchange such Securities for an equal principal amount of
Securities of other authorized denominations of the same series, the Registrar
shall register the transfer or make the exchange as requested if its
requirements 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 and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities (and
each of the Guarantors shall execute a Guarantee thereon) at the Registrar's
written request. 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 or similar governmental charge payable in connection
therewith payable by the transferor of such Securities (other than any such
transfer taxes or other governmental charge payable upon exchanges or transfers
pursuant to Section 2.10, 3.06, 4.05, 4.14 or 10.05). The Registrar shall not be
required to register the transfer or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three hereof, except the unredeemed portion of any Security
being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent shall treat the person in whose
name the Security is registered as the owner thereof for all purposes whether or
not the Security shall be overdue, and neither the Company, the Trustee nor any
Agent shall be affected by notice to the contrary. Any Holder of a beneficial
interest in a Global Security shall, by acceptance of such beneficial interest
in a Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Depositary (or its agent), and that ownership of a beneficial interest in a
Global Security shall be required to be reflected in a book entry.
Section 2.07 Replacement Securities
If evidence of a mutilated Security is surrendered to the Trustee 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 Trustee's requirements for replacement of Securities
are met. If required by the Company or the Trustee, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee and any Agent from
any loss which any of them may suffer if a Security is replaced. The Company may
charge such Holder for its reasonable expenses in replacing a Security,
including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company
and the Guarantors.
Section 2.08 Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Net Proceeds Offer Payment Date or the Final
Maturity Date the Paying Agent holds money sufficient to pay all of the
principal and interest due on the Securities payable on that date, and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
Section 2.09 Treasury Securities
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, a Guarantor or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
The Company shall promptly notify the Trustee, in writing, when the
Company, a Guarantor or any of their respective Affiliates repurchases or
otherwise acquires Securities and of the aggregate principal amount of such
Securities so repurchased or otherwise acquired.
Section 2.10 Temporary Securities
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company consider appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate upon receipt of a written order of the Company
pursuant to Section 2.02 definitive Securities in exchange for temporary
Securities. Holders of temporary Securities shall be entitled to the benefits of
this Indenture.
Section 2.11 Cancellation
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and at the written direction of the Company,
dispose of and deliver evidence of such disposal of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that it has paid or
delivered to the Trustee for cancellation. If the Company or any Guarantor shall
acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
Section 2.12 Defaulted Interest
The Company shall pay interest on overdue principal from time to time
on demand at the applicable rate of interest then borne by the Securities. The
Company shall, to the extent lawful, pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the rate of
interest then borne by the Securities.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day preceding the date
fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(i) shall be paid to
Holders as of the Interest Record Date for the Interest Payment Date for which
interest has not been paid.
Section 2.13 CUSIP Number
The Company in issuing the Securities will use a "CUSIP" number and the
Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any changes in CUSIP numbers.
Section 2.14 Deposit of Moneys
Prior to 10:00 a.m., New York time, on each Interest Payment Date,
Redemption Date, Net Proceeds Offer Payment Date and the Final Maturity Date,
the Company shall deposit with the Paying Agent in immediately available funds
money sufficient to make cash payments, if any, due on such Interest Payment
Date, Redemption Date, Net Proceeds Offer Payment Date or Final Maturity Date,
as the case may be, in a timely manner which permits the Paying Agent to remit
payment to the Holders on such Interest Payment Date, Redemption Date, Net
Proceeds Offer Payment Date or Final Maturity Date, as the case may be.
Section 2.15 Book-Entry Provisions for Global Securities
(a) The Global Securities initially shall (i) be registered in the
name of the Depositary or the nominee of such Depositary, (ii) be delivered to
the Trustee as custodian for such Depositary and (iii) bear legends as set forth
in Exhibit C.
Members of, or participants in, the Depositary ("Participants") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
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 the 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 Participants, the operation of customary practices governing the exercise of
the rights of a beneficial holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depositary and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for any Global Security and a successor Depositary is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial owner
identified by the Depositary in exchange for its beneficial interest in the
Global Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
Section 2.16 Registration of Transfers and Exchanges
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal principal
amount of Physical Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
the requirements under this Indenture as set forth in this Section 2.16 for such
transactions are met; provided, however, that the Physical Securities presented
or surrendered for Registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing; and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the sole discretion of the Company, by the following
additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
by a Holder for Registration in the name of such Holder, without transfer, a
certification from such Holder to that effect (substantially in the form of
Exhibit D hereto); or
(B) if such Physical Security is being transferred to a QIB in
accordance with Rule 144A, a certification to that effect (substantially in the
form of Exhibit D hereto); or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a transferee letter of
representation substantially in the form of Exhibit E hereto and, at the option
of the Company, an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the Securities Act; or
(D) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the Securities Act, a
certification to that effect (substantially in the form of Exhibit D hereto)
and, at the option of the Company, an Opinion of Counsel reasonably acceptable
to the Company to the effect that such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of a Physical Security for a
Beneficial Interest in a Global Security. A Physical Security, the offer and
sale of which has not been registered under the Securities Act, may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
of a Physical Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
that such Physical Security is being transferred (I) to a QIB or (II) to an
Institutional Accredited Investor and, with respect to (II), at the option of
the Company, an Opinion of Counsel reasonably acceptable to the Company to the
effect that such transfer is in compliance with the Securities Act; and
(B) written instructions directing the Registrar to make, or to
direct the Depositary to make, an endorsement on the applicable Global Security
to reflect an increase in the aggregate amount of the Securities represented by
the Global Security,
then the Registrar shall cancel such Physical Security and cause, or direct the
Depositary to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Registrar, the principal amount of
Securities represented by the applicable Global Security to be increased
accordingly. If no Global Security is then outstanding, the Company shall,
unless either of the events in the proviso to Section 2.15(b) have occurred and
are continuing, issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate such a Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor. Upon receipt by the Registrar of written instructions, or such other
instruction as is customary for the Depositary, from the Depositary or its
nominee, requesting the Registration of transfer of an interest in a Global
Security to another type of Global Security, together with the applicable Global
Securities (or, if the applicable type of Global Security required to represent
the interest as requested to be transferred is not then outstanding, only the
Global Security representing the interest being transferred), the Registrar
shall cancel such Global Securities (or Global Security) and the Company shall
issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate new Global Securities of the types so
canceled (or the type so canceled and applicable type required to represent the
interest as requested to be transferred) reflecting the applicable increase and
decrease of the principal amount of Securities represented by such types of
Global Securities, giving effect to such transfer. If the applicable type of
Global Security required to represent the interest as requested to be
transferred is not outstanding at the time of such request, the Company shall
issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate a new Global Security of such type in
principal amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Physical Security;
provided, however, that prior to the Registration, a transferee that is a QIB or
Institutional Accredited Investor may not exchange a beneficial interest in a
Global Security for a Physical Security. Upon receipt by the Registrar of
written instructions, or such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee on behalf of any Person (subject
to the previous sentence) having a beneficial interest in a Global Security and
upon receipt by the Trustee of a written order or such other form of
instructions as is customary for the Depositary or the Person designated by the
Depositary as having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of a beneficial
interest in Securities the offer and sale of which have not been registered
under the Securities Act, the following additional information and documents:
(A) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities Act; or
(B) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act, a
certification to that effect (substantially in the form of Exhibit D hereto)
and, at the option of the Company, an Opinion of Counsel reasonably satisfactory
to the Company to the effect that such transfer is in compliance with the
Securities Act,
then the Registrar will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Registrar, the aggregate
principal amount of the applicable Global Security to be reduced and, following
such reduction, the Company will execute and, upon receipt of an authentication
order in the form of an Officers' Certificate in accordance with Section 2.02,
the Trustee will authenticate and deliver to the transferee a Physical Security
in the appropriate principal amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar in writing. The Registrar shall deliver such Physical
Securities to the Persons in whose names such Physical Securities are so
registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, 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.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless, and the Trustee is hereby authorized to
deliver Securities without the Private Placement Legend if, (i) there is
delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act; (ii) such Security has been sold pursuant to
an effective registration statement under the Securities Act (including pursuant
to a Registration); or (iii) the date of such transfer, exchange or replacement
is two years after the later of (x) the Issue Date and (y) the last date that
the Company or any affiliate (as defined in Rule 144 under the Securities Act)
of the Company was the owner of such Securities (or any predecessor thereto).
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The 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 Participants or
beneficial owners of interest 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.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable prior written notice to the Registrar.
Section 2.17 Issuance of Additional Securities
The Company shall be entitled, subject to its compliance with the
covenants contained in Section 4.04, to issue Additional Securities under this
Indenture which shall have identical terms as the Initial Securities issued on
the Issue Date, other than with respect to the date of issuance, issue price and
amount of interest payable on the first payment date applicable thereto (and, if
such Additional Securities shall be issued in the form of Physical Securities or
Global Securities, other than with respect to transfer restrictions). The
Initial Securities issued on the Issue Date, any Additional Securities and all
Exchange Securities issued in exchange therefor shall be treated as a single
class for all purposes under this Indenture.
With respect to any Additional Securities, the Company shall set forth
in a resolution of the Board of Directors of the Company and an Officers'
Certificate, a copy of each of which shall be delivered to the Trustee, the
following information:
(1) the aggregate principal amount of such Additional Securities to
be authenticated and delivered pursuant to this Indenture;
(2) the issue price, the issue date, the CUSIP and/or ISIN number
of such Additional Securities and the amount of interest payable on the first
payment date applicable thereto; provided, however, that no Additional
Securities may be issued at a price that would cause such Additional Securities
to have "original issue discount" within the meaning of Section 1273 of the
Internal Revenue Code of 1986, as amended; and
(3) whether such Additional Securities shall be Physical Securities
or Global Securities and issued in the form of Initial Securities or shall be
issued in the form of Exchange Securities.
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee
If the Company wants to redeem Securities pursuant to paragraph 7 or 8
of the Securities at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date and the principal amount of
Securities to be redeemed, together with an Officers' Certificate stating that
such redemption will comply with the conditions contained herein.
Section 3.02 Selection of Securities to Be Redeemed
If less than all of the Securities are to be redeemed at any time, the
Trustee will select Securities for redemption as follows:
(1) if the Securities are listed, in compliance with the
requirements of the principal national securities exchange on which the
Securities are listed; or
(2) if the Securities are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem appropriate.
No Securities of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Security is to be redeemed in part only, the notice of
redemption that relates to that Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in principal amount
equal to the unredeemed portion of the original Security will be issued in the
name of the Holder thereof upon cancellation of the original Security.
Securities called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest ceases to accrue on Securities or
portions of them called for redemption.
Section 3.03 Notice of Redemption
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state: (1) the paragraph of the
Securities pursuant to which the Securities are being redeemed;
(2) the Redemption Date;
(3) the redemption price;
(4) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the redemption price upon surrender to the Paying Agent; and
(7) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, upon surrender of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense; provided that the Company shall give notice of redemption to the
Trustee at least 10 days before the date the notice of redemption is requested
by the Company to be mailed to the Holders (unless a shorter notice period shall
be agreed to by the Trustee in writing).
Section 3.04 Effect of Notice of Redemption
Once a notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price, plus accrued interest thereon, if any, to the Redemption Date, but
interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date. The Trustee or Paying Agent shall promptly return
to the Company any money deposited with the Trustee or the Paying Agent by the
Issuers in excess of the amount necessary to pay the redemption price of, and
accrued and unpaid interest on, all Securities to be redeemed.
Section 3.05 Deposit of Redemption Price
Prior to 10:00 a.m., New York time, on the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is Paying Agent, shall,
on or before the Redemption Date, segregate and hold in trust) money sufficient
to pay the redemption price of and accrued interest, if any, on all Securities
to be redeemed on that date other than Securities or portions thereof called for
redemption on that date which have been delivered by the Company to the Trustee
for cancellation.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the
Securities or the portions of Securities called for redemption. If a Security is
redeemed on or after an Interest Record Date but on or prior to the related
Interest Payment Date, then any accrued and unpaid interest shall be paid to the
person in whose name such Security was registered at the close of business on
such record date. Upon surrender of a Security for redemption in accordance with
the notice given pursuant to Section 3.03 hereof, such Security shall be
purchased by the Company at the redemption price, together with accrued and
unpaid interest to the redemption date.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
Section 3.06 Securities Redeemed in Part
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
Section 3.07 Optional Redemption
(a) At any time prior to June 15, 2002, the Company may on any one
or more occasions redeem up to 35% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price of
111.375% of the principal amount thereof, plus accrued and unpaid interest to
the redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that
(1) at least 65% of the aggregate principal amount of Securities
issued on the Issue Date remains outstanding immediately after the occurrence of
such redemption (excluding Securities held by the Company and its Subsidiaries);
and
(2) the redemption must occur within 45 days of the date of the
closing of such Public Equity Offering.
(b) Except as set forth in paragraph (a) of this Section 3.07, the
Securities will not be redeemable at the Company's option prior to June 15,
2004. On or after June 15, 2004, the Company may redeem the Securities, in whole
or from time to time in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on June 15 of the years indicated below:
Year Percentage
2004..................................................105.688%
2005..................................................103.792%
2006..................................................101.896%
2007 and thereafter...................................100.000%
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities
The Company shall pay the principal of and interest on (and any
Liquidated Damages, to the extent applicable) the Securities in the manner
provided in the Securities and the Registration Rights Agreement. An installment
of principal or interest shall be considered paid on the date due if the Trustee
or Paying Agent (other than the Company, a Guarantor or any of their respective
Affiliates) holds on that date money designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
of the Securities pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the applicable Securities. The Company shall pay cash
interest on overdue installments of interest at the same rate per annum borne by
the applicable Securities, to the extent lawful, as provided in Section 2.12.
Section 4.02 Maintenance of Office or Agency
The Company shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02.
The Company hereby initially designates the Trustee at its address set forth in
Section 13.02 as its office or agency in the Borough of Manhattan, The City of
New York, for such purposes.
Section 4.03 Limitations on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company;
(4) Restricted Payments that are permitted by the provisions of the
Indenture described in Section 4.06; and
(5) the purchase of the tendered shares from the Tender Offer upon
consummation of the Merger.
Section 4.04 Limitation on Incurrence of Additional Indebtedness and Issuance
of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt but not including Permitted Indebtedness), and the Company will not issue
any Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and any
Guarantor may incur Indebtedness (including Acquired Debt), and the Company may
issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least (a) 2.0 to 1 if such Indebtedness is incurred on or prior to June 15, 2001
and (b) 2.25 to 1 if such Indebtedness is incurred thereafter, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
For purposes of determining compliance with this Section 4.04, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Indebtedness, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company will be permitted
to classify such item of Indebtedness on the date of its incurrence in any
manner that complies with this covenant. Indebtedness under Credit Facilities
outstanding on the Issue Date shall be deemed to have been incurred on such date
in reliance on the exception provided by clause (i) of the definition of
"Permitted Indebtedness" in Article One. Subject to the other terms of the
Indenture, any Indebtedness incurred in accordance with this covenant may be
incurred under the Credit Agreement.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-dominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-dominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
Permitted Refinancing Indebtedness is denominated that is in effect on the date
of such refinancing.
Section 4.05 Limitation on Asset Sales
(A) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee; and (3) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Securities or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received in that conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds at its option:
(1) to repay permanently Senior Debt of the Company or Senior Debt
of any Guarantor and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other assets that are used or useful in a Permitted
Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute excess proceeds ("Excess
Proceeds"). When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will make an offer to all Holders of Securities and all holders of
other Indebtedness that is pari passu with the Securities containing provisions
similar to those set forth in the Indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum principal
amount of Securities and such other pari passu Indebtedness that may be
purchased out of the Excess Proceeds (the "Net Proceeds Offer"). The offer price
in any Net Proceeds Offer will be equal to 100% of principal amount plus accrued
and unpaid interest, if any, to the date of purchase, and will be payable in
cash (the "Net Proceeds Offer Amount"). If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Securities and such other pari passu Indebtedness tendered
into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee
shall select the Securities and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed for purposes of this Section 4.05 to have
sold the properties and assets of the Company and its Restricted Subsidiaries
not so transferred, and shall comply with the provisions of this Section 4.05
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Proceeds for purposes
of this Section 4.05.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Securities in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Securities in an amount exceeding the Net Proceeds Offer Amount, Securities of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.
(B) Subject to the deferral of the Net Proceeds Offer Trigger Date
contained in the first paragraph of subsection (A) above, each notice of a Net
Proceeds Offer pursuant to this Section 4.05 shall be mailed or caused to be
mailed, by first class mail, by the Company not more than 25 days after the Net
Proceeds Offer Trigger Date to all Holders at their last registered addresses as
of a date within 15 days of the mailing of such notice, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Net Proceeds Offer and
shall state the following terms:
a. (1) that the Net Proceeds Offer is being made pursuant to this
Section 4.05 and that all Securities tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Securities tendered
in a Net Proceeds Offer exceeds the aggregate amount of the Net Proceeds Offer,
the Company shall select the Securities to be purchased on a pro rata basis
based on the amounts tendered (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000 or
multiples thereof shall be purchased);
b. (2) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be at least 20 and not more than 30
Business Days from the date of mailing of notice of such Net Proceeds Offer, or
such longer period as required by law) (the "Net Proceeds Offer Payment Date");
c. (3) that any Security not tendered will continue to accrue
interest;
d. (4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Net Proceeds Offer Payment Date;
e. (5) that Holders electing to have a Security purchased pursuant
to a Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Net
Proceeds Offer Payment Date;
f. (6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than five Business Days prior to the Net
Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his election to have such Security purchased; and
g. (7) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; provided that each Security purchased and
each new Security issued shall be in an original principal amount of $1,000 or
integral multiples thereof.
On or before 10:00 a.m., New York time, on the Net Proceeds Offer
Payment Date, the Company shall (i) accept for payment Securities or portions
thereof validly tendered pursuant to the Net Proceeds Offer which are to be
purchased in accordance with item (b)(1) above, (ii) deposit with the Paying
Agent United States Legal Tender sufficient to pay the purchase price plus
accrued interest, if any, of all Securities to be purchased and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to the Holders of Securities so accepted
payment in an amount equal to the purchase price plus accrued interest, if any.
For purposes of this Section 4.05, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Net Proceeds Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.05, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.05 by virtue thereof.
Section 4.06 Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary
of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or any Restricted Subsidiary of the Company
(other than any such Equity Interests owned by the Company or any Restricted
Subsidiary of the Company);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that (a) is
pari passu with the Securities, (b) is subordinate in right of payment to the
Subsidiary Guarantees or (c) otherwise constitutes Subordinated Indebtedness
(other than the Securities or the Subsidiary Guarantees), except a payment of
interest or principal at the Stated Maturity thereof or pursuant to any required
sinking fund payments; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.04; and
(3) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted by
clauses (2) and (3) of the next succeeding paragraph), is less than the sum,
without duplication, of
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the Issue Date as a contribution to its common equity capital or from the
issue or sale of Equity Interests of the Company (other than Disqualified Stock)
or from the issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the
Company), plus
(c) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (ii) the
initial amount of such Restricted Investment.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or Subordinated Indebtedness of the Company or any
Guarantor or of any Equity Interests of the Company or any Guarantor in exchange
for, or out of the net cash proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of, Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
(a) pari passu Indebtedness, (b) Indebtedness which is subordinate in right of
payment to the Subsidiary Guarantees or (c) Subordinated Indebtedness of the
Company or any Guarantor with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its common Equity Interests on a pro rata basis
provided that, at the time of the declaration of any such dividends, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof;
(5) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement; provided that (i) the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period (with unused amounts in any calendar
year being carried over to succeeding calendar years, without being subject to
any maximum due to such carry over treatment or expiration of any amounts so
carried over) and (ii) at the time of the aforementioned repurchase, redemption,
acquisition or retirement, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and
(6) payments to shareholders of Shelby Williams in connection with
the purchase of their common stock relating to the Tender Offer and the Merger.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.06 were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
In making the computations required by this Section 4.06, (i) the
Company may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion of
such period and (ii) the Company will be permitted to rely in good faith on the
financial statements and other financial data derived from its books and records
that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of this Indenture, such Restricted Payment will be deemed to have
been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements which
adjustments affect any of the financial data used to make the calculations with
respect to such Restricted Payment.
Section 4.07 Compliance with Laws
The Company shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Restricted Subsidiaries, taken
as a whole.
Section 4.08 Payment of Taxes and Other Claims
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
Section 4.09 Notice of Defaults
2. Upon becoming aware of any Default or Event of Default, the Company
shall promptly (and in any event within 5 Business Days) deliver an Officers'
Certificate to the Trustee specifying the Default or Event of Default and what
action the Company is proposing to take with respect thereto.
Section 4.10 Maintenance of Properties and Insurance
(a) Subject to Article Five, the Company shall cause all material
properties owned by or leased to it or any Restricted Subsidiary and used or
useful in the conduct of its business or the business of any Restricted
Subsidiary to be maintained and kept in normal condition, repair and working
order (other than ordinary wear and tear) and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors of the Company or the
Restricted Subsidiary concerned, or of an Officer (or other agent employed by
the Company or of any Restricted Subsidiary) of the Company or such Restricted
Subsidiary having managerial responsibility for any such property, desirable in
the conduct of the business of the Company or any Restricted Subsidiary.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions as, in the judgment of the Company, may be
necessary.
Section 4.11 Compliance Certificate
The Company shall deliver to the Trustee within 90 days after the close
of each fiscal year a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company
stating that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal year
and is continuing. If they do know of such a Default or Event of Default, the
certificate shall describe all such Defaults or Events of Default, their status
and the action the Company is taking or proposes to take with respect thereto.
The first certificate to be delivered by the Company pursuant to this Section
4.11 shall be for the fiscal year ending October 30, 1999.
Section 4.12 Reports to Holders
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration Date") and (ii) the date 180 days after the Issue
Date, in either case, whether or not the Company is then required to file
reports with the Commission, the Company will file with the Commission (to the
extent accepted by the Commission):
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements by
the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, or if any of the Company's Subsidiaries are not Guarantors, then
the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of the Company and its Restricted
Subsidiaries that are Guarantors separate from the financial condition and
results of operations of the Subsidiaries that are not Guarantors and the
Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the SEC, the Company will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. For all reporting periods ending on a date subsequent to June 17,
1999, the Issuer shall include in each Form 10-Q and Form 10-K a presentation,
which need not be audited, of sales, operating income, interest expense,
depreciation and amortization, and capital expenditures for such operating
period and the twelve months ended on the last day of such reporting period, on
a pro forma basis consistent with Article 11 of Regulation S-X of the Exchange
Act.
The Company will also be required (a) to supply the Trustee and each
Holder of Securities, or supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and other documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be required
to file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the Company's
cost copies of such reports and documents to any prospective Holder of
Securities promptly upon written request. In addition, at all times prior to the
earlier of the Registration Date and the date 180 days after the Issue Date, the
Company will, at its cost, deliver to each Holder of the Securities quarterly
and annual reports substantially equivalent to those that would be required by
the Exchange Act. Furthermore, at all times prior to the Registration Date, the
Company will supply at the Company's cost copies of such reports and documents
to any prospective Holder of Securities promptly upon written request and as
required by Rule 144A(d)(4) under the Securities Act.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 4.13 Waiver of Stay, Extension or Usury Laws
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waive all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
Section 4.14 Change of Control
(a) Upon the occurrence of a Change of Control, each Holder will
have the right to require that the Company purchase all or a portion (equal to
$1,000 or an integral multiple thereof) of such Holder's Securities pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest to the date of purchase.
(b) Prior to complying with any of the provisions of this Section
4.14, but in any event within 90 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Facilities and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Facilities and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Facilities and all other such Senior Debt to permit the repurchase of the
Securities as provided below. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(c) Within 10 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Securities tendered and not withdrawn will be accepted
for payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date, which must be no earlier than 30 days nor later than 60
days from the date such notice is mailed, other than as may be required by law
(the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
a Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his election to have such Securities purchased;
(7) that Holders whose Securities are purchased only in part will
be issued new Securities in a principal amount equal to the unpurchased portion
of the Securities surrendered; provided that each Security purchased and each
new Security issued shall be in an original principal amount of $1,000 or
integral multiples thereof; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before 10:00 a.m., New York time, on the Change of Control
Payment Date, the Company shall (i) accept for payment Securities or portions
thereof validly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all Securities or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee Securities so accepted together with an
Officers' Certificate stating the aggregate principal amount of Securities or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to the Holders of Securities so tendered the Change of Control Payment for
such securities, and the Trustee shall promptly authenticate and mail (or cause
to be transferred by book entry) to such Holders new Securities equal in
principal amount to any unpurchased portion of the Securities surrendered, if
any; provided that each such new security will be in a principal amount of
$1,000 or an integral multiple thereof. Any Securities not so accepted shall be
promptly mailed by the Company to the Holder thereof. For purposes of this
Section 4.14, the Trustee shall act as the Paying Agent.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer.
The provisions described above that require the Company to make a
Change of Control Offer following a Change of Control will be applicable
regardless of whether or not any other provisions of this Indenture are
applicable.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.14.
Section 4.15 Prohibition on Incurrence of Senior Subordinated Indebtedness
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of the Company and senior in any respect in
right of payment to the Securities. No Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of such Guarantor
and senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Section 4.16 Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its profits,
or pay any indebtedness owed to the Company or any of the Company's Restricted
Subsidiaries;
(2) make loans or advances to the Company or any of the Company's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any
of the Company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness and the Credit Agreement, in each case as
in effect on the Issue Date and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in such Existing Indebtedness or the Credit
Agreement, as in effect on the Issue Date;
(2) the Indenture, the Subsidiary Guarantees and the Securities;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in licenses or leases
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money or capital lease obligations for property
acquired in the ordinary course of business that impose restrictions on the
property so acquired of the nature described in clause (3) of the preceding
paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary pending
its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described under Section 4.18 that
limit the right of the Company or any of its Restricted Subsidiaries to dispose
of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Section 4.17 [This Section has been intentionally omitted]
Section 4.18 Limitation on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except Permitted Liens.
Section 4.19 Limitation of Guarantees by Restricted Subsidiaries
The Company will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
Guarantee of the payment of the Securities by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness, unless such other
Indebtedness is Senior Debt, in which case the Guarantee of the Securities shall
be subordinated to the Guarantee of such Senior Debt to the same extent as the
Securities are subordinated to such Senior Debt.
Section 4.20 Conduct of Business
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or reasonably related or
complementary to the Permitted Businesses (as determined in good faith by the
Board of Directors of the Company).
Section 4.21 Corporate Existence
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Restricted Subsidiaries in accordance with the respective
organizational documents of each Restricted Subsidiary and the rights (charter
and statutory) of the Company and each of its Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
corporate existence of any Restricted Subsidiary if the Board of Directors of
the Company shall determine that the preservation thereof is no longer desirable
in the conduct of the Permitted Businesses of the Company and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not, and will not
be, adverse in any material respect to the Holders.
Section 4.22 Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary of the Company that is a Guarantor may
enter into a sale and leaseback transaction if:
(1) the Company or that Guarantor, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction under the Fixed Charge Coverage Ratio test
in Section 4.04 and (b) incurred a Lien to secure such Indebtedness pursuant to
Section 4.18;
(2) the gross cash proceeds of that sale and leaseback transaction
are at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee, of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction
is permitted by, and the Company applies the proceeds of such transaction in
compliance with Section 4.05.
Section 4.23 Limitation on Issuance and Sales of Equity Interests in Wholly
Owned Restricted Subsidiaries
(A) The Company will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is
of all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant described
above under Section 4.05;
provided, however, that the restrictions in clauses (1) and (2) above shall not
apply to (a) the issuance of Disqualified Stock in compliance with Section 4.04
or (b) the pledge of the Capital Stock of any Restricted Subsidiary of the
Company in compliance with Section 4.18.
(B) The Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Section 4.24 Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be an Investment made as of the
time of such designation and will either reduce the amount available for
Restricted Payments under the first paragraph of Section 4.06 or reduce the
amount available for future Investments under one or more clauses of the
definition of "Permitted Investments." All such outstanding Investments will be
valued at their fair market value at the time of such designation. That
designation will only be permitted if such Restricted Payment would be permitted
at that time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would
not cause a Default.
Section 4.25 Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of Securities for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Securities unless such consideration is offered to be paid and is paid to all
Holders that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Section 4.26 Future Subsidiary Guarantors
If the Company or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary after the Issue Date or if any Foreign
Subsidiary becomes a Domestic Subsidiary, then (a) that newly acquired or
created Restricted Subsidiary must become a Guarantor and execute a Supplemental
Indenture, substantially in the form of Exhibit F attached hereto, and (b) the
Company shall deliver (i) an Officer's Certificate substantially in the form of
Exhibit G attached hereto and (ii) an Opinion of Counsel to the Trustee, each
within 10 Business Days of the date on which such Subsidiary was acquired or
created; provided, however, that this covenant shall not apply to any Subsidiary
that has been properly designated as an Unrestricted Subsidiary.
ARTICLE FIVE
MERGERS, CONSOLIDATIONS AND ASSET SALES; SUCCESSORS
Section 5.01 Merger, Consolidation and Sale of Assets
(A) The Company will not, directly or indirectly: (1) consolidate
or merge with or into another Person (whether or not the Company is the
surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or more
related transactions, to another Person; unless:
(i) either: (a) the Company is the surviving corporation; or (b)
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Securities, the Indenture and the
Registration Rights Agreement pursuant to agreements reasonably satisfactory to
the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists; and
(iv) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.04.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 will not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
the Company and any of its Wholly Owned Restricted Subsidiaries.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (a) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its property and assets to the Company or any other Restricted Subsidiary and
(b) the Company may merge with an Affiliate incorporated solely for the purpose
of reincorporating the Company in another jurisdiction.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(B) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.05)
will not, and the Company will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than the Company or any other
Guarantor unless: (i) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease, conveyance
or other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any state thereof or the
District of Columbia; (ii) such entity assumes by supplemental indenture all of
the obligations of the Guarantor on the Guarantee; (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; and (iv) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of the first paragraph of
this Section 5.01. Notwithstanding the foregoing clause (iv), (a) any Guarantor
may consolidate with, merge into or transfer all or part of its property and
assets to the Company or any other Guarantor and (b) any Guarantor formed solely
for the purpose of merging with and into any other Person, may merge with or
into such Person.
Section 5.02 Successor Substituted
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
in which the Company is not the continuing corporation, the successor Person
formed by such consolidation or into which the Company is merged or to which
such conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
and the Securities with the same effect as if such surviving entity had been
named as such.
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default
Each of the following is an Event of Default:
(i) default for 30 days in the payment when due of interest on the
Securities, whether or not prohibited by the subordination provisions of the
Indenture;
(ii) default in payment when due of the principal of or premium, if
any, on the Securities, whether or not prohibited by the subordination
provisions of the Indenture;
(iii) failure by the Company or any of its Subsidiaries to comply
with the provisions described under Sections 4.04, 4.05, 4.06, 4.14, or 4.26 or
Article Five;
(iv) failure by the Company or any of its Restricted Subsidiaries
for 60 days after notice to comply with any of the other agreements in the
Indenture or the Securities;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of such Indebtedness
when due at final stated maturity (after giving effect to any grace period
related thereto) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
(1) and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more;
(2) (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million (net
of any amounts with respect to which a reputable and creditworthy insurance
company has acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days;
(3) (vii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(4) (viii) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Restricted Subsidiary
a bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or any Restricted Subsidiary that is a Significant Subsidiary under the
U.S. Federal Bankruptcy Code or any other applicable federal, state or foreign
law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or any Restricted Subsidiary that is a
Significant Subsidiary or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; and
(5) (ix) the institution by the Company or any Restricted
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the U.S. Federal Bankruptcy Code or any other
applicable federal, state or foreign law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or any
Restricted Subsidiary or of any substantial part of its property, or the making
by it of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due.
Section 6.02 Acceleration
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding
Securities will become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Securities may declare all the Securities to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a notice of acceleration (the "Acceleration Notice") and
the same (i) shall become immediately due and payable or (ii) if there are any
amounts outstanding under the Credit Agreement, shall become immediately due and
payable upon the first to occur of an acceleration under the Credit Agreement or
five Business Days after receipt by the Company and the Representative under the
Credit Agreement of such Acceleration Notice but only if such Event of Default
is then continuing.
In the event of a declaration of acceleration of the Securities because
an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause (v) of Section 6.01, the
declaration of acceleration of the Securities shall be automatically annulled if
the holders of any Indebtedness described in such clause (v) have rescinded the
declaration of acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and if (i) the annulment of the acceleration of the
Securities would not conflict with any judgment or decree of a court of
competent jurisdiction, and (ii) all existing Events of Default, except
nonpayment of principal or interest on the Securities that became due solely
because of the acceleration of the Securities, have been cured or waived. The
Trustee may withhold from Holders of the Securities notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
If an Event of Default occurs on or after June 15, 2004 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Securities
pursuant to Section 3.07(b) hereof, then, upon acceleration of the Securities,
an equivalent premium shall also become and be immediately due and payable, to
the extent permitted by law, anything in this Indenture or in the Securities to
the contrary notwithstanding. If an Event of Default occurs prior to June 15,
2004 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Securities prior to such date, then, upon acceleration of the
Securities, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on June 15 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Securities on the date of payment that would otherwise be due but
for the provisions of this sentence):
Year Percentage
1999................................................ 111.375%
2000................................................ 110.238%
2001................................................ 109.101%
2002................................................ 107.964%
2003................................................ 106.827%
Section 6.03 Other Remedies
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity 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 Holder in exercising any right or remedy maturing
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 to the extent permitted by
law.
Section 6.04 Waiver of Past Default
The Holders of a majority in aggregate principal amount of the
Securities then outstanding by written notice to the Trustee may on behalf of
the Holders of all of the Securities waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
Securities.
Section 6.05 Control by Majority
Holders of the Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or
that the Trustee determines may be unduly prejudicial to the rights of another
Holder, or that may involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. In the event the Trustee takes
any action or follows any direction pursuant to this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole discretion
against any loss or expense caused by taking such action or following such
direction. This Section 6.05 shall be in lieu of ss. 316(a)(1)(A) of the TIA,
and such ss. 316(a)(1)(A) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
Section 6.06 Limitation on Suits
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue a
remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
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 premium, if any or interest on a
Security, on or after the respective due dates expressed in the Security, 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 the Holder.
Section 6.08 Collection Suit by Trustee
If an Event of Default in payment of principal or interest specified in
Section 6.01(i) or (ii) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Securities for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company or any other obligor upon the
Securities, their respective creditors or their respective property and shall be
entitled and empowered to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10 Priorities
If the Trustee collects any money or property pursuant to this Article
Six, 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 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, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
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 and expenses, 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 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates expressed in the Security.
Section 6.12 Notice of Defaults
The Company shall deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, the Company shall also deliver to the Trustee a statement specifying
such Default or Event of Default.
ARTICLE SEVEN
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 its 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 duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, 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; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture (but need not confirm or investigate the
accuracy of mathematical calculations or other facts stated therein).
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this 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 Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, 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) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability. The
Trustee shall be under no obligation to exercise any of its rights and powers
under this Indenture at the request, order or direction of any of the Holders
unless such Holders shall have offered to the Trustee reasonable security or
indemnity satisfactory to it against any loss, liability or expense that might
be incurred by the Trustee in compliance with such request, order or direction.
(f) 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.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02 Certain Rights of Trustee
(a) The Trustee may conclusively rely upon any document,
certificate, opinion, report, notice, request, direction, order, note or other
evidence of indebtedness, whether in its original or facsimile form, 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 any such document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. 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. The Trustee may consult with
counsel of its selection and the advice or opinion of such counsel with respect
to legal matters relating in any way to this Indenture and the Securities shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(c) The Trustee may act through its attorneys and 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 that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture provided, however, that the
Trustee's conduct does not constitute willful misconduct, negligence or bad
faith.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) Except with respect to Section 4.01, the Trustee shall have no
duty to inquire as to the performance of the Company's covenants in Article Four
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.01(i), 6.01(ii) and 4.01 or (ii) any Default or Event of Default
of which a Responsible Officer of the Trustee shall have received written
notification at the Corporate Trust Office of the Trustee and such notice
references the Securities and this Indenture or obtained actual knowledge.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney at the sole cost of the Company and shall incur no liability or
additional liability of any kind by reason of such inquiry or investigation.
(i) The rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed to act hereunder.
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 any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, the Trustee must comply with Sections 7.10 and 7.11 of this
Indenture. In addition, if the Trustee has any conflicting interest within the
meaning of Section 310 of the TIA it must eliminate such conflict within 90
days, or resign. Any Agent may do the same with like rights and duties.
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 or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the
Securities or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults
If a Default or Event of Default occurs and is continuing and if it is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to each Holder of Securities a 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, the
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Securities.
Section 7.06 Reports by Trustee to Holders of the Securities
As promptly as practicable after each June 15 beginning with the June
15 following the date of the Indenture and for so long as the Securities remain
outstanding, and in any event prior to August 15 in each year, the Trustee shall
mail to the Holders of the Securities a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Securities shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Securities are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee whenever the Securities
become listed on any stock exchange or delisted therefrom.
Section 7.07 Compensation and Indemnity
The Company shall pay to the Trustee such reasonable compensation, as
the Company and the Trustee shall from time to time agree in writing, for its
acceptance of this Indenture and its performance of services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. Except as otherwise provided herein, in addition to
compensating the Trustee for its services, the Company shall reimburse the
Trustee promptly upon request for all reasonable out-of-pocket expenses incurred
or made by it in accordance with any provision of this Indenture (except any
such expenses as may be attributable to the Trustee's negligence or bad faith).
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any predecessor
Trustee against any and all losses, liabilities or expenses (including taxes
other than taxes based upon the income of the Trustee) incurred by it in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. 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 shall
cooperate in the defense. The Trustee may have separate counsel of its selection
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own negligence or bad
faith. In addition, the Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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, except that held in trust to pay principal and
interest on particular Securities. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 6.01(iv) hereof, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under the
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
Section 7.08 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders constituting a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a receiver or other public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed 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. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding Securities
may, at the expense of the Company, appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders owning at least 10% in aggregate principal amount of the then
outstanding Securities may, at the expense of the Company, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Security who
has been a Holder of a Security for at least six months, fails to comply with
Section 7.10, such Holder of a Security may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of 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 Holders of the Securities. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee (including its agents and counsel) hereunder have
been paid and subject to the Lien provided for in Section 7.07 hereof.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 hereof shall continue for the benefit
of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, Etc
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of 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.
Section 7.10 Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements and comply with
Sections 310(a) and (b) of the TIA. Each successor Trustee shall be a
corporation organized and doing business under the laws of the United States of
America, any state thereof or the District of Columbia that is authorized under
such laws to exercise corporate trustee power, that is subject to supervision or
examination by Federal or state authorities and that has a combined capital and
surplus of at least $50.0 million as set forth in its most recent published
annual report of condition, subject to supervision or examination by Federal or
state authority; provided, however, that if Section 310(a) of the TIA or the
rules and regulations of the Commission under the TIA at any time permit a
corporation organized and doing business under the laws of any other
jurisdiction to serve as trustee of an indenture qualified under the TIA, this
Section 7.10 shall be automatically deemed amended to permit a corporation
organized and doing business under the laws of any such jurisdiction to serve as
Trustee hereunder. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
Neither the Company nor any Person directly or indirectly controlling,
controlled by or under common control with the Company may serve as Trustee. If
at any time the Trustee with respect to any series of Securities shall cease to
be eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
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 and comply with TIA Section 311 to the
extent required thereby.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
Section 8.01 Securities Subordinated to Senior Debt
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, (i) that
all Securities shall be issued subject to the provisions of this Article Eight;
and each Person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of principal, premium, if any, and interest on the Securities by the Company
shall, to the extent and in the manner set forth in this Article Eight, be
subordinated and junior in right of payment to the prior payment in full in cash
or Cash Equivalents of all amounts payable under Senior Debt of the Company,
whether outstanding on the Issue Date or thereafter incurred, and (ii) that the
subordination is for the benefit of, and shall be enforceable directly by, the
holders of Senior Debt, and that each holder of Senior Debt whether now
outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Securities.
Section 8.02 No Payment on Securities in Certain Circumstances
If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by acceleration or otherwise, of any
Obligations with respect to any Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt, whether or not allowed as a claim in any such
proceeding), no payment of any kind or character shall be made by or on behalf
of the Company or any other Person on its behalf with respect to any Obligations
on the Securities or to acquire any of the Securities for cash or property or
otherwise (except that holders of the Securities may receive and retain
Permitted Junior Securities and payments from a trust described under Article
Nine so long as, on the date or dates the respective amounts were paid into the
trust, such payments were made with respect to the Securities in accordance with
the provisions of Article Nine and without violating the provisions of Article
Eight or Article Twelve of this Indenture (a "Defeasance Trust Payment")).
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Debt, as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Payment Blockage Notice"), then, unless and until all events of
default have been cured or waived or have ceased to exist or the Trustee
receives notice from the Representative for the respective issue of Designated
Senior Debt terminating the Payment Blockage Period, during the 179 days after
the date of receipt of such Payment Blockage Notice (the "Payment Blockage
Period"), neither the Company nor any other Person on either of their behalf
shall (x) make any payment of any kind or character with respect to any
Obligations on the Securities (except in Permitted Junior Securities or
Defeasance Trust Payments) or (y) acquire any of the Securities for cash or
property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 180 days from the date the Payment
Blockage Notice is delivered and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No nonpayment event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Payment Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period of
360 consecutive days, unless such event of default shall have been cured or
waived for a period of not less than 180 consecutive days (it being acknowledged
that any subsequent action, or any breach of any financial covenants for a
period commencing after the date of commencement of such Payment Blockage Period
that, in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).
In the event that, notwithstanding the foregoing provisions of this
Section 8.02 prohibiting such payment or distribution, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities (excluding any Defeasance Trust
Payment), shall be received by the Trustee or any Holder of Securities at a time
when such payment or distribution is prohibited by the first two paragraphs of
this Section 8.02 and before all Obligations in respect of Senior Debt of the
Company are paid in full in cash or Cash Equivalents, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Debt of the Company (pro
rata to such holders on the basis of the respective amounts of Senior Debt held
by such holders) or their representatives, or to the trustee or trustees or
agent or agents under any indenture pursuant to which any of such Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of such Senior Debt remaining unpaid until all such Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of such Senior Debt.
Section 8.03 Payment Over of Proceeds upon Dissolution, etc
(a) Upon any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents before any payment or distribution of any kind or character is made
on account of any Obligations on the Securities, or for the acquisition of any
of the Securities for cash or property or otherwise (except that holders of the
Securities may receive and retain Permitted Junior Securities and Defeasance
Trust Payments). Before any payment may be made by, or on behalf of, the Company
of any Obligations on the Securities upon any such dissolution or winding-up or
total liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities (excluding any Defeasance Trust Payment), to which the Holders of the
Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by the Company or by
any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior Debt
of the Company (pro rata to such holders on the basis of the respective amounts
of Senior Debt held by such holders) or their representatives or to the trustee
or trustees or agent or agents under any agreement or indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior Debt in
full in cash or Cash Equivalents after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any Defeasance Trust Payment), shall be received by the
Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 8.03(a) and before all Obligations in respect of Senior
Debt of the Company are paid in full in cash or Cash Equivalents, such payment
or distribution shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Debt of the Company
(pro rata to such holders on the basis of the respective amounts of Senior Debt
held by such holders) or their representatives, or to the trustee or trustees or
agent or agents under any indenture pursuant to which any of such Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of such Senior Debt remaining unpaid until all such Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of such Senior Debt.
(c) To the extent any payment of Senior Debt (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
Section 8.04 Subrogation
Upon the payment in full in cash or Cash Equivalents of all Senior Debt
of the Company, the Holders of the Securities shall be subrogated to the rights
of the holders of such Senior Debt to receive payments or distributions of cash,
property or securities of the Company made on such Senior Debt until the
principal of and interest on the Securities shall be paid in full in cash or
Cash Equivalents; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of the Company of any cash,
property or securities to which the Holders of the Securities or the Trustee on
their behalf would be entitled except for the provisions of this Article Eight,
and no payment over pursuant to the provisions of this Article Eight to the
holders of Senior Debt of the Company by Holders of the Securities or the
Trustee on their behalf shall, as between the Company, its creditors other than
holders of Senior Debt of the Company, and the Holders of the Securities, be
deemed to be a payment by the Company to or on account of the Senior Debt of the
Company. It is understood that the provisions of this Article Eight are and are
intended solely for the purpose of defining the relative rights of the Holders
of the Securities, on the one hand, and the holders of the Senior Debt of the
Company, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Eight
shall have been applied, pursuant to the provisions of this Article Eight, to
the payment of all amounts payable under Senior Debt, then and in such case, the
Holders of the Securities shall be entitled to receive from the holders of such
Senior Debt any payments or distributions received by such holders of Senior
Debt in excess of the amount required to make payment in full in cash of such
Senior Debt.
Section 8.05 Obligations of the Company Unconditional
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company and
the Holders of the Securities, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders of the Securities the principal of and
interest on the Securities 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 Holders of the Securities and creditors of the Company other than
the holders of the Senior Debt of the Company, nor shall anything herein or
therein prevent the Holder of any Security or the Trustee on their behalf from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Eight of the
holders of the Senior Debt of the Company in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Debt of the Company
then due and payable shall first be paid in full in cash or Cash Equivalents
before the Holders of the Securities or the Trustee are entitled to receive any
direct or indirect payment from, or on behalf of, the Company on account of any
Obligations on the Securities.
Section 8.06 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities pursuant to the provisions of this Article
Eight (although the failure to give any such notice shall not affect the
subordination provisions set forth in this Article Eight). The Trustee shall not
be charged with knowledge of the existence of any event of default with respect
to any Senior Debt of the Company or of any other facts which would prohibit the
making of any payment to or by the Trustee unless and until the Trustee shall
have received notice in writing at its Corporate Trust Office to that effect
signed by an Officer of the Company, or by a holder of Senior Debt or trustee or
agent therefor; and prior to the receipt of any such written notice, the Trustee
shall, subject to Article Seven, be entitled to assume that no such facts exist;
provided, however, that if the Trustee shall not have received the notice
provided for in this Section 8.06 at least two Business Days prior to the date
upon which by the terms of this Indenture any moneys shall become payable for
any purpose (including, without limitation, the payment of the principal of or
interest on any Security), then, regardless of anything herein to the contrary,
the Trustee shall have full power and authority to receive any moneys from the
Company and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by it
on or after such prior date (although the receipt of such moneys by any Holder
of Securities shall otherwise be subject to the provisions of this Article
Eight). Nothing contained in this Section 8.06 shall limit the right of the
holders of Senior Debt of the Company to recover payments from Holders as
contemplated by Section 8.02 or 8.03. The Trustee shall be entitled to rely on
the delivery to it of a written notice by a Person representing himself or
itself to be a holder of any Senior Debt of the Company (or a trustee on behalf
of, or other representative of, such holder) to establish that such notice has
been given by a holder of such Senior Debt or a trustee or representative on
behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt of the Company to participate in any payment or distribution
pursuant to this Article Eight, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt of the Company held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article Eight, 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.
Section 8.07 Reliance on Judicial Order or Certificate of Liquidating Agent
Upon any payment or distribution of assets or securities referred to in
this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Debt of the Company and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
Section 8.08 Trustee's Relation to Senior Debt
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Debt of the Company
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Debt of the Company, and nothing
in this Indenture shall deprive the Trustee or any Paying Agent of any of its
rights as such holder.
With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Debt of the Company shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Debt of the Company (except as
provided in Section 8.03(b)). The Trustee shall not be liable to any such
holders if the Trustee shall in good faith mistakenly pay over or distribute to
Holders of Securities or to the Company or to any other person cash, property or
securities to which any holders of Senior Debt of the Company shall be entitled
by virtue of this Article Eight or otherwise.
Section 8.09 Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Debt
No right of any present or future holders of any Senior Debt of the
Company to enforce subordination as provided herein shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with. The provisions of this Article Eight are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Debt of the
Company.
Section 8.10 Holders Authorize Trustee to Effectuate Subordination of
Securities
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the filing of a claim for the unpaid balance
of its or his Securities in the form required in those proceedings. If the
Trustee does not file a proper claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 prior to 30 days before the
expiration of the time to file such claim or claims, then any of the holders of
the Senior Debt or their Representative is hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities. Nothing
herein contained shall be deemed to authorize the Trustee or the holders of
Senior Debt or their Representative to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
Section 8.11 This Article Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest on
the Securities by reason of any provision of this Article Eight shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (i), (ii) or (iii) of Section 6.01.
Section 8.12 Trustee's Compensation Not Prejudiced
Nothing in this Article Eight shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
Section 8.13 No Waiver of Subordination Provisions
Without in any way limiting the generality of Section 8.09, the holders
of Senior Debt of the Company may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Debt of the Company, do any one or more of the following: (a) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
such Senior Debt or any instrument evidencing the same or any agreement under
which such Senior Debt is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Senior Debt; (c) release any Person liable in any manner for the collection of
such Senior Debt; and (d) exercise or refrain from exercising any rights against
the Company and any other Person.
Section 8.14 Subordination Provisions Not Applicable to Money Held in Trust for
Holders
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
Section 8.15 Amendments
As long as the Senior Debt is outstanding or any amounts are
outstanding thereunder, the provisions of this Article Eight (and the definition
used herein) shall not be amended or modified without the written consent of the
majority of the lenders under the Senior Debt; provided, however, any amendment
to, or waiver of, the provisions of the Indenture relating to subordination that
adversely affects the rights of Holders shall require the consent of at least
75% in aggregate principal amount of Securities then outstanding.
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01 Termination of the Company's Obligations
(A) The Company may terminate its obligations under the Securities
and this Indenture, except those obligations referred to in Section 9.01(B), if
all Securities previously authenticated and delivered (other than destroyed,
lost or stolen Securities which have been replaced or paid or Securities for
whose payment United States Legal Tender or non-callable United States
Government Obligations, or a combination thereof, has theretofore been deposited
with the Trustee or the Paying Agent in trust or segregated and held in trust by
the Company and thereafter repaid to the Company, as provided in Section 9.05)
have been delivered to the Trustee for cancellation and the Company has paid all
sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each Holder of
the redemption of all of the Securities under arrangements satisfactory to the
Trustee for the giving of such notice or (ii) all Securities have otherwise
become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds in trust solely for the benefit of the Holders for
that purpose, United States Legal Tender or non-callable United States
Government Obligations, or a combination thereof, in such amount as is
sufficient without consideration of reinvestment of such interest, to pay
principal and interest on the outstanding Securities to maturity or redemption,
as well as the Trustee's fees and expenses; provided that the Trustee shall have
been irrevocably instructed to apply such United States Legal Tender to the
payment of said principal and interest with respect to the Securities; provided,
further, that no deposits made pursuant to this Section 9.01(b) shall cause the
Trustee to have a conflicting interest as defined in and for the purposes of the
TIA; provided, further, that from and after the time of deposit, the money
deposited shall not be subject to the rights of holders of Senior Debt pursuant
to the provisions of Article Eight and provided, further, that, as confirmed by
an Opinion of Counsel, no such deposit shall result in the Company, the Trustee
or the trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940;
(c) no Default or Event of Default with respect to this Indenture
or the Securities shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will not
result in a breach or violation of, or constitute a default under, the Credit
Agreement or any other material instrument to which the Company is a party or by
which it is bound (other than a Default or Event of Default resulting from the
incurrence of Indebtedness, all or a portion of which will be used to defease
the Securities concurrently with such incurrence);
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for or relating to the termination of the Company's
obligations under the Securities and this Indenture have been complied with.
Such Opinion of Counsel shall also state that such satisfaction and discharge
does not result in a default under any agreement or instrument then known to
such counsel that binds or affects the Company.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 9.05 and 9.06 shall survive
until the Securities are no longer outstanding pursuant to the last paragraph of
Section 2.08. After the Securities are no longer outstanding, the Company's
obligations in Sections 7.07, 9.05 and 9.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
(B) The Company may not discharge any of its obligations with
regard to outstanding Securities or discharge any of the obligations of the
Guarantors with regard to the Subsidiary Guarantees that relate to:
(a) the rights of Holders of outstanding Securities to receive
payments in respect of the principal of, premium, if any, and interest on such
Securities when such payments are due from the trust referred to below;
(b) the Company's obligations with respect to the Securities
concerning issuing temporary Securities, registration of Securities, mutilated,
destroyed, lost or stolen Securities and the maintenance of an office or agency
for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith; and
(d) the Legal Defeasance obligations contained in this Article
Nine.
Section 9.02 Legal Defeasance and Covenant Defeasance
(a) The Company may, at its option and at any time, elect to have
either paragraph (b) or (c) below be applied to all outstanding Securities upon
compliance with the conditions set forth in Section 9.03.
(b) Upon exercise under paragraph (a) hereof of the option
applicable to this paragraph (b), the Company and, if it so selects, each of the
Guarantors, shall, subject to the satisfaction of the conditions set forth in
Section 9.03, be deemed to have been discharged from its obligations with
respect to all outstanding Securities on the date the conditions set forth below
are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 9.04
hereof and the other Sections of this Indenture referred to in (i) and (ii)
below, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), and Holders of the
Securities and any amounts deposited under Section 9.03 hereof shall cease to be
subject to any obligations to, or the rights of, any holder of Senior Debt under
Article Eight or otherwise, except for the following provisions, which shall
survive until otherwise terminated or discharged hereunder:
(i) the rights of Holders of outstanding Securities to receive
solely from the trust fund described in Section 9.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of and interest
on such Securities when such payments are due;
(ii) the Company's obligations with respect to such Securities
under Article Two and Section 4.02 hereof;
(iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith; and
(iv) this Article Nine.
Subject to compliance with this Article Nine, the Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03 hereof, be released
from its obligations under the covenants contained in Sections 4.03 through
4.06, inclusive, Sections 4.08 through 4.10, inclusive, Sections 4.12 through
4.20, inclusive, and Article Five hereof with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Securities shall
not be deemed outstanding for accounting purposes) and Holders of the Securities
and any amounts deposited under Section 8.03 hereof shall cease to be subject to
any obligations to, or the rights of, any holder of Senior Debt under Article
Eight or otherwise. For this purpose, such Covenant Defeasance means that, with
respect to the outstanding Securities, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event or Default
under Section 6.01(iii) hereof, but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby. In addition,
upon the Company's exercise under paragraph (a) hereof of the option applicable
to this paragraph (c), subject to the satisfaction of the conditions set forth
in Section 9.03 hereof, Sections 6.01(iv), 6.01(v) and 6.01(vi) shall not
constitute Events of Default.
Section 9.03 Conditions to Legal Defeasance or Covenant Defeasance
The following shall be the conditions to the application of either
Section 9.02(b) or 9.02(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Securities, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Securities on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Securities are being defeased to maturity or to a particular
redemption date;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue Date,
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 Holders of the outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under the Credit Agreement or
any other material agreement or instrument (other than this Indenture) to which
the Company or any of its Restricted Subsidiaries is a party or by which the
Company or any of its Restricted Subsidiaries is bound;
(f) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Securities over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (b) above with respect to a Legal Defeasance need not be delivered if all
Securities not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable on the maturity date
within one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense of, the Company.
Section 9.04 Application of Trust Money
The Trustee or Paying Agent shall hold in trust United States Legal
Tender or United States Government Obligations deposited with it pursuant to
Article Eight, and shall apply the deposited United States Legal Tender and the
money from United States Government Obligations in accordance with this
Indenture to the payment of principal of and interest on the Securities. The
Trustee shall be under no obligation to invest said United States Legal Tender
or United States Government Obligations except as it may agree with the Company.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the United States Legal Tender or
United States Government Obligations deposited pursuant to Section 9.03 hereof
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Nine to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any United States Legal Tender or United States Government Obligations
held by it as provided in Section 9.03 hereof which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
Section 9.05 Repayment to Company
Subject to this Article Nine, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess United States Legal Tender
or United States Government Obligations held by them at any time and thereupon
shall be relieved from all liability with respect to such money. The Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years;
provided that the Trustee or such Paying Agent, before being required to make
any payment, may at the expense of the Company cause to be published once in a
newspaper of general circulation in The City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein which shall be at least 30 days from the date of such
publication or mailing any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person.
Section 9.06 Reinstatement
If the Trustee or Paying Agent is unable to apply any United States
Legal Tender or United States Government Obligations in accordance with this
Article Nine 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 Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Nine until such time as the
Trustee or Paying Agent is permitted to apply all such United States Legal
Tender or United States Government Obligations in accordance with this Article
Nine; provided that if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of their obligations,
the Company shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the United States Legal Tender or United States
Government Obligations held by the Trustee or Paying Agent.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 10.01 Without Consent of Holders
The Company and each Guarantor, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any Holder:
(a) to cure any ambiguity, to correct or supplement any provision
in this Indenture that may be defective or inconsistent with any other
provisions in this Indenture, or to make any other provisions with respect to
matters or questions arising under this Indenture; provided that such actions
taken pursuant to this clause (a) do not, in the opinion of the Trustee,
adversely affect the interests of the Holders in any material respect;
(b) to evidence the succession of another Person to the Company or
any Guarantor and the assumption by any such successor of the covenants of the
Company or any Guarantor in this Indenture and in the Securities in the case of
a merger or consolidation or sale of all or substantially all of the Company's
assets;
(c) to add to the covenants of the Company or any Guarantor for the
benefit of the Holders, or to surrender any right or power herein conferred upon
the Company or any Guarantor;
(d) to provide for uncertificated Securities in addition to or in
place of the certificated Securities;
(e) to evidence and provide for the acceptance of appointment under
this Indenture by a successor Trustee;
(f) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the TIA;
(g) to release any Guarantor from its Guarantee (including in
connection with a sale of all of the Capital Stock or all or substantially all
of the assets of such Guarantor) pursuant to the requirements of Section 11.06
or to add a Guarantor pursuant to the requirements of Section 4.26; or
(h) to provide for the issuance of Securities subsequent to the
Issue Date pursuant to Section 2.02;
provided, however, that the Company deliver to the Trustee an Opinion of Counsel
stating that such amendment or supplement does not adversely affect the rights
of any Holder and otherwise complies with the provisions of this Section 10.01.
In formulating its opinion on the matters in clause (a), the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an Opinion of Counsel.
Section 10.02 With Consent of Holders
Subject to Sections 6.07 and 10.01, the Company and each Guarantor,
when authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Securities), or waive any existing default or compliance with
any provision hereof or thereof, with the written consent of the Holders of at
least a majority in principal amount of the outstanding Securities (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Securities). However, notwithstanding the
preceding sentence, without the consent of each Holder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(a) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Security or alter the provisions with respect to the redemption of the
Securities (other than provisions relating to the repurchase of Securities at
the Holders' option under Sections 4.05 or 4.14);
(c) reduce the rate of or change the time for payment of interest
on any Security;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Securities (except a rescission of
acceleration of the Securities by the Holders of at least a majority in
aggregate principal amount of the Securities and a waiver of the payment default
that resulted from such acceleration);
(e) make any Security payable in money other than that stated in
the Securities;
(f) make any change in the provisions of Section 6.04;
(g) waive a redemption payment with respect to any Security (other
than a payment required by one of the covenants described under Section 4.05 or
4.14); or
(h) make any change in the preceding amendment and waiver
provisions.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
Section 10.03 Compliance with Trust Indenture Act
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
Section 10.04 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of that Security or portion of that Security that evidences the same debt
as the consenting Holder's Security, even if notation of the consent is not made
on any Security. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Security or portion
of such Security by notice to the Trustee or the Company received before the
date on which the Trustee receives an Officers' Certificate certifying that the
Holders of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (h) of Section 10.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
Section 10.5 Notation on or Exchange of Securities
If an amendment, supplement or waiver 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 about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determine, 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 issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 10.6 Trustee to Sign Amendments, etc
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
each Guarantor, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTEE
Section 11.01 Unconditional Guarantee
Each Guarantor, jointly and severally, hereby unconditionally
guarantees to each Holder of a Security authenticated by the Trustee and to the
Trustee and its successors and assigns that: the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Securities will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 11.03. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of such Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or any
Guarantor or any custodian, trustee, liquidator or other similar official acting
in relation to the Company or a Guarantor, any amount paid by the Company or a
Guarantor to the Trustee or such Holder, the Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor further agrees that, as between such Guarantor, 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 Six for
the purpose of the Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall become due and payable by such Guarantor for the purpose of the Guarantee.
Section 11.02 Severability
In case any provision of this Article Eleven shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 11.03 Limitation of Guarantor's Liability
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
Guarantee does not constitute a fraudulent transfer or conveyance for purposes
of Title 11 of the United States Code, as amended, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar U.S. Federal
or state or other applicable law. To effectuate the foregoing intention, each
Holder and each Guarantor hereby irrevocably agree that the obligations of a
Guarantor under its Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor, and after giving effect to any collections from or payments made by
or on behalf of such Guarantor in respect of the obligations of such Guarantor
pursuant to Section 11.04, result in the obligations of such Guarantor not
constituting such a fraudulent transfer or conveyance.
Section 11.04 Execution of Guarantee
Each Guarantor hereby agrees to execute a guarantee to be endorsed on
and made a part of each Security ordered to be authenticated and delivered by
the Trustee. Each Guarantor hereby agrees that its guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a guarantee. Each such guarantee shall be signed on
behalf of each Guarantor by its Chairman of the Board, its President or one of
its Vice Presidents prior to the authentication of the Security on which it is
endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
guarantee on behalf of such Guarantor. Such signature upon the guarantee may be
a manual or facsimile signature of such officer and may be imprinted or
otherwise reproduced on the guarantee, and in case such officer who shall have
signed the guarantee shall cease to be such officer before the Security on which
such guarantee is endorsed shall have been authenticated and delivered by the
Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
guarantee had not ceased to be such officer of such Guarantor.
Section 11.05 Subordination of Subrogation and Other Rights
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under the Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Senior Debt in accordance
with the provisions provided therefor in this Indenture.
Section 11.06 Release of Guarantor from Subsidiary Guarantee
The Subsidiary Guarantee of a Guarantor will be released: (a) in
connection with any sale or other disposition of all or substantially all of the
assets of that Guarantor (including by way of merger or consolidation), if the
Company applies the Net Proceeds of that sale or other disposition, in
accordance with Section 4.05; or (b) in connection with any sale of all of the
Capital Stock of a Guarantor, provided the Company applies the Net Proceeds of
that sale in accordance with Section 4.05; or (c) if the Company designates any
Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in
accordance with Section 4.24.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
Section 12.01 Guarantee Obligations Subordinated to Senior Debt
Each Guarantor covenants and agrees, and the Trustee and each Holder of
the Securities by its acceptance thereof likewise covenant and agrees, (i) that
the Guarantee shall be issued subject to the provisions of this Article Twelve;
and each Person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities pursuant to the Guarantee
made by or on behalf of the Guarantor shall, to the extent and in the manner set
forth in this Article Twelve, be subordinated and junior in right of payment to
the prior payment in full in cash or Cash Equivalents of all amounts payable
under the Senior Debt of such Guarantor, whether outstanding on the Issue Date
or thereafter incurred, and (ii) that the subordination is for the benefit of,
and shall be enforceable directly by, the holders of such Senior Debt, and that
each holder of such Senior Debt whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have acquired such Senior
Debt in reliance upon the covenants and provisions contained in this Indenture
and the Guarantees.
Section 12.02 Payment Over of Proceeds upon Dissolution, etc.; No Payment in
Certain Circumstances
(a) Upon any payment or distribution of assets of the Guarantor of
any kind or character, whether in cash, property or securities, to creditors
upon any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Guarantor or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, before any payment or distribution of any kind or character is made
by or on behalf of the Guarantor on account of any Obligations on the Guarantee
or for the acquisition of any of the Securities for cash or property or
otherwise (except that holders of the Securities may receive Defeasance Trust
Payments). Before any payment may be made by, or on behalf of, the Guarantor of
any Obligations on the Securities upon any such dissolution or winding-up or
total liquidation or reorganization, any payment or distribution of assets or
securities of the Guarantor of any kind or character, whether in cash, property
or securities, to which the Holders of the Securities or the Trustee on their
behalf would be entitled, but for the subordination provisions of this
Indenture, shall be made by the Guarantor or by any receiver, trustee in
bankruptcy, liquidation trustee, agent or other Person making such payment or
distribution, directly to the holders of the Senior Debt of the Guarantor (pro
rata to such holders on the basis of the respective amounts of such Senior Debt
held by such holders) or their representatives or to the trustee or trustees or
agent or agents under any agreement or indenture pursuant to which any of such
Senior Debt may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Senior Debt in full in cash or Cash
Equivalents after giving effect to any prior or concurrent payment, distribution
or provision therefor to or for the holders of such Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by Section
12.02(a) and before all Obligations in respect of the Senior Debt of the
Guarantor are paid in full in cash or Cash Equivalents, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of such Senior Debt (pro rata to such
holders on the basis of the respective amounts of such Senior Debt held by such
holders) or their respective representatives, or to the trustee or trustees or
agent or agents under any indenture pursuant to which any of such Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of such Senior Debt remaining unpaid until all such Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of such Senior Debt.
(c) To the extent any payment of Senior Debt of a Guarantor
(whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Debt or part thereof originally intended to be satisfied shall be deemed to be
reinstated and outstanding as if such payment has not occurred.
The consolidation of the Guarantor with, or the merger of the Guarantor
with or into, another corporation or the liquidation or dissolution of the
Guarantor following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.02
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by acceleration or otherwise, of any
Obligations with respect to any Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt instrument, whether or not allowable as a claim in any
such proceeding) no payment of any kind or character shall be made by or on
behalf of the Guarantor or any other Person on its behalf with respect to any
Obligations on the Guarantee or to acquire any of the Securities for cash or
property or otherwise (except that holders of the Securities may receive
Defeasance Trust Payments).
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Debt, as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives a Payment Blockage Notice to the Trustee, then,
unless and until all events of default have been cured or waived or have ceased
to exist or the Trustee receives notice from the Representative for the
respective issue of Designated Senior Debt terminating the Payment Blockage
Period, during the Payment Blockage Period, neither the Guarantor, nor any other
Person on the Guarantor's behalf, shall (x) make any payment of any kind or
character with respect to any Obligations on the Guarantee or (y) acquire any of
the Securities for cash or property or otherwise (except that holders of the
Securities may receive Defeasance Trust Payments).
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 180 days from the date the Payment
Blockage Notice is delivered and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Payment Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 180 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Payment Blockage Period that, in either case,
would give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose).
In the event that, notwithstanding the provisions of the two paragraphs
preceding the immediately preceding paragraph of this Section 12.02 prohibiting
such payment or distribution, any payment or distribution of assets or
securities of the Guarantor of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder of Securities at a
time when such payment or distribution is prohibited by the two paragraphs
preceding the immediately preceding paragraph of this Section 12.02 and before
all Obligations in respect of the Senior Debt of the Guarantor are paid in full
in cash or Cash Equivalents, such payment or distribution shall be received and
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of such Senior Debt (pro rata to such holders on the basis of the
respective amounts of such Senior Debt held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of such
Senior Debt remaining unpaid until all such Senior Debt has been paid in full in
cash or Cash Equivalents after giving effect to any prior or concurrent payment,
distribution or provision therefor to or for the holders of such Senior Debt.
Section 12.03 Subrogation
Upon the payment in full in cash or Cash Equivalents of all Senior Debt
of a Guarantor, the Holders of the Securities shall be subrogated to the rights
of the holders of such Senior Debt to receive payments or distributions of cash,
property or securities of such Guarantor made on such Senior Debt until the
principal of and interest on the Securities shall be paid in full in cash or
Cash Equivalents; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Debt of any cash, property or
securities to which the Holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article Twelve, and no
payment over pursuant to the provisions of this Article Twelve to the holders of
such Senior Debt by Holders of the Securities or the Trustee on their behalf
shall, as between such Guarantor, its creditors other than holders of such
Senior Debt, and the Holders of the Securities, be deemed to be a payment by
such Guarantor to or on account of such Senior Debt. It is understood that the
provisions of this Article Twelve are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Senior Debt of any such Guarantor on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Twelve
shall have been applied, pursuant to the provisions of this Article Twelve, to
the payment of all amounts payable under the Senior Debt of the Guarantors, then
and in such case, the Holders of the Securities shall be entitled to receive
from the holders of such Senior Debt any payments or distributions received by
such holders of Senior Debt in excess of the amount required to make payment in
full in cash of such Senior Debt.
Section 12.04 Obligations of Guarantors Unconditional
Subject to Sections 11.03 and 8.02, nothing contained in this Article
Twelve or elsewhere in this Indenture or in the Securities is intended to or
shall impair, as among any Guarantor and the Holders of the Securities, the
obligation of such Guarantor, which is absolute and unconditional, to pay to the
Holders of the Securities the principal of and interest on the Securities as and
when the same shall become due and payable in accordance with the terms of the
Guarantee, or is intended to or shall affect the relative rights of such
Guarantor of the Securities and creditors of any Guarantor other than the
holders of Senior Debt of such Guarantor, as the case may be, nor shall anything
herein or therein prevent the Holder of any Security or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Twelve of the holders of Senior Debt in respect of cash, property or securities
of such Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Debt of each Guarantor
then due and payable shall first be paid in full in cash or Cash Equivalents
before the Holders of the Securities or the Trustee are entitled to receive any
direct or indirect payment from, or on behalf of, such Guarantor on account of
any Obligations on the Securities pursuant to the Guarantee.
Section 12.05 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities pursuant to the provisions of this Article
Twelve (although the failure to give any such notice shall not affect the
subordination provisions set forth in this Article Twelve). The Trustee shall
not be charged with knowledge of the existence of any event of default with
respect to any Senior Debt of a Guarantor or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company, or by a holder of Senior Debt
of a Guarantor or trustee or agent therefor; and prior to the receipt of any
such written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 12.05 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Security), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from the Guarantor and to apply the same to the purpose
for which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date (although the
receipt of such moneys by any Holder of Securities shall otherwise be subject to
the provisions of this Article Twelve). Nothing contained in this Section 12.05
shall limit the right of the holders of Senior Debt of a Guarantor to recover
payments as contemplated by Section 12.02. The Trustee shall be entitled to rely
on the delivery to it of a written notice by a Person representing himself or
itself to be a holder of any Senior Debt of a Guarantor (or a trustee on behalf
of, or other representative of, such holder) to establish that such notice has
been given by a holder of such Senior Debt or a trustee or representative on
behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt of a Guarantor to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Twelve, 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.
Section 12.06 Reliance on Judicial Order or Certificate of Liquidating Agent
Upon any payment or distribution of assets or securities of a Guarantor
referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Senior Debt of such Guarantor
and other indebtedness of such Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Twelve.
Section 12.07 Trustee's Relation to Senior Debt of a
Guarantor
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Senior Debt of a Guarantor
which may at any time be held by them in their individual or any other capacity
to the same extent as any other holder of Senior Debt of such Guarantor, and
nothing in this Indenture shall deprive the Trustee or any Paying Agent of any
of its rights as such holder.
With respect to the holders of Senior Debt of any Guarantor, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of such Senior Debt shall
be read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Senior Debt of any Guarantor (except
as provided in Section 12.02(b)). The Trustee shall not be liable to any such
holders if the Trustee shall in good faith mistakenly pay over or distribute to
Holders of Securities or to the Company or to any other person cash, property or
securities to which any holders of Senior Debt of a Guarantor shall be entitled
by virtue of this Article Twelve or otherwise.
Section 12.08 Subordination Rights Not Impaired by Acts or Omissions of Holders
of Senior Debt
No right of any present or future holders of any Senior Debt of a
Guarantor to enforce subordination as provided herein shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of such
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by such Guarantor with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article Twelve are intended to be for
the benefit of, and shall be enforceable directly by, the holders of Senior Debt
of any Guarantor.
Section 12.09 Holders Authorize Trustee To Effectuate Subordination of
Guarantee
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of any Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings. If the Trustee does not file a proper claim or proof of debt in the
form required in any proceeding referred to in Section 6.09 prior to 30 days
before the expiration of the time to file such claim or claims, then any of the
holders of the Senior Debt or their Representative is hereby authorized to file
an appropriate claim for and on behalf of the Holders of said Securities.
Nothing herein contained shall be deemed to authorize the Trustee or the holders
of Senior Debt or their Representative to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
Section 12.10 This Article Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest on
the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default.
Section 12.11 Trustee's Compensation Not Prejudiced
Nothing in this Article Twelve shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
Section 12.12 No Waiver of Guarantee Subordination Provisions
Without in any way limiting the generality of Section 12.08, the
holders of Senior Debt of any Guarantor, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of such Senior Debt, may do any one or more of the following: (a) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, such Senior Debt or any instrument evidencing the same or any
agreement under which such Senior Debt is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Debt; (c) release any Person liable in any manner
for the collection of such Senior Debt; and (d) exercise or refrain from
exercising any rights against the Guarantor and any other Person.
Section 12.13 Amendments
As long as the Credit Facilities or any amounts are outstanding
thereunder, the provisions of this Article Twelve (and the definition used
herein) shall not be amended or modified without the written consent of the
majority of the lenders under the Credit Facilities.
ARTICLE THIRTEEN
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls
This Indenture is subject to the provisions of the TIA that are
required to be a part of any indenture subject to the TIA. If any provision of
this Indenture modifies any TIA provision that may be so modified, such TIA
provision shall be deemed to apply to this Indenture as so modified. If any
provision of this Indenture excludes any TIA provision that may be so excluded,
such TIA provision shall be excluded from this Indenture.
The provisions of TIA Section 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
Section 13.02 Notices
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company and the Guarantors:
Falcon Products, Inc.
9387 Dielman Drive
St. Louis, Missouri 63132
Attention: Chief Financial Officer
Facsimile: (314) 991-9293
Telephone: (314) 991-9204
with copies to:
Gallop, Johnson & Neuman, L.C.
101 South Hanley
St. Louis, Missouri 63105
Attention: Robert H. Wexler, Esq.
Facsimile: (314) 862-1219
Telephone: (314) 862-1200
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-5287
Each party by notice to the others may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a
Holder, including any notice delivered in connection with TIA ss. 310(b), TIA
ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to such Holder at
the address as set forth on the list maintained pursuant to Section 2.05 and
shall be sufficiently given to him if so mailed within the time prescribed. To
the extent required by the TIA, any notice or communication shall also be mailed
to any Person described in TIA ss. 313(c).
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. Except for a
notice to the Trustee, which is deemed given only when received, if a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
Section 13.03 Communications by Holders with Other Holders
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar and any other person shall have the
protection of TIA ss. 312(c).
Section 13.04 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 after the date hereof,
the Company shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance 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 satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with, and such other opinions as the Trustee may
reasonably require.
Section 13.05 Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person 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 person, 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
person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
Section 13.06 Rules by Trustee, Paying Agent, Registrar
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
Section 13.07 Governing Law
This Indenture and the Securities will 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 law of another jurisdiction would be required thereby.
Section 13.08 No Recourse Against Others
No director, officer, employee, stockholder or member of the Company,
as such, shall 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. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
Section 13.09 Successors
All agreements of a party to this Indenture contained in this Indenture
shall bind such party's successors.
Section 13.10 Counterpart 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.
Section 13.11 Severability
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
Section 13.12 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret another indenture, loan or
debt agreement. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 13.13 Legal Holidays
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
Section 13.14 No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or the Guarantors under the Securities, the Indenture, the
Subsidiary Guarantees or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities. The waiver may not be effective to
waive liabilities under the federal securities laws.
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
COMPANY:
FALCON PRODUCTS, INC.
By:
----------------------------------------
Name:
Title:
GUARANTORS:
FALCON HOLDINGS, INC.,
By:
----------------------------------------
Name:
Title:
HOWE FURNITURE CORPORATION
By:
----------------------------------------
Name:
Title:
JOHNSON INDUSTRIES, INC.
By:
----------------------------------------
Name:
Title:
SY ACQUISITION, INC.
By:
----------------------------------------
Name:
Title:
TRUSTEE:
THE BANK OF NEW YORK
By:
----------------------------------------
Name:
Title:
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
June 18, 1999 between Shelby Williams Industries, Inc., a Delaware corporation,
Sellers & Josephson Inc., a New Jersey corporation, and Madison Furniture
Industries, Inc., a Mississippi corporation (collectively, the "Additional
Guarantors"), Falcon Products, Inc., a Delaware corporation (the "Company"),
Falcon Holdings, Inc., a Missouri corporation, Howe Furniture Corporation, a New
York corporation, Johnson Industries, Inc., an Illinois corporation, SY
Acquisition, Inc., a Delaware corporation (collectively, the "Guarantors") and
The Bank of New York, a New York banking corporation, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company and the Guarantors have heretofore executed and
delivered to the Trustee an indenture (the "Indenture"), dated as of June 17,
1999, providing for the issuance of an aggregate principal amount of
$100,000,000 of 11M% Series A and Series B Senior Securities due 2009;
WHEREAS, Section 4.26 of the Indenture provides that under certain
circumstances the Company and the Guarantors are required to cause the
Additional Guarantors to execute and deliver to the Trustee a supplemental
indenture pursuant to which the Additional Guarantors shall unconditionally
guarantee all of the Company's Obligations under the Indenture and the
Securities pursuant to a guarantee (the "Additional Guarantee") on the terms and
conditions of the Guarantee by the Guarantors in Article 11 of the Indenture and
on the other terms and conditions set forth herein; and
WHEREAS, pursuant to Section 7.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto mutually covenant and agree for the equal and ratable benefit of
the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Additional Guarantors hereby agrees,
jointly and severally with all other guarantors, to guarantee the Company's
Obligations under the Indenture and the Securities on the terms and subject to
the conditions set forth herein and in Article 11 of the Indenture (including
the obligation to pay Liquidated Damages under the provisions of the
Registration Rights Agreement) and to be bound by all other applicable
provisions of the Indenture. Pursuant to Section 11.01 of the Indenture, the
Additional Guarantors agree that the Subsidiary Guarantees set forth in Article
11 of the Indenture, as supplemented by its agreement to guarantee contained
herein shall remain in full force and effect and apply to all of the Securities
notwithstanding any failure by the Additional Guarantors to endorse on such
Securities a notation of the Subsidiary Guarantor.
3. RELEASE OF ADDITIONAL GUARANTOR. In the event that the holders of
any of the Company's other Indebtedness which is guaranteed by the Additional
Guarantors release the Additional Guarantors from its guarantee in respect of
such other Indebtedness, except a discharge or release by or as a result of any
payment under the guarantee of such other Indebtedness by the Additional
Guarantors, the Additional Guarantors shall be automatically and unconditionally
released and discharged from its obligations under this Additional Guarantee;
provided however, if, after such release, any guarantee under such other
Indebtedness is subsequently reincurred or reinstated, then such Additional
Guarantors reincurring or reinstating such guarantee under such other
Indebtedness shall execute and reinstate its Additional Guarantee hereunder.
Upon receipt of an Officers' Certificate, the Trustee shall execute any
documents reasonably requested by the Company, the Guarantors or the Additional
Guarantors in order to evidence the release of such Additional Guarantors from
its obligations under the Additional Guarantee.
4. NO RECOURSE AGAINST OTHERS. No direct or indirect stockholder,
employee, officer or director, as such, past, present or future of the Company,
the Guarantors or the Additional Guarantors or any successor entity shall have
any personal liability for any Obligations of the Company, the Guarantors or the
Additional Guarantors or any successor entity under the Additional Guarantee, by
reason of his or its status as such stockholder, employee, officer or director.
Each Holder by accepting a Security waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Securities.
5. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
6. COUNTERPARTS. This Supplemental Indenture 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.
7. EFFECT OF THE HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
ADDITIONAL GUARANTORS:
SHELBY WILLIAMS INDUSTRIES, INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
SELLERS & JOSEPHSON INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
MADISON FURNITURE INDUSTRIES, INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
COMPANY:
FALCON PRODUCTS, INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
GUARANTORS:
FALCON HOLDINGS, INC.,
By:
------------------------------------
Name: Michael J. Dreller
Title:
HOWE FURNITURE CORPORATION
By:
------------------------------------
Name: Michael J Dreller
Title:
JOHNSON INDUSTRIES, INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
SY ACQUISITION, INC.
By:
------------------------------------
Name: Michael J. Dreller
Title:
TRUSTEE:
THE BANK OF NEW YORK
By:
------------------------------------
Name:
Title:
[FORM OF SERIES B SECURITY]
FALCON PRODUCTS, INC.
11M% Senior Subordinated Note
due 2009, Series B
CUSIP Number: 306075AC6
No. A-1 $100,000,000
FALCON PRODUCTS, INC., a Delaware corporation (the "Company", which
term includes any successor), for value received promises to pay to Cede & Co.
or registered assigns, the principal sum of One Hundred Million Dollars
($100,000,000.00), on June 15, 2009.
Interest Payment Dates: June 15 and December 15, commencing on December
15, 1999.
Interest Record Dates: June 1 and December 1.
Reference is made to the further provisions of this Security contained
herein and the Indenture (as defined), which will for all purposes have the same
effect as if set forth at this place.
<PAGE>
(REVERSE OF SECURITY)
FALCON PRODUCTS, INC.
11M% Senior Subordinated Note
due 2009, Series B
1. Interest.
The Company promises to pay interest on the principal amount of this
Security at the rate per annum shown above. Cash 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 17, 1999. The Company will pay interest
semi-annually in arrears on each Interest Payment Date, commencing December 15,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. In addition, the Company shall pay interest on overdue principal and on
overdue installments of interest (without regard to any applicable grace
periods) to the extent lawful from time to time on demand, in each case at the
rate borne by this Security. The Securities are not entitled to the benefit of
any mandatory sinking fund.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in United States Legal Tender (as defined in the Indenture referred to
below). However, the Company may pay principal and interest by wire transfer of
Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such United States Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company may, subject to certain exceptions,
act as Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of June
17, 1999 (the "Indenture"), by and among the Company, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. This Security is one of a duly authorized issue of
Securities of the Company designated as its 11M% Senior Subordinated Notes
due 2009 issued under the Indenture. The aggregate principal amount of
Securities which may be issued under the Indenture is limited (except as
otherwise provided in the Indenture) to $150.0 million in one or more series;
provided that the aggregate principal amount of Initial Securities on the Issue
Date shall not exceed $100.0 million. 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, as amended (the "TIA"), as in effect on the date of
the Indenture (except as otherwise indicated in the Indenture) until such time
as the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Securities are subject to all such terms, and
holders of Securities are referred to the Indenture and the TIA for a statement
of them.
5. Subordination.
The Securities are unsecured obligations of the Company and are
subordinated in right of payment to all Senior Debt of the Company to the extent
and in the manner provided in the Indenture. Each Holder of a Security, by
accepting a Security, agrees to such subordination, authorizes the Trustee to
give effect to such subordination and appoints the Trustee as attorney-in-fact
for such purpose. The Securities will rank pari passu in right of payment with
any future senior subordinated indebtedness of the Company and will rank senior
in right of payment to any other subordinated obligations of the Company.
6. Guarantee.
The obligations of the Company hereunder are guaranteed on a senior
subordinated basis by the Guarantors. The Guarantee by the Guarantors is
subordinated in right of payment to all Senior Debt of the Guarantors to the
same extent that the Securities are subordinated to Senior Debt of the Company.
7. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after June 15, 2004, upon not less
than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on June 15 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
------------------------------- ----------
2004........................... 105.688%
2005........................... 103.792%
2006........................... 101.896%
2007 and thereafter............ 100.000%
8. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to June 15, 2002, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to 35% of the initial aggregate
principal amount of Securities issued in the Offering, at a redemption price
equal to 111.375% of the principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date of redemption;
provided that at least 65% of the initial aggregate principal amount of
Securities issued in the Offering remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 45
days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of common stock of the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act, in which the gross proceeds to the Company are at least $35.0
million.
9. Selection and Notice of Redemption.
In the event that less than all of the Securities are to be redeemed at
any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Securities are listed or, if such Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Securities of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Securities to be redeemed at its
registered address. If any Security is to be redeemed in part only, the notice
of redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the redemption
date, interest will cease to accrue on Securities or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
10. Change of Control Offer.
Following the occurrence of a Change of Control, the Company shall,
within 10 days, make a Change of Control Offer for all Securities then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date).
11. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make a Net
Proceeds Offer for Securities at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Net
Proceeds Offer Payment Date (subject to the right of Holders of record on the
Interest Relevant Record Date to receive interest due on the relevant Interest
Payment Date) with the excess proceeds of certain asset dispositions.
12. Denominations; Transfer; Exchange.
The Securities are in registered, global form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any Security being redeemed in part.
13. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
14. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such Paying
Agent with respect to such funds shall cease.
15. Legal Defeasance and Covenant Defeasance.
The Company may be discharged from its obligations under the Indenture
and the Securities, except for certain provisions thereof, and may be discharged
from obligations to comply with certain covenants contained in the Indenture and
the Securities, in each case upon satisfaction of certain conditions specified
in the Indenture.
16. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the Company and the Trustee may amend or supplement the Indenture and
the Securities to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Securities in addition to or in place
of certificated Securities or comply with any requirements of the SEC in
connection with the qualification of the Indenture under the TIA, or make any
other change that does not materially adversely affect the rights of any Holder
of a Security.
17. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with affiliates or certain other related
persons. The limitations are subject to a number of important qualifications and
exceptions. The Company must report quarterly to the Trustee on compliance with
such limitations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
19. Trustee Dealings with Company.
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 the Company or its respective Affiliates as if it were not the Trustee.
20. No Recourse Against Others.
No director, officer, employee, stockholder or incorporator of the
Company or any Guarantor, as such, shall have any liability for any obligation
of the Company or the Guarantors under the Securities or the Indenture or the
Subsidiary Guarantees or for any claim based on, in respect of or by reason of,
such obligations or their creation. Each Holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. 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 as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Governing Law.
The Indenture and the Securities will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect of
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
FALCON PRODUCTS, INC.
By:
------------------------------------
Name:
Title:
Dated: [ ]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11M% Senior Subordinated Notes due 2009, Series B,
described in the within-mentioned Indenture.
Dated: [ ]
THE BANK OF NEW YORK,
as Trustee
By:
------------------------------------
Authorized Signatory
<PAGE>
[FORM OF GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (capitalized terms used herein have the meanings given
such terms in the Indenture referred to in the Security upon which this notation
is endorsed) hereby unconditionally guarantees on a senior subordinated basis
(such guaranty being referred to herein as the "Guarantee") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal, premium and interest on the Securities,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee, all in accordance with the terms set forth in
Article Eleven of the Indenture.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Senior Debt of the Guarantor, to the extent and in the
manner provided in Article Eleven and Article Twelve of the Indenture.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which this Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
[ ]
By:
------------------------------------
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
---------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed: ___________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
- -----------------------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [ ]
Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount:
$_______________________
Dated:___________________ Your Signature: ____________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent 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.
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of June 17, 1999
by and among
FALCON PRODUCTS, INC.
as Issuer
FALCON HOLDINGS, INC.
HOWE FURNITURE CORPORATION
JOHNSON INDUSTRIES, INC.
SY ACQUISITION, INC.
as initial Guarantors
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 17, 1999, by and among Falcon Products, Inc., a Delaware
corporation (the "Company"), Falcon Holdings, Inc., a Missouri corporation, Howe
Furniture Corporation, a New York corporation, Johnson Industries, Inc., an
Illinois corporation, and SY Acquisition, Inc., a Delaware corporation (each a
"Guarantor" and, collectively, the "Guarantors"), and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial Purchaser"), who has agreed to
purchase the Company's 11M% Series A Senior Subordinated Notes due 2009 (the
"Series A Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated June
14, 1999 (the "Purchase Agreement"), by and among the Company, the Guarantors
and the Initial Purchaser. In order to induce the Initial Purchaser to purchase
the Series A Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchaser set forth in Section 2 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated June 17, 1999,
between the Company, the guarantors listed therein and The Bank of New York, as
Trustee, relating to the Series A Notes and the Series B Notes (as defined
below) (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Physical Securities, as defined in the
Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
proposes to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 11m% Series B Senior Subordinated Notes
due 2009 to be issued pursuant to the Indenture: (i) in the Exchange Offer or
(ii) as contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 6(b) hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Series A Note, until the earliest
to occur of (a) the date on which such Series A Note is exchanged in the
Exchange Offer for a Series B Note which is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Series B Notes) and each Series B
Note until the date on which such Series B Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
SECTION 2. HOLDERS 2.
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 75 days after the
Closing Date (such 75th day being the "Filing Deadline"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 150 days after the
Closing Date (such 150th day being the "Effectiveness Deadline"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company) may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(a) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
270 days from the Consummation Deadline or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold pursuant thereto. The Company and the Guarantors shall provide
sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the
earlier of (i) the date on which the Company determines that the
Exchange Offer Registration Statement cannot be filed as a result of
clause (a)(i) above and (ii) the date on which the Company receives the
notice specified in clause (a)(ii) above, (such earlier date, the
"Filing Deadline"), a shelf registration statement pursuant to Rule 415
under the Act (which may be an amendment to the Exchange Offer
Registration Statement (the "Shelf Registration Statement")), relating
to all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such
Shelf Registration Statement to become effective on or prior to 60 days
after the Filing Deadline for the Shelf Registration Statement (such
60th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement
is available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and
the Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (as extended
pursuant to Section 6(d)) following the Closing Date, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "Registration Default"), then the Company and the
Guarantors hereby jointly and severally agree to pay to each Holder of Transfer
Restricted Securities affected thereby liquidated damages ("Liquidated Damages")
in an amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
Liquidated Damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company and the
Guarantors shall in no event be required to pay Liquidated Damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
Liquidated Damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which Liquidated Damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company and the Guarantors to pay Liquidated Damages with respect to securities
shall survive until such time as such obligations with respect to such
securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a change
in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the
Company raises a substantial question as to whether the Exchange Offer
is permitted by applicable federal law, the Company and the Guarantors
hereby agree to seek a no-action letter or other favorable decision
from the Commission allowing the Company and the Guarantors to
Consummate an Exchange Offer for such Transfer Restricted Securities.
The Company and the Guarantors hereby agree to pursue the issuance of
such a decision to the Commission staff level. In connection with the
foregoing, the Company and the Guarantors hereby agree to take all such
other actions as may be requested by the Commission or otherwise
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange
Offer, a written representation to the Company and the Guarantors
(which may be contained in the letter of transmittal contemplated by
the Exchange Offer Registration Statement) to the effect that (A) it is
not an Affiliate of the Company, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Series B Notes to be
issued in the Exchange Offer and (C) it is acquiring the Series B Notes
in its ordinary course of business. As a condition to its participation
in the Exchange Offer each Holder using the Exchange Offer to
participate in a distribution of the Series B Notes shall acknowledge
and agree that, if the resales are of Series B Notes obtained by such
Holder in exchange for Series A Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission
policy as in effect on the date of this Agreement, rely on the position
of the Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991) and Exxon Capital Holdings Corporation (available May 13,
1988), as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable,
of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the
Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including a
representation that neither the Company nor any Guarantor has entered
into any arrangement or understanding with any Person to distribute the
Series B Notes to be received in the Exchange Offer and that, to the
best of the Company's and each Guarantor's information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B
Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as set forth
in any no-action letter obtained pursuant to clause (i) above, if
applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall:
(i) comply with all the provisions of Section 6(c) below and use
their respective best efforts to effect such registration to permit the
sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to
Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under
the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods
of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes sold pursuant to the
Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to
the purchaser(s) of securities subject to the Shelf Registration
Statement in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not
misleading or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement, the
Company and the Guarantors shall file promptly an appropriate amendment
to such Registration Statement curing such defect, and, if Commission
review is required, use their respective best efforts to cause such
amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to any applicable Registration Statement or any
post-effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company and the Guarantors
shall use their respective best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to
the purchasers of Transfer Restricted Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(v) furnish to each Holder in connection with such exchange or
sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders in connection with
such sale, if any, for a period of at least five Business Days, and the
Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Holders shall reasonably object within five Business Days
after the receipt thereof. A Holder shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading
or fails to comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder in connection with such
exchange or sale, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holders may reasonably
request;
(vii) make available, at reasonable times, for inspection by each
Holder and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the
Company and the Guarantors and cause the Company's and the Guarantors'
officers, directors and employees to supply all information reasonably
requested by any such Holder, attorney or accountant in connection with
such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with such exchange
or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each Holder in connection with such exchange or
sale without charge, at least one copy of the Registration Statement,
as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent to the use (in accordance with law)
of the Prospectus and any amendment or supplement thereto by each
selling Holder in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to any applicable Registration Statement
contemplated by this Agreement as may be reasonably requested by any
Holder in connection with any sale or resale pursuant to any applicable
Registration Statement. In such connection, the Company and the
Guarantors shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished)
to each Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the President or any Vice
President and (y) a principal financial or accounting officer of the
Company and such Guarantor, confirming, as of the date thereof, the
matters set forth in Sections 6(y), 9(a) and 9(b) of the Purchase
Agreement and such other similar matters as such Holders may reasonably
request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Guarantors covering matters similar to those set forth in paragraph (e)
of Section 9 of the Purchase Agreement and such other matter as such
Holder may reasonably request, and in any event including a statement
to the effect that such counsel has participated in conferences with
officers and other representatives of the Company and the Guarantors,
representatives of the independent public accountants for the Company
and the Guarantors and have considered the matters required to be
stated therein and the statements contained therein, although such
counsel has not independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises that, on the
basis of the foregoing, no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the case of
the Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as of its
date and, in the case of the opinion dated the date of Consummation of
the Exchange Offer, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in
any Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of effectiveness
of the Shelf Registration Statement, as the case may be, from the
Company's independent accountants, in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with underwritten offerings, and affirming
the matters set forth in the comfort letters delivered pursuant to
Section 9(g) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance with
the matters covered in clause (A) above and with any customary
conditions contained in any agreement entered into by the Company and
the Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; provided, however, that neither
the Company nor any Guarantor shall be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the selling Holders may request at
least two Business Days prior to such sale of Transfer Restricted
Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with The Depository
Trust Company;
(xvi) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely
manner; and
(xviii) provide promptly to each Holder, upon request, each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Series B Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Guarantors and the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchaser and the Holders of Transfer Restricted
Securities who are tendering Series A Notes in the Exchange Offer and/or selling
or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be O'Melveny & Myers LLP,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any Holder or any prospective purchaser of
Series B Notes or registered Series A Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors and officers, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company, or the Guarantors to the same extent as the foregoing indemnity
from the Company and the Guarantors set forth in Section 8(a) above, but only
with reference to information relating to such Holder furnished in writing to
the Company by such Holder expressly for use in any Registration Statement. In
no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company and Guarantors, in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section
8 is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company and the Guarantors, on the one hand,
and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company and the Guarantors, on the one hand, and of the Holder, on
the other hand, 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 or such Guarantor, on the one hand, or by the Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action that
could have given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
SECTION 9. RULE 144A and RULE 144
The Company and each Guarantor agree with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder, to such Holder
or beneficial owner of Transfer Restricted Securities in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree that
any failure by the Company and/or the Guarantors to comply with their respective
obligations under Sections 3 and 4 hereof may result in material irreparable
injury to the Initial Purchaser or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Initial Purchaser or
any Holder may obtain such relief as may be required to specifically enforce the
Company's and the Guarantor's obligations under Sections 3 and 4 hereof. The
Company and the Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantors' securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
Falcon Products, Inc.
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
Telephone No.: (314) 991-9200
Attention: President
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) 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.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(l) Addition of Certain Guarantors as Parties Hereto. The Company
covenants and agrees that, upon the closing of the Merger, it shall cause each
of the parties identified on Schedule A hereof as the "Additional Guarantors" to
execute and deliver a counterpart of this Agreement, whereupon each such
Additional Guarantor shall become a party hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FALCON PRODUCTS, INC.
By:
-------------------------------------
Name:
Title:
FALCON HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
HOWE FURNITURE CORPORATION
By:
-------------------------------------
Name:
Title:
JOHNSON INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
SY ACQUISITION, INC.
By:
-------------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, pursuant to Section 10(l) of the Registration
Rights' Agreement, the undersigned Additional Guarantors have caused this
Registration Rights Agreement to be duly executed and delivered by its officer
thereunto duly authorized as of June __, 1999.
SHELBY WILLIAMS INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
SELLERS & JOSEPHSON INC.
By:
-------------------------------------
Name:
Title:
MADISON FURNITURE INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Additional Guarantors
Shelby Williams Industries, Inc., a Delaware corporation
Sellers & Josephson Inc., a New Jersey corporation
Madison Furniture Industries, Inc., a Mississippi corporation
July 16, 1999
Falcon Products, Inc.
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
Ladies and Gentlemen:
We are acting as counsel for Falcon Products, Inc., a Delaware
corporation (the "Company") in connection with various legal matters relating to
the filing with the Securities and Exchange Commission of a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), covering an offer to exchange (the
"Exchange Offer") $1,000 principal amount of the Company's 11-3/8% Senior
Subordinated Notes due 2009, Series B (the "New Notes") for each $1,000
principal amount of its outstanding 11-3/8% Senior Subordinated Notes due 2009,
Series A (the "Original Notes"), of which $100,000,000 aggregate principal
amount is outstanding on the date hereof. The New Notes are to be issued
pursuant to an Indenture, dated as of June 17, 1999 (the "Indenture"), between
the Company and The Bank of New York, as Trustee, which is filed as an exhibit
to the Registration Statement.
In connection herewith, we have examined and relied without independent
investigation as to matters of fact upon such certificates of public officials,
such statements and certificates of officers of the Company, originals or copies
certified to our satisfaction of the Registration Statement, the Indenture, the
New Notes, the Registration Rights Agreement, dated as of June 14, 1999, between
the Company and Donald, Lufkin & Jenrette Securities Corporation, the
Certificate of Incorporation and the Bylaws of the Company, minutes of
directors' meetings and such other Company records, documents, certificates and
instruments as we have deemed necessary or appropriate in order to enable us to
render the opinions expressed below. In rendering this opinion, we have assumed
the genuineness of all signatures on all documents examined by us, the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as certified or
photostatted copies.
We express no opinion as to the applicability or effect of (i) any
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, or (ii) general principles
of equity, including, without limitation, concepts of reasonableness,
materiality, good faith and fair dealing and the possible unavailability of
specific performance, injunctive relief or other equitable remedies, regardless
of whether enforceability is considered in a proceeding in equity or at law.
Based upon the foregoing and in reliance thereon and subject to the
qualifications and limitations stated herein, we are of the opinion that:
(1) The Company is duly incorporated, validly existing in good
standing under the laws of the state of Delaware; and
(2) When: (i) the Registration Statement, including any amendments
thereto, shall have become effective under the Securities Act;
(ii) the Indenture has been duly qualified under the Trust
Indenture Act of 1939, as amended; and (iii) the New Notes
shall have been duly executed and authenticated in accordance
with the provisions of the Indenture and duly delivered to the
holders thereof in exchange for the Original Notes; then the
New Notes will be valid and binding obligations of the
Company.
In addition, based on the assumptions and subject to the qualifications
set forth therein, our opinion as to the material United States federal income
tax consequences of the Exchange Offer is set forth in the Prospectus included
as part of the Registration Statement (the "Prospectus") under the caption
"Certain United States Federal Income Tax Considerations" and we hereby confirm
such opinion as set forth therein.
In rendering the opinion expressed in the immediately preceding
paragraph, we have considered the applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable final, temporary and proposed
Treasury Regulations promulgated thereunder by the United States Treasury
Department (the "Regulations"), pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that the Code, the Regulations and such judicial
decisions, administrative interpretations and authorities are subject to change
at any time and, in some circumstances, with retroactive effect. We have also
assumed that the Registration Statement reflects all of the material facts, and
our opinion is expressly conditioned on, among other things, the accuracy of all
such facts as of the date hereof, and the continuing accuracy of all such facts
through and as of the expiration date of the Exchange Offer. Any variation or
difference in the facts referred to, set forth or assumed herein or in the
Registration Statement or in any of the authorities upon which our opinion is
based could affect our opinion.
This opinion is not rendered with respect to any laws other than the
General Business and Corporation Laws of the State of Delaware, and the federal
laws of the United States.
We hereby consent to (i) the filing of this opinion as an exhibit to
the Registration Statement, (ii) the description of our opinion under the
caption "Certain United States Federal Income Tax Considerations" in the
Prospectus and (iii) the reference to our firm under the captions "Certain
United States Federal Income Tax Considerations" and "Legal Matters" in the
Prospectus. We also consent to your filing copies of this opinion as an exhibit
to the Registration Statement with agencies of such states as you deem necessary
in the course of complying with the laws of such states regarding the Exchange
Offer. In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gallop Johnson & Neuman, L.C.
Gallop Johnson & Neuman, L.C.
$120,000,000
CREDIT AGREEMENT
DATED AS OF JUNE 17, 1999
AMONG
FALCON PRODUCTS, INC.,
as Borrower,
THE LENDERS LISTED HEREIN,
as Lenders,
FIRST UNION NATIONAL BANK,
as Syndication Agent,
NATIONSBANK, N.A.,
as Documentation Agent,
and
DLJ CAPITAL FUNDING, INC.,
as Administrative Agent
LEAD ARRANGER and BOOK RUNNER:
DLJ CAPITAL FUNDING, INC.
<PAGE>
$120,000,000
FALCON PRODUCTS, INC.
CREDIT AGREEMENT
TABLE OF CONTENTS
SECTION 1. DEFINITIONS................................................2
1.1 Defined Terms..............................................2
1.2 Accounting Terms; Utilization of GAAP for Purposes
of Calculations Under Agreement...........................31
1.3 Other Definitional Provisions and Rules of
Construction..............................................32
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................32
2.1 Commitments; Making of Loans; Notes.......................32
2.2 Interest on the Loans.....................................40
2.3 Fees......................................................43
2.4 Repayments, Prepayments and Reductions in Loan
Commitments; General Provisions Regarding Payments........44
2.5 Use of Proceeds...........................................54
2.6 Special Provisions Governing LIBO Rate Loans..............54
2.7 Increased Costs; Taxes; Capital Adequacy..................56
2.8 Obligation of Lenders and Issuing Lenders to
Mitigate; Replacement of Lender...........................60
SECTION 3. LETTERS OF CREDIT.........................................62
3.1 Issuance of Letters of Credit and Lenders'
Purchase of Participations Therein........................62
3.2 Letter of Credit Fees.....................................65
3.3 Drawings and Reimbursement of Amounts
Paid Under Letters of Credit..............................66
3.4 Obligations Absolute......................................69
3.5 Indemnification; Nature of Issuing Lenders' Duties........70
3.6 Increased Costs and Taxes Relating to Letters of Credit...71
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT.................72
4.1 Conditions to Initial Loans...............................72
4.2 Conditions to Loans Made on Merger Date...................83
4.3 Conditions to All Loans...................................88
4.4 Conditions to Letters of Credit...........................89
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES..................90
5.1 Organization, Powers, Qualification,
Good Standing, Business and Subsidiaries..................90
5.2 Authorization of Borrowing, etc...........................91
5.3 Financial Condition.......................................92
5.4 No Material Adverse Change; No Restricted
Junior Payments...........................................92
5.5 Title to Properties; Liens; Real Property.................93
5.6 Litigation; Adverse Facts.................................93
5.7 Payment of Taxes..........................................94
5.8 Performance of Agreements; Materially Adverse
Agreements................................................94
5.9 Governmental Regulation....................................94
5.10 Securities Activities......................................94
5.11 Employee Benefit Plans.....................................95
5.12 Certain Fees...............................................96
5.13 Environmental Protection...................................96
5.14 Employee Matters...........................................97
5.15 Solvency...................................................97
5.16 Matters Relating to Collateral.............................97
5.17 Related Agreements.........................................98
5.18 Disclosure.................................................98
5.19 Year 2000 Compliance.......................................99
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS............................99
6.1 Financial Statements and Other Reports.....................99
6.2 Legal Existence, etc......................................104
6.3 Payment of Taxes and Claims; Tax Consolidation............104
6.4 Maintenance of Properties; Insurance; Application
of Net Insurance/Condemnation Proceeds....................105
6.5 Inspection Rights; Lender Meeting.........................107
6.6 Compliance with Laws, etc.................................107
6.7 Environmental Review and Investigation,
Disclosure, Etc.; Company's Actions Regarding
Hazardous Materials Activities, Environmental
Claims and Violations of Environmental Laws...............108
6.8 Execution of Subsidiary Guaranty and Personal
Property Collateral Documents by Certain
Subsidiaries and Future Subsidiaries; IP Collateral.......110
6.9 Leasehold Properties; Matters Relating to Additional
Real Property Collateral; Certain
Opinions; Removal of Liens................................112
6.10 Merger....................................................116
6.11 Interest Rate Protection..................................116
6.12 Year 2000 Compliance......................................116
SECTION 7. COMPANY'S NEGATIVE COVENANTS..............................116
7.1 Indebtedness..............................................116
7.2 Liens and Related Matters.................................118
7.3 Investments; Joint Ventures...............................119
7.4 Contingent Obligations....................................120
7.5 Restricted Junior Payments................................121
7.6 Financial Covenants.......................................121
7.7 Restriction on Fundamental Changes; Asset Sales
and Acquisitions..........................................123
7.8 Consolidated Capital Expenditures.........................125
7.9 Sales and Lease-Backs.....................................126
7.10 Sale or Discount of Receivables...........................127
7.11 Transactions with Stockholders and Affiliates.............127
7.12 Disposal of Subsidiary Equity.............................127
7.13 Conduct of Business.......................................128
7.14 Amendments or Waivers of Related Agreements...............128
7.15 Fiscal Year...............................................128
SECTION 8. EVENTS OF DEFAULT.........................................128
8.1 Failure to Make Payments When Due.........................129
8.2 Default in Other Agreements...............................129
8.3 Breach of Certain Covenants...............................129
8.4 Breach of Warranty........................................129
8.5 Other Defaults Under Loan Documents.......................129
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc......130
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc........130
8.8 Judgments and Attachments.................................130
8.9 Dissolution...............................................131
8.10 Employee Benefit Plans....................................131
8.11 Change in Control.........................................131
8.12 Invalidity of Guaranties; Failure of Security;
Repudiation of Obligations................................131
8.13 Mergers...................................................131
SECTION 9. THE AGENTS................................................132
9.1 Appointment...............................................132
9.2 Powers and Duties; General Immunity.......................134
9.3 Representations and Warranties; No Responsibility
For Appraisal of Creditworthiness.........................135
9.4 Right to Indemnity........................................135
9.5 Successor Agents and Swing Line Lender....................136
9.6 Collateral Documents and Guaranties.......................137
SECTION 10. MISCELLANEOUS.............................................137
10.1 Assignments and Participations in Loans
and Letters of Credit.....................................137
10.2 Expenses..................................................140
10.3 Indemnity.................................................141
10.4 Set-Off; Security Interest in Deposit Accounts............142
10.5 Ratable Sharing...........................................142
10.6 Amendments and Waivers....................................143
10.7 Independence of Covenants.................................145
10.8 Notices...................................................145
10.9 Survival of Representations, Warranties and Agreements....145
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.....146
10.11 Marshalling; Payments Set Aside...........................146
10.12 Severability..............................................146
10.13 Obligations Several; Independent Nature of
Lenders' Rights...........................................146
10.14 Headings..................................................147
10.15 Applicable Law............................................147
10.16 Successors and Assigns....................................147
10.17 Consent to Jurisdiction and Service of Process............147
10.18 Waiver of Jury Trial......................................148
10.19 Confidentiality...........................................148
10.20 Counterparts; Effectiveness...............................149
Signature pages ........................................................... S-1
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT
IV-A FORM OF TRANCHE A TERM NOTE
IV-B FORM OF REVOLVING NOTE
IV-C FORM OF SWING LINE NOTE
V FORM OF COMPLIANCE CERTIFICATE
VI FORM OF FINANCIAL CONDITION CERTIFICATE
VII FORM OF CLOSING DATE OPINION OF COMPANY'S COUNSEL
VIII FORM OF MERGER DATE OPINION OF COMPANY'S COUNSEL
IX FORM OF OPINION OF O'MELVENY & MYERS LLP
X FORM OF ASSIGNMENT AGREEMENT
XI FORM OF CERTIFICATE RE NON-BANK STATUS
XII FORM OF COLLATERAL ACCOUNT AGREEMENT
XIII FORM OF PLEDGE AGREEMENT
XIV FORM OF SECURITY AGREEMENT
XV FORM OF SUBSIDIARY GUARANTY
XVI FORM OF SUBSIDIARY PLEDGE AGREEMENT
XVII FORM OF SUBSIDIARY SECURITY AGREEMENT
<PAGE>
SCHEDULES
1.1 FISCAL QUARTERS
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY
5.6 LITIGATION
5.7 TAXES
5.13 ENVIRONMENTAL MATTERS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
<PAGE>
$120,000,000
FALCON PRODUCTS, INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of June 17, 1999, and entered into by
and among FALCON PRODUCTS, INC., a Delaware corporation ("Company"), THE LENDERS
LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"Lender" and collectively as "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as
administrative agent for Lenders (in such capacity, "Administrative Agent"),
FIRST UNION NATIONAL BANK, as syndication agent for Lenders (in such capacity,
"Syndication Agent") and NATIONSBANK, N.A., as documentation agent for Lenders
(in such capacity, "Documentation Agent").
R E C I T A L S
WHEREAS, Company (capitalized terms used herein without definition
shall have the meanings set forth therefor in subsection 1.1 of this Agreement)
has formed Acquisition Co. for the purpose of tendering for the purchase of all
the outstanding Shelby Common Stock and to acquire in the Merger any Shelby
Common Stock not so purchased in the Tender Offer at the Tender Offer Price;
WHEREAS, as soon as practical after the consummation of the Tender
Offer, Acquisition Co. and Shelby will consummate the Merger with the effect
that Company will own not less than 100% of the Shelby Common Stock;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company to be used for the purposes of providing funds for (i) the Acquisition
Financing Requirements and (ii) working capital and other general purposes of
Company and its Subsidiaries, and issuing Letters of Credit for the purposes set
forth herein;
WHEREAS, on the Closing Date, Company will secure all of the
Obligations hereunder and under the other Loan Documents by granting to
Administrative Agent, on behalf of Lenders, a First Priority Lien on
substantially all of its personal, real and mixed property, including a pledge
of all of the capital stock of its existing Domestic Subsidiaries and a pledge
of 66% of the capital stock of its existing Foreign Subsidiaries (other than
Inactive Subsidiaries);
WHEREAS, on the Closing Date, all of Company's existing Domestic
Subsidiaries will guarantee the Obligations hereunder and under the other Loan
Documents and each of such existing Domestic Subsidiaries will secure its
guaranty by granting to Administrative Agent, on behalf of Lenders, a First
Priority Lien on substantially all of its respective personal, real and mixed
property, including a pledge of all of the capital stock of each of its existing
Domestic Subsidiaries and 66% of the capital stock of each of its existing
Foreign Subsidiaries (other than Inactive Subsidiaries);
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders, Syndication Agent,
Documentation Agent and Administrative Agent agree as follows:
Section 1. DEFINITIONS
1.1 Defined Terms
The following terms used in this Agreement shall have the following
meanings:
"Acquired Business" has the meaning assigned thereto in subsection
7.7(vii).
"Acquisition Co." means SY Acquisition, Inc., a Delaware corporation
and wholly-owned subsidiary of Company.
"Acquisition Financing Requirements" means the aggregate of all amounts
necessary (i) to finance the purchase price for all of the outstanding shares of
Shelby Common Stock (and the retirement of all outstanding stock options)
pursuant to the Tender Offer and the Merger in an aggregate amount of
approximately $148.3 million, (ii) to repay in full certain of the Existing
Company Indebtedness in an amount of approximately $20.0 million plus accrued
interest and fees thereon and (iii) to pay Transaction Costs in an amount not to
exceed $10.5 million.
"Adjusted LIBO Rate" means, for any Interest Rate Determination Date
with respect to an Interest Period for a LIBO Rate Loan, the rate per annum
obtained by dividing (i) the rate per annum (rounded upward to the nearest 1/16
of one percent) which appears on the British Bankers Association Telerate page
3750 (or such other comparable page as may, in the opinion of the Administrative
Agent, replace such page for the purpose of displaying such rate), at which
Dollar deposits with a maturity comparable to such Interest Period as of
approximately 11:00 a.m. (London time) on such Interest Rate Determination Date
by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve
requirements (including any marginal, emergency, supplemental, special or other
reserves) applicable on such Interest Rate Determination Date to any member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"Administrative Agent" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.5A.
"Affected Lender" has the meaning assigned to that term in subsection
2.6C.
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"Affiliated Fund" means, with respect to any Lender that is a fund that
invests (in whole or in part) in commercial loans, any other fund that invests
(in whole or in part) in commercial loans and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.
"Agents" means, collectively, the Syndication Agent, the Documentation
Agent and the Administrative Agent.
"Agreement" means this Credit Agreement dated as of June 17, 1999, as
it may be amended, supplemented or otherwise modified from time to time.
"Annualized" means (i) with respect to the Fiscal Quarter of Company
ending on or about October 31, 1999, the applicable amount for such Fiscal
Quarter multiplied by four, (ii) with respect to the Fiscal Quarter of Company
ending on or about January 31, 2000, the applicable amount for such Fiscal
Quarter and the immediately preceding Fiscal Quarter multiplied by two, and
(iii) with respect to the Fiscal Quarter of Company ending on or about April 30,
2000, the applicable amount for such Fiscal Quarter and the immediately
preceding two Fiscal Quarters multiplied by one and one-third.
"Applicable Base Rate Margin" means, as at any date of determination, a
percentage per annum as set forth below opposite the applicable Consolidated
Leverage Ratio calculated on a Pro Forma Basis:
Consolidated Leverage Ratio Applicable Base Rate Margin
----------------------------------------------------------------------------
greater than 4.00:1.00 1.50%
less than or equal to 4.00:1.00 1.25%
but greater than 3.50:1.00
less than or equal to 3.50:1.00 1.00%
but greater than 3.00:1.00
less than or equal to 3.00:1.00 0.75%
; provided that until the delivery of the first Margin Determination Certificate
by Company to Administrative Agent pursuant to subsection 6.1 (xvii) after the
six-month anniversary of the Closing Date, the Applicable Base Rate Margin for
Tranche A Term Loans and Revolving Loans that are Base Rate Loans shall be 1.50%
per annum.
"Applicable LIBO Rate Margin" means, as at any date of determination, a
percentage per annum as set forth below opposite the applicable Consolidated
Leverage Ratio calculated on a Pro Forma Basis:
Consolidated Leverage Ratio Applicable LIBO Rate Margin
----------------------------------------------------------------------------
greater than 4.00:1.00 2.50%
less than or equal to 4.00:1.00 2.25%
but greater than 3.50:1.00
less than or equal to 3.50:1.00 2.00%
but greater than 3.00:1.00
less than or equal to 3.00:1.00 1.75%
; provided that until the delivery of the first Margin Determination Certificate
by Company to Administrative Agent pursuant to subsection 6.1 (xvii) after the
six-month anniversary of the Closing Date, the Applicable LIBO Rate Margin for
Tranche A Term Loans and Revolving Loans that are LIBO Rate Loans shall be 2.50%
per annum.
"Arranger" means DLJ Capital Funding, Inc. as Sole Lead Arranger and
Book Runner.
"Asset Sale" means the sale, lease, assignment or other transfer
(whether voluntary or involuntary) for value (collectively, a "transfer") by
Company or any of its Subsidiaries to any Person other than Company or any of
its wholly-owned Subsidiaries of (i) any of the equity ownership of any of
Company's Subsidiaries, (ii) substantially all of the assets of any division or
line of business of Company or any of its Subsidiaries, or (iii) any other
assets (whether tangible or intangible) of Company or any of its Subsidiaries
(other than (a) inventory sold in the ordinary course of business, (b) obsolete
equipment transferred for not in excess of $1 million for any single transaction
or related series of transactions and $2 million in the aggregate for each
Fiscal Year, and (c) any such other assets to the extent that (x) the aggregate
value of such assets transferred in any single transaction or related series of
transactions is equal to $250,000 or less and (y) the aggregate value of such
assets transferred in any Fiscal Year is equal to $500,000 or less).
"Assignment Agreement" means an Assignment Agreement in substantially
the form of Exhibit X annexed hereto.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Base Rate" means, at any time, the higher of (x) the Prime Rate or (y)
the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.
"Base Rate Loans" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"Business Day" means (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York or the State of Missouri
or is a day on which banking institutions located in such state are authorized
or required by law or other governmental action to close, and (ii) with respect
to all notices, determinations, fundings and payments in connection with the
Adjusted LIBO Rate or any LIBO Rate Loans, any day that is a Business Day
described in clause (i) above and that is also a day for trading by and between
banks in Dollar deposits in the London interbank market.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Cash" means money, currency or a credit balance in a demand, time,
savings, passbook or like account with a bank, savings and loan association,
credit union or like organization, other than an account evidenced by a
negotiable certificate of deposit.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within one year after such
date and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100 million; and (v) shares of any money market mutual fund that (a)
invests solely in the types of investments referred to in clauses (i) through
(iv) above or in substantially similar investments and (b) has a rating of no
less than "AAA" from Moody's and equivalent rating from S&P.
"Certificate re Non-Bank Status" means a certificate substantially in
the form of Exhibit XI annexed hereto delivered by a Lender to Administrative
Agent pursuant to subsection 2.7B(iii).
"Change in Control" means:
(i) a change shall occur in the Board of Directors of Company
so that a majority of the Board of Directors of Company ceases to
consist of the individuals who constituted the Board of Directors of
Company on the Closing Date (or individuals whose election or
nomination for election was approved by a vote of at least 75% of the
directors then in office who either were directors on the Closing Date
or whose election or nomination for election was previously so
approved); or
(ii) any Person or group (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission) shall become or be the owner,
directly or indirectly, beneficially or of record, of shares
representing more than 30% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Company on a
fully diluted basis; or
(iii) a "Change of Control" occurs as that term is defined in
the Senior Subordinated Debt Indenture.
"Closing Date" means the date on which the initial Loans are made.
"Collateral" means, collectively, all of the real, personal and mixed
property (including capital stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"Collateral Account Agreement" means the Collateral Account Agreement
executed and delivered by Company and Administrative Agent on the Closing Date,
substantially in the form of Exhibit XII annexed hereto, as such Collateral
Account Agreement may hereafter be amended, supplemented or otherwise modified
from time to time.
"Collateral Documents" means any Collateral Account Agreement, Pledge
Agreement, Security Agreement, Subsidiary Pledge Agreement, Subsidiary Security
Agreement or Mortgage executed by Company or any of Company's Subsidiaries and
granting a Lien on any real, personal or mixed property of such Person to secure
the Obligations and all other instruments or documents delivered by any Loan
Party pursuant to this Agreement or any of the other Loan Documents in order to
grant to Administrative Agent, on behalf of Lenders, a Lien on any real,
personal or mixed property of that Loan Party as security for the Obligations.
"Commercial Letter of Credit" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services of Company or
any of its Subsidiaries in the ordinary course of business of Company or such
Subsidiary.
"Commitment Fee Percentage" means 0.50% per annum.
"Commitments" means the commitments of Lenders to make Loans as set
forth in subsection 2.1A.
"Company" has the meaning assigned to that term in the introduction to
this Agreement.
"Company Employee Benefit Plan" means any Employee Benefit Plan which
is maintained or contributed to by Company or any of its Subsidiaries.
"Company Pension Plan" means any Pension Plan which is a Company
Employee Benefit Plan.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit V annexed hereto delivered to Agents and Lenders by Company pursuant
to subsection 6.1(iii).
"Computation Date" has the meaning assigned to that term in subsection
2.1F(i).
"Conforming Leasehold Interest" means any Recorded Leasehold Interest
as to which the lessor (and all other parties having a consent right) has agreed
in writing for the benefit of Administrative Agent (which writing has been
delivered to Administrative Agent), whether under the terms of the applicable
lease, under the terms of a Landlord Consent and Estoppel, or otherwise, to the
matters described in the definition of "Landlord Consent and Estoppel," which
interest, if a subleasehold or sub-subleasehold interest, is not subject to any
contrary restrictions contained in a superior lease or sublease.
"Consolidated Capital Expenditures" means, for any period, the sum of
the aggregate of all expenditures (whether paid in cash or other consideration
or accrued as a liability and including that portion of Capital Leases which is
capitalized on the consolidated balance sheet of Company and its Subsidiaries)
by Company and its Subsidiaries during that period that, in conformity with
GAAP, are included in "additions to property, plant or equipment" or comparable
items reflected in the consolidated statement of cash flows of Company and its
Subsidiaries.
"Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense for such period excluding, however, any interest
expense not payable in Cash (including amortization of discount and amortization
of debt issuance costs).
"Consolidated Current Assets" means, as at any date of determination,
the total assets of Company and its Subsidiaries on a consolidated basis which
may properly be classified as current assets in conformity with GAAP, but
excluding Cash and Cash Equivalents.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, but excluding the Revolving Loans and the current portion
of long term Indebtedness of Company (including the Term Loans).
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense,
(iii) provisions for taxes based on income, (iv) total depreciation expense, (v)
total amortization expense (including without limitation any amounts referred to
in subsection 2.3 payable to Arranger, Agents and Lenders on or before the
Closing Date) and (vi) other non-cash items reducing Consolidated Net Income
less other non-cash items increasing Consolidated Net Income, all of the
foregoing as determined on a consolidated basis for Company and its Subsidiaries
in conformity with GAAP; provided that all calculations of Consolidated EBITDA
for any period that ends prior to the Merger Date or that includes the Merger
Date shall be made on a Pro Forma Basis assuming the Tender Offer and the Merger
were consummated on the first day of such period.
"Consolidated Excess Cash Flow" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated EBITDA and (b) the Consolidated Working Capital
Adjustment minus (ii) the sum, without duplication, of the amounts for such
period of (a) voluntary and scheduled repayments of Consolidated Total Debt
(excluding repayments of Revolving Loans except to the extent the Revolving Loan
Commitments are permanently reduced in connection with such repayments), (b)
Consolidated Capital Expenditures (net of any proceeds of any related financings
with respect to such expenditures), (c) amounts expended on Permitted
Acquisitions, (d) Consolidated Cash Interest Expense, (e) the consolidated
provision for current taxes based on income of Company and its Subsidiaries and
payable in cash with respect to such period and (f) dividends paid in cash.
"Consolidated Fixed Charge Coverage Ratio" means, as of any date of
determination, the ratio computed for the four Fiscal Quarter period most
recently ended on or before such date of determination of Consolidated EBITDA to
Consolidated Fixed Charges; provided that with respect to Consolidated Fixed
Charges for the Fiscal Quarters ending on or about October 31, 1999, January 31,
2000 and April 30, 2000, the calculations of Consolidated Cash Interest Expense,
taxes and dividends paid in cash during such period shall be determined on an
Annualized basis.
"Consolidated Fixed Charges" means, for any period, the sum (without
duplication) of the amounts for such period of (i) Consolidated Cash Interest
Expense, (ii) all taxes paid in cash during such period, (iii) Consolidated
Capital Expenditures for such period paid in cash, (iv) the aggregate amount of
scheduled payments of principal on Indebtedness of Company and its Subsidiaries
(including that portion attributable to Capital Leases in accordance with GAAP)
for such period, and (v) the amount of Restricted Junior Payments paid in cash
during such period permitted under subsection 7.5, all of the foregoing as
determined on a consolidated basis for Company and its Subsidiaries in
conformity with GAAP.
"Consolidated Interest Expense" means, for any period, the sum of total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest) of Company and its Subsidiaries
on a consolidated basis with respect to all outstanding Indebtedness of Company
and its Subsidiaries, including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, but excluding, however, any
amounts referred to in subsection 2.3 payable to Arranger, Agents and Lenders on
or before the Closing Date.
"Consolidated Leverage Ratio" means, as at any date of determination,
the ratio of (a) Consolidated Total Debt as of the last day of the Fiscal
Quarter for which such determination is being made to (b) Consolidated EBITDA
for the consecutive four Fiscal Quarters ending on the last day of the Fiscal
Quarter for which such determination is being made.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP; provided
that there shall be excluded (i) the income (or loss) of any Person (other than
a Subsidiary of Company) in which any other Person (other than Company or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Company or any of its
Subsidiaries by such Person during such period, (ii) except as otherwise
expressly permitted under this Agreement, the income (or loss) of any Person
accrued prior to the date it becomes a Subsidiary of Company or is merged into
or consolidated with Company or any of its Subsidiaries or that Person's assets
are acquired by Company or any of its Subsidiaries, (iii) the income of any
Subsidiary of Company to the extent that the declaration or payment of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales
or returned surplus assets of any Pension Plan, and (v) (to the extent not
included in clauses (i) through (iv) above) any net extraordinary gains or net
non-cash extraordinary losses.
"Consolidated Net Worth" means, as of any date of determination, the
sum of the capital stock and additional paid-in capital plus retained earnings
(or minus accumulated deficits) of Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Consolidated Total Debt" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital" means, as at any date of determination,
the excess (or deficit) of Consolidated Current Assets over Consolidated Current
Liabilities.
"Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds (or is
less than) Consolidated Working Capital as of the end of such period.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Hedge Agreements. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of such Person for
the obligation of another through any agreement (contingent or otherwise) (X) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (Y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Contractual Obligation", as applied to any Person, means any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement to which Company or any of its Subsidiaries is a party.
"DLJ" means DLJ Capital Funding, Inc.
"Documentation Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"Dollar Equivalent" means, at any time, (x) as to any amount
denominated in Dollars, the amount thereof at such time, and (y) as to any
amount denominated in a currency other than Dollars, the equivalent amount in
Dollars as determined by Administrative Agent at such time on the basis of the
Exchange Rate for the purchase of Dollars with such currency on the most recent
Computation Date provided for in subsection 2.1F(i) or such other time as may be
reasonably specified by Administrative Agent.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"Domestic Subsidiary" means a direct or indirect Subsidiary of Company
that is incorporated or organized under the laws of a state of the United States
of America.
"Eligible Assignee" means (A) (i) a commercial bank organized under the
laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that (x) such bank is
acting through a branch or agency located in the United States or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; and (iv) any other entity which is an "accredited investor" (as defined
in Regulation D under the Securities Act) which extends credit or buys loans as
one of its businesses, including insurance companies, mutual funds, lease
financing companies and investment funds and any Affiliated Funds; and (B)
Administrative Agent or any Lender, any Affiliate of Administrative Agent or any
Lender or any Affiliated Fund of Administrative Agent or any Lender; provided
that no Affiliate of Company shall be an Eligible Assignee.
"Employee Benefit Plan" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which is or was maintained or contributed to by Company,
any of its Subsidiaries or any of their respective ERISA Affiliates. Any such
plan of a former ERISA Affiliate of Company or any of its Subsidiaries shall
continue to be considered an Employee Benefit Plan within the meaning of this
definition solely with respect to the period during which such former ERISA
Affiliate was an ERISA Affiliate of Company or any of its Subsidiaries with
respect to liabilities existing after such period for which Company or any of
its Subsidiaries could be liable under the Internal Revenue Code or ERISA.
"Environmental Claim" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any governmental authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law, (ii) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials Activity, or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"Environmental Laws" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Company or any of its
Subsidiaries or any Facility, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air Act (42 U.S.C.
ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et seq.),
the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.136 et
seq.), the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.), the
Oil Pollution Act (33 U.S.C. ss.2701 et seq.) and the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. ss.11001 et seq.), each as amended or
supplemented, any analogous present or future state or local statutes or laws,
and any regulations promulgated pursuant to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA Affiliate" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Company or
such Subsidiary within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of liability
on Company, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its
Subsidiaries or any of their respective ERISA Affiliates in a complete or
partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from
any Multiemployer Plan if there is any potential liability therefor, or the
receipt by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could give rise to the imposition on
Company or any of its Subsidiaries of fines, penalties, taxes or related charges
under Chapter 43 of the Internal Revenue Code or under Section 409, Section
502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit
Plan; (ix) the occurrence of an act or omission which could give rise to the
imposition on Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Section 4071 of
ERISA in respect of any Employee Benefit Plan; (x) the assertion of a material
claim (other than routine claims for benefits) against any Employee Benefit Plan
other than a Multiemployer Plan or the assets thereof, or against Company, any
of its Subsidiaries or any of their respective ERISA Affiliates in connection
with any Employee Benefit Plan; (xi) receipt from the Internal Revenue Service
of notice of the failure of any Pension Plan (or any other Employee Benefit Plan
intended to be qualified under Section 401(a) of the Internal Revenue Code) to
qualify under Section 401(a) of the Internal Revenue Code, or the failure of any
trust forming part of any Pension Plan to qualify for exemption from taxation
under Section 501(a) of the Internal Revenue Code; or (xii) the imposition of a
Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.
"Event of Default" means each of the events set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Exchange Rate" means, on any date when an amount expressed in a
currency other than Dollars is to be determined with respect to any Letter of
Credit, the nominal rate of exchange of the applicable Issuing Lender in the New
York foreign exchange market for the purchase by such Issuing Lender (by cable
transfer) of such currency in exchange for Dollars at 12:00 noon (New York time)
one Business Day prior to such date, expressed as a number of units of such
currency per one Dollar.
"Existing Company Indebtedness" means all Indebtedness of Company and
its Subsidiaries under the Credit Agreement dated as of April 22, 1998 between
Company and NationsBank, N.A. in an outstanding principal amount of
approximately $19.2 million, indebtedness of Falcon Mimon, the Company's Czech
subsidiary, to a financial institution in an approximate principal amount of
$1.6 million and of Company under a Capital Lease dated November 16, 1998
between Kaydee Metal Products Corporation (assignor of the Company) and
Tishmingo County, Mississippi as Landlord.
"Existing Shelby Indebtedness" means all Indebtedness of Shelby and its
Subsidiaries under 7.83% Senior Notes due July 31, 1999 under Note Agreement
dated as of July 31, 1992 with the Prudential Insurance Company of America in an
outstanding amount not exceeding $3.0 million.
"Existing Letters of Credit" means the letters of credit identified as
such in Schedule 7.4 annexed hereto (but not any refinancings, renewals or
extensions thereof).
"Facilities" means any and all real property (including all buildings,
fixtures or other improvements located thereon) now, hereafter or heretofore
owned, leased, operated or used by Company, Shelby or any of their respective
Subsidiaries or any of their respective predecessors or Affiliates.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Administrative Agent from three Federal funds brokers
of recognized standing selected by Administrative Agent.
"Financial Condition Certificate" means a Financial Condition
Certificate, substantially in the form of Exhibit VI annexed hereto, dated as of
the Closing Date.
"Financial Plan" has the meaning assigned to that term in subsection
6.1(xii).
"First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that (i) such
Lien has priority over any other Lien on such Collateral (other than Permitted
Encumbrances which as a matter of statutory law have priority over any other
Lien irrespective of the prior perfection or filing of such other Lien) and (ii)
such Lien is the only Lien (other than Permitted Encumbrances) to which such
Collateral is subject.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year. The Fiscal
Quarters of Company are set forth on Schedule 1.1 annexed hereto.
"Fiscal Year" means the fiscal year of Company and its Subsidiaries
ending on the Saturday closest to October 31 of each calendar year.
"Flood Hazard Property" means a Mortgaged Property located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"Foreign Subsidiary" means a direct or indirect Subsidiary of Company
which is incorporated or organized under the laws of any government or
sovereignty other than any state of the United States of America.
"Funding and Payment Office" means (i) the office of Administrative
Agent and Swing Line Lender located at 277 Park Avenue, New York, NY 10172 or
(ii) such other office of Administrative Agent and Swing Line Lender as may from
time to time hereafter be designated as such in a written notice delivered by
Administrative Agent and Swing Line Lender to Company and each Lender.
"Funding Date" means the date of the funding of a Loan, which date
shall be a Business Day.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
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 in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the circumstances as of
the date of determination.
"Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"Guaranties" means the Subsidiary Guaranty and any Subsidiary Guaranty
executed by the Domestic Subsidiaries of Shelby.
"Hazardous Materials" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or which
may or could pose a hazard to the health and safety of the owners, occupants or
any Persons in the vicinity of any Facility or to the indoor or outdoor
environment.
"Hazardous Materials Activity" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"Hedge Agreement" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or currency
values, respectively.
"Inactive Subsidiary" means any Subsidiary of Company that does not
engage in any business activity, which Subsidiary, together with all other
Inactive Subsidiaries, (a) does not own assets with an aggregate value for all
such Inactive Subsidiaries of greater than $50,000, and (b) does not, together
with all other Inactive Subsidiaries, generate aggregate revenues of greater
than $50,000 in any single Fiscal Year; and all Inactive Subsidiaries shall be
designated as such on Schedule 5.1.
"Indebtedness", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. Obligations under Interest Rate Agreements and Currency
Agreements constitute (X) in the case of Hedge Agreements, Contingent
Obligations, and (Y) in all other cases, Investments, and in neither case
constitute Indebtedness.
"Indemnitee" has the meaning assigned to that term in subsection 10.3.
"Information Systems and Equipment" means all computer hardware,
firmware and software, as well as other information processing systems, or any
equipment containing embedded microchips, whether directly or indirectly owned,
licensed, leased, operated or otherwise controlled by Company or any of its
Subsidiaries, including through third-party service providers, and which, in
whole or in part, are used, operated, relied upon or integral to Company's or
any of its Subsidiaries' conduct of their businesses.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries as currently conducted
that are material to the condition (financial or otherwise), business or
operations of Company and its Subsidiaries, taken as a whole.
"Interest Payment Date" means (i) with respect to any Base Rate Loan,
the last Business Day of each March, June, September and December, of each year,
commencing on the first such date to occur after the Closing Date, and (ii) with
respect to any LIBO Rate Loan, the last Business Day of each Interest Period
applicable to such Loan; provided that in the case of each Interest Period of
longer than three months "Interest Payment Date" shall also include the Business
Day that is three months, or an multiple thereof, after the commencement of such
Interest Period.
"Interest Period" has the meaning assigned to that term in subsection
2.2B.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement to which Company or any of its Subsidiaries is a party.
"Interest Rate Determination Date" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
"Investment" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (including any Subsidiary of
Company), (ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value, by any Subsidiary of Company from any Person other than
Company or any of its wholly-owned Domestic Subsidiaries, of any equity
Securities of such Subsidiary, (iii) any direct or indirect loan, advance (other
than advances to employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business) or
capital contribution by Company or any of its Subsidiaries to any other Person
(other than a wholly-owned Domestic Subsidiary of Company), including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business, or (iv) Interest Rate Agreements or Currency Agreements not
constituting Hedge Agreements. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment.
"IP Collateral" means, collectively, any Collateral under any Security
Agreement and any Subsidiary Security Agreement consisting of trademarks,
servicemarks, tradenames, tradesecrets, business names, logos, patents, patent
applications, licenses, copyrights, any registration and franchise rights and
interests relating thereto, and any other intellectual property of any type, and
all goodwill associated with any of the foregoing.
"Issuing Lender" means, with respect to any Letter of Credit, the
Revolving Lender that agrees or is otherwise obligated to issue such Letter of
Credit, determined as provided in subsection 3.1B(ii), or which has issued any
Existing Letters of Credit.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"Landlord Consent and Estoppel" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the lessor
(and all other parties having a consent right) under the related lease,
satisfactory in form and substance to Administrative Agent, pursuant to which
such lessor (and all other parties having a consent right) agrees, for the
benefit of Administrative Agent, (i) that without any further consent of such
lessor (and all other parties having a consent right) or any further action on
the part of the Loan Party holding such Leasehold Property, such Leasehold
Property may be encumbered pursuant to a Mortgage and may be assigned to the
purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to
a subsequent third party assignee if any Agent, any Lender, or an Affiliate of
either so acquires such Leasehold Property), (ii) that such lessor shall not
terminate such lease as a result of a default by such Loan Party thereunder
without first giving Administrative Agent notice of such default and at least 15
days in the case of a monetary default and 30 days in the case of a non-monetary
default beyond the cure period afforded to the tenant thereunder to cure such
default, and (iii) to such other matters relating to such Leasehold Property as
Administrative Agent may reasonably request.
"Leasehold Property" means any leasehold interest of any Loan Party as
lessee under any lease of real property.
"Lender" and "Lenders" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall
include Swing Line Lender unless the context otherwise requires.
"Letter of Credit" or "Letters of Credit" means Commercial Letters of
Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders
for the account of Company pursuant to subsection 3.1 and the Existing Letters
of Credit.
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Lenders and not theretofore reimbursed by Company. For the purposes of
this definition, any amount described in clause (i) or (ii) of the preceding
sentence which is denominated in a currency other than Dollars shall be valued
based on the applicable Exchange Rate for such Currency as of the applicable
date of determination.
"LIBO Rate Loans" means Loans bearing interest at rates determined by
reference to the Adjusted LIBO Rate as provided in subsection 2.2A.
"Lien" means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing.
"Loan" or "Loans" means one or more of the Tranche A Term Loans,
Revolving Loans or Swing Line Loans or any combination thereof.
"Loan Documents" means this Agreement, the Notes, the Letters of Credit
(and any applications for, or reimbursement agreements or other documents or
certificates executed by Company in favor of an Issuing Lender relating to, the
Letters of Credit), the Guaranties and the Collateral Documents.
"Loan Party" means each of Acquisition Co., Company and any of
Company's Subsidiaries from time to time executing a Loan Document, and "Loan
Parties" means all such Persons, collectively.
"Margin Determination Certificate" means a Margin Determination
Certificate of Company delivered pursuant to 6.1(xvii) setting forth in
reasonable detail the calculation of the Consolidated Leverage Ratio for the
four-Fiscal Quarter period ending as of the last day of the Fiscal Quarter
immediately preceding the Fiscal Quarter in which such certificate is delivered.
"Margin Stock" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"Material Adverse Effect" means (i) any event or change in or effect on
the business of Company and its Subsidiaries, taken as a whole, that is or can
reasonably be expected to be materially adverse to the business, operations,
properties (including intangible properties), condition (financial or
otherwise), assets, liabilities or prospects of Company and its Subsidiaries,
taken as a whole, or (ii) the impairment in any material respect of the ability
of any Loan Party to perform, or of Administrative Agent or Lenders to enforce,
the Obligations.
"Material Leasehold Property" means a Leasehold Property reasonably
determined by Administrative Agent to be of material value as Collateral or of
material importance to the operations of Company or any of its Subsidiaries.
"Merger" means the merger of Acquisition Co. with and into Shelby
pursuant to the Merger Agreement, with Shelby as the surviving corporation.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
May 5, 1999 by and among Company, Acquisition Co. and Shelby, as such agreement
may be amended from time to time to the extent permitted under subsection 7.14.
"Merger Date" means the date upon which the Merger is consummated.
"Merger Document" means either (x) the Merger Agreement dated as of the
Merger Date by and among Acquisition Co. and Shelby, or (y) the Certificate of
Merger filed with the Secretary of State for the State of Delaware on the Merger
Date, in each case as such agreement or certificate may be amended from time to
time to the extent permitted under subsection 7.14.
"Minimum Shares" means that number of shares of Shelby Common Stock
which represents at least a majority of the total number of outstanding shares
of Shelby Common Stock on a fully diluted basis on the date of purchase but not
less than a sufficient number of shares to permit Acquisition Co. acting alone
to cause the Merger to be approved by the stockholders of Shelby.
"Mortgage" means (i) a security instrument (whether designated as a
deed of trust or a mortgage or by any similar title) executed and delivered by
any Loan Party, substantially in such form as may be approved by Administrative
Agent in its reasonable discretion, in each case with such changes thereto as
may be recommended by Administrative Agent's local counsel based on local laws
or customary local mortgage or deed of trust practices, or (ii) at the option of
Administrative Agent, in the case of an Additional Mortgaged Property (as
defined in subsection 6.9), an amendment to an existing Mortgage, in form
reasonably satisfactory to Administrative Agent, adding such Additional
Mortgaged Property to the Real Property Assets encumbered by such existing
Mortgage, in either case as such security instrument or amendment may be
amended, supplemented or otherwise modified from time to time.
"Mortgages" means all such instruments, including the Closing Date
Mortgages (as defined in subsection 4.1G), the Merger Date Mortgages (as defined
in subsection 4.2E) and any Additional Mortgages (as defined in subsection 6.9),
collectively.
"Mortgaged Property" means a Closing Date Mortgaged Property (as
defined in subsection 4.1G), a Merger Date Mortgaged Property (as defined in
subsection 4.2E) or an Additional Mortgaged Property (as defined in subsection
6.9).
"Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"Net Asset Sale Proceeds" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to, or
by monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale, net of any bona fide direct costs
incurred in connection with such Asset Sale, including (i) income taxes
reasonably estimated to be actually payable within two years of the date of such
Asset Sale as a result of any gain recognized in connection with such Asset Sale
and (ii) payment of the outstanding principal amount of, premium or penalty, if
any, and interest on any Indebtedness (other than the Loans) that is secured by
a Lien on the stock or assets in question and that is required to be repaid
under the terms thereof as a result of such Asset Sale.
"Net Insurance/Condemnation Proceeds" means any Cash payments or
proceeds received by Company or any of its Subsidiaries (i) under any business
interruption or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets of Company or any of
its Subsidiaries by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of any
actual and reasonable documented costs incurred by Company or any of its
Subsidiaries in connection with the adjustment or settlement of any claims of
Company or such Subsidiary in respect thereof.
"Notes" means one or more of the Tranche A Term Notes, Revolving Notes
or Swing Line Note or any combination thereof.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit I annexed hereto delivered by Company to Administrative Agent pursuant
to subsection 2.1B with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in the
form of Exhibit II annexed hereto delivered by Company to Administrative Agent
pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.
"Obligations" means all obligations of every nature of each Loan Party
from time to time owed to Agents, Lenders or any of them under the Loan
Documents and Hedge Agreements to which any of the Lenders is a party, whether
for principal, interest, reimbursement of amounts drawn under Letters of Credit,
fees, expenses, indemnification or otherwise.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its president or one of
its vice-presidents and by its chief financial officer (or if there is no chief
financial officer, its chief accounting officer) or its treasurer; provided that
every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (i) a statement
that the officer or officers making or giving such Officers' Certificate has or
have read such condition and any definitions or other provisions contained in
this Agreement relating thereto, (ii) a statement that, in the opinion of the
signer or signers, such signer or signers has or have made or has or have caused
to be made such examination or investigation as is necessary to enable such
signer or signers to express an informed opinion as to whether or not such
condition has been complied with, and (iii) a statement as to whether, in the
opinion of the signer or signers, such condition has been complied with.
"Operating Lease" means, as applied to any Person, any lease (including
leases that may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) that is not a Capital Lease in accordance with
GAAP other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"Permitted Acquisition" means any acquisition, whether by purchase,
merger, reorganization or any other method, by Company or any of its
Subsidiaries of (x) another Person which is engaged primarily in the same line
of business as Company and its Subsidiaries or (y) the assets or other property
of another Person relating primarily to the same line of business as Company and
its Subsidiaries; provided that any such Permitted Acquisition shall comply with
the provisions of subsection 7.7(vii).
"Permitted Currency" means, with respect to a Letter of Credit to be
issued in a currency other than Dollars, Italian Liras, Spanish Pesetas or any
other currency approved by the Administrative Agent and the Issuing Lender of
such Letter of Credit in their sole discretion.
"Permitted Encumbrances" means the following types of Liens (excluding
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA, any such Lien relating to or imposed in connection
with any Environmental Claim, and any such Lien expressly prohibited by any
applicable terms of any of the Loan Documents):
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by subsection
6.3;
(ii) statutory Liens of landlords, statutory Liens of banks
and rights of set-off, statutory Liens of carriers, warehousemen,
mechanics, repairmen, workmen and materialmen, and other Liens imposed
by law, in each case incurred in the ordinary course of business (a)
for amounts not yet overdue or (b) for amounts that are overdue and
that (in the case of any such amounts overdue for a period in excess of
15 days) are being contested in good faith by appropriate proceedings,
so long as (1) such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made for any such
contested amounts, and (2) in the case of a Lien with respect to any
portion of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral on account of
such Lien;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money), so long as no
foreclosure, sale or similar proceedings have been commenced with
respect to any portion of the Collateral on account thereof;
(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8;
(v) leases or subleases granted to third parties in accordance
with any applicable terms of the Collateral Documents and not
interfering in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries or resulting in a
material diminution in the value of any Collateral as security for the
Obligations;
(vi) easements, rights-of-way, covenants, conditions,
restrictions, encroachments, and other defects or irregularities in
title, in each case which do not and will not interfere in any material
respect with the ordinary conduct of the business of Company or any of
its Subsidiaries or result in a material diminution in the value of any
Collateral as security for the Obligations;
(vii) any (a) interest or title of a lessor or sublessor under
any lease permitted under this Agreement, (b) restriction or
encumbrance that the interest or title of such lessor or sublessor may
be subject to, or (c) subordination of the interest of the lessee or
sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (b), so long as the holder of such
restriction or encumbrance agrees to recognize the rights of such
lessee or sublessee under such lease;
(viii) Liens arising from filing UCC financing statements
relating solely to leases not prohibited by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(x) any zoning or similar law or right reserved to or vested
in any governmental office or agency to control or regulate the use of
any real property;
(xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the ordinary
course of business of Company and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material respect
with the ordinary conduct of the business of Company or such
Subsidiary.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether federal,
state or local, domestic or foreign, and including political subdivisions
thereof) and agencies or other administrative or regulatory bodies thereof.
"Pledge Agreement" means the Pledge Agreement executed and delivered by
Company on the Closing Date with respect to all the capital stock of Company's
Domestic Subsidiaries and any pledged debt substantially in the form of Exhibit
XIII annexed hereto or with respect to pledges of the capital stock of Company's
Foreign Subsidiaries, such other forms as may be satisfactory to Administrative
Agent, as such Pledge Agreements may thereafter be amended, supplemented or
otherwise modified from time to time.
"Pledged Collateral" means, collectively, the "Pledged Collateral" as
defined in the Pledge Agreements and the Subsidiary Pledge Agreements.
"Potential Event of Default" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"Prime Rate" means the prime lending rate as set forth on the British
Banking Association Telerate page 5 (or such other comparable page as may, in
the opinion of the Administrative Agent, replace such page for the purpose of
displaying such rate), as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually available. Administrative Agent or any Lender may make commercial loans
or other loans at rates of interest at, above or below the Prime Rate.
"Pro Forma Basis" means, as of any date of determination, the
compliance of Company with the financial covenants set forth in subsection 7.6A
and 7.6B as of the last day of the four Fiscal Quarter period most recently
ended prior to such date of determination for which the relevant financial
information is available (the "Compliance Period"), after giving effect on a pro
forma basis to any Permitted Acquisitions made during such Compliance Period and
any dispositions made during such Compliance Period, other than sales of
inventory in the ordinary course of business and dispositions of obsolete
equipment on the following basis:
(i) any Indebtedness incurred or assumed by Company or any of
its Subsidiaries in connection with such Permitted Acquisitions and any
Indebtedness repaid in connection with such Permitted Acquisitions or
dispositions shall be deemed to have been incurred or repaid,
respectively, as of the first day of the Compliance Period;
(ii) if such Indebtedness incurred or assumed by Company or
any of its Subsidiaries in connection with such Permitted Acquisitions
has a floating or formula rate, then the rate of interest for such
Indebtedness for the applicable period shall be computed as if the rate
in effect for such Indebtedness on the relevant measurement date had
been the applicable rate for the entire applicable period;
(iii) income statement items (whether positive or negative)
attributable to the property or business acquired or disposed of in
such Permitted Acquisitions or dispositions shall be included as if
such acquisitions or dispositions took place on the first day of such
Compliance Period on a pro forma basis; and
(iv) any historical extraordinary non-recurring costs or
expenses or other verifiable costs or expenses that will not continue
after the acquisition or disposition date may be eliminated and other
expenses and cost reductions may be reflected on a basis consistent
with Regulation S-X promulgated by the Securities and Exchange
Commission.
With respect to any such Permitted Acquisitions, such pro
forma calculations shall be based on the audited or reviewed financial
results delivered in compliance with clause (f)(3) of subsection
7.7(vii). All pro forma adjustments shall be approved by the
Administrative Agent.
"Pro Rata Share" means (i) with respect to all payments, computations
and other matters relating to the Tranche A Term Loan Commitment or the Tranche
A Term Loan of any Lender, the percentage obtained by dividing (x) the Tranche A
Term Loan Exposure of that Lender by (y) the aggregate Tranche A Term Loan
Exposure of all Lenders, (ii) with respect to all payments, computations and
other matters relating to the Revolving Loan Commitment or the Revolving Loans
of any Lender or any Letters of Credit issued or participations therein
purchased by any Lender or any participations in any Swing Line Loans purchased
or deemed purchased by any Revolving Lender, the percentage obtained by dividing
(x) the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving
Loan Exposure of all Lenders, and (iii) for all other purposes with respect to
each Lender, the percentage obtained by dividing (x) the sum of the Tranche A
Term Loan Exposure of that Lender plus the Revolving Loan Exposure of that
Lender by (y) the sum of the aggregate Tranche A Term Loan Exposure of all
Lenders plus the aggregate Revolving Loan Exposure of all Lenders, in any such
case as the applicable percentage may be adjusted by assignments permitted
pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for
purposes of each of clauses (i), (ii) and (iii) of the preceding sentence is set
forth opposite the name of that Lender in Schedule 2.1 annexed hereto.
"PTO" means the United States Patent and Trademark Office or any
successor or substitute office in which filings are necessary or, in the opinion
of Administrative Agent, desirable in order to create or perfect Liens on any IP
Collateral.
"Purchase Money Indebtedness" means Indebtedness of Company or any of
its Subsidiaries incurred in connection with the purchase of assets or other
property for the business of Company or any of its Subsidiaries; provided that
the recourse of the lenders with respect to such Indebtedness is limited solely
to the assets or other property so purchased without further recourse to either
Company or any of its Subsidiaries.
"Real Property Asset" means, at any time of determination, any interest
then owned by any Loan Party in any real property.
"Recorded Leasehold Interest" means a Leasehold Property with respect
to which a Record Document (as hereinafter defined) has been recorded in all
places necessary or desirable, in the reasonable judgment of Administrative
Agent, to give constructive notice of such Leasehold Property to third-party
purchasers and encumbrances of the affected real property. For purposes of this
definition, the term "Record Document" means, with respect to any Leasehold
Property, (a) the lease evidencing such Leasehold Property or a memorandum
thereof, executed and acknowledged by the owner of the affected real property,
as lessor, or (b) if such Leasehold Property was acquired or subleased from the
holder of a Recorded Leasehold Interest, the applicable assignment or sublease
document, executed and acknowledged by such holder, in each case in form
sufficient to give such constructive notice upon recordation and otherwise in
form reasonably satisfactory to Administrative Agent.
"Refunded Swing Line Loans" has the meaning assigned to that term in
subsection 2.1A(iii).
"Register" has the meaning assigned to that term in subsection 2.1D.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Date" has the meaning assigned to that term in
subsection 3.3B.
"Related Agreements" means, collectively, the Tender Offer Materials,
the Merger Agreement, the Senior Subordinated Debt Indenture and the Senior
Subordinated Debt Securities.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous Materials), including the
movement of any Hazardous Materials through the air, soil, surface water or
groundwater.
"Replaced Lender" has the meaning assigned to that term in subsection
2.8.
"Replacement Lender" has the meaning assigned to that term in
subsection 2.8.
"Request for Issuance of Letter of Credit" means a notice substantially
in the form of Exhibit III annexed hereto delivered by Company to Administrative
Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a
Letter of Credit.
"Requisite Lenders" means Lenders having or holding more than 50% of
the sum of (i) the aggregate Tranche A Term Loan Exposure of all Lenders plus
(ii) the aggregate Revolving Loan Exposure of all Lenders.
"Restricted Junior Payment" means (i) any distribution, direct or
indirect, on account of any class of stock of Company now or hereafter
outstanding, except a distribution payable solely in shares of that class of
stock payable solely to holders of that class, (ii) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any class of stock of Company now or hereafter outstanding,
(iii) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock of
Company now or hereafter outstanding, and (iv) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment with respect to, any Subordinated Indebtedness.
"Revolving Lender" means a Lender having a Revolving Loan Commitment.
"Revolving Loan Commitment" means the commitment of a Revolving Lender
to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and
"Revolving Loan Commitments" means such commitments of all Revolving Lenders in
the aggregate.
"Revolving Loan Commitment Termination Date" means the last day of the
Fiscal Quarter ending on or about April 30, 2005.
"Revolving Loan Exposure" means, with respect to any Revolving Lender
as of any date of determination (i) prior to the termination of the Revolving
Loan Commitments, that Revolving Lender's Revolving Loan Commitment and (ii)
after the termination of the Revolving Loan Commitments, the sum of (a) the
aggregate outstanding principal amount of the Revolving Loans of that Revolving
Lender plus (b) in the event that Revolving Lender is an Issuing Lender, the
aggregate Letter of Credit Usage in respect of all Letters of Credit issued by
that Revolving Lender (in each case net of any participations purchased or
deemed purchased by other Revolving Lenders in such Letters of Credit or any
unreimbursed drawings thereunder) plus (c) the aggregate amount of all
participations purchased or deemed purchased by that Revolving Lender in any
outstanding Letters of Credit or any unreimbursed drawings under any Letters of
Credit plus (d) in the case of Swing Line Lender, the aggregate outstanding
principal amount of all Swing Line Loans (net of any participations therein
purchased or deemed purchased by other Revolving Lenders) plus (e) the aggregate
amount of all participations purchased or deemed purchased by that Revolving
Lender in any outstanding Swing Line Loans.
"Revolving Loans" means the Loans made by Revolving Lenders to Company
pursuant to subsection 2.1A(ii).
"Revolving Notes" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Revolving Lenders, in each case substantially in the form of
Exhibit IV-B annexed hereto, as they may be amended, supplemented or otherwise
modified from time to time.
"Security Agreement" means the Security Agreement executed and
delivered by Company on the Closing Date substantially in the form of Exhibit
XIV annexed hereto, as such Security Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"Senior Subordinated Debt Securities" means the senior subordinated
unsecured notes, issued by Company pursuant to the Senior Subordinated Debt
Indenture, having the terms and conditions substantially as described in the
"Description of Notes" section of that certain Preliminary Offering Memorandum
of Company dated May 26, 1999, which Senior Subordinated Debt Securities shall
be in form and substance satisfactory to Administrative Agent and Requisite
Lenders, as such Senior Subordinated Debt Securities may be amended from time to
time to the extent permitted under subsection 7.14, all the proceeds of which
are to be used pursuant to subsection 4.1F.
"Senior Subordinated Debt Indenture" means the indenture executed by
Company and a trustee named therein pursuant to which the Senior Subordinated
Debt Securities are issued, which indenture shall be in form and substance
satisfactory to Administrative Agent, as such indenture may be amended from time
to time to the extent permitted under subsection 7.14.
"Shelby" means Shelby Williams Industries, Inc., a Delaware
corporation.
"Shelby Common Stock" means the common stock, $0.05 par value, of
Shelby.
"Solvent" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"Standby Letter of Credit" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries, (iv) obligations with respect to
Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
Letters of Credit may not be issued for the purpose of supporting (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).
"Subordinated Indebtedness" means Indebtedness of Company subordinated
in right of payment to the Obligations pursuant to documentation containing
maturities, amortization schedules, covenants, defaults, remedies, subordination
provisions and other material terms in form and substance satisfactory to
Administrative Agent and Requisite Lenders.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Subsidiary Guarantor" means (i) any Domestic Subsidiary of Company
with respect to the Subsidiary Guaranty executed and delivered by such
Subsidiaries in favor of Administrative Agent, on behalf of Lenders, on the
Closing Date and to be executed and delivered by additional Subsidiaries of
Company from time to time thereafter in accordance with subsection 6.8, and (ii)
any Domestic Subsidiary of Company that executes and delivers a counterpart of
the Subsidiary Guaranty in favor of Administrative Agent, on behalf of Lenders,
on the Merger Date.
"Subsidiary Guaranty" means (i) the Subsidiary Guaranty in favor of
Administrative Agent, on behalf of Lenders, executed and delivered by the
Domestic Subsidiaries of Company (other than any Inactive Subsidiary) on the
Closing Date and to be executed and delivered by additional Subsidiaries of
Company (other than any Inactive Subsidiary) from time to time thereafter in
accordance with subsection 6.8, and (ii) the Subsidiary Guaranty in favor of
Administrative Agent, on behalf of Lenders, executed and delivered by Domestic
Subsidiaries of Company on the Merger Date, in each case substantially in the
form of Exhibit XV annexed hereto, as each such Subsidiary Guaranty may
hereafter be amended, supplemented or otherwise modified from time to time.
"Subsidiary Pledge Agreement" means (i) each Subsidiary Pledge
Agreement executed and delivered by an existing Subsidiary Guarantor of Company
on the Closing Date or executed and delivered by any additional Subsidiary
Guarantor of Company from time to time thereafter in accordance with subsection
6.8 and (ii) each Subsidiary Pledge Agreement executed and delivered by an
existing Subsidiary Guarantor of Company on the Merger Date, in each case
substantially in the form of Exhibit XVI annexed hereto or with respect to
pledges of the capital stock of Foreign Subsidiaries (other than any Inactive
Subsidiary), such other forms as may be satisfactory to Administrative Agent, as
each such Subsidiary Pledge Agreement may be amended, supplemented or otherwise
modified from time to time, and "Subsidiary Pledge Agreements" means all such
Subsidiary Pledge Agreements, collectively.
"Subsidiary Security Agreement" means (i) each Subsidiary Security
Agreement executed and delivered by an existing Subsidiary Guarantor of Company
on the Closing Date or executed and delivered by any additional Subsidiary
Guarantor of Company from time to time thereafter in accordance with subsection
6.8 and (ii) each Subsidiary Security Agreement executed and delivered by a
Subsidiary Guarantor of Company on the Merger Date, in each case substantially
in the form of Exhibit XVII annexed hereto, as each such Subsidiary Security
Agreement may be amended, supplemented or otherwise modified from time to time,
and "Subsidiary Security Agreements" means all such Subsidiary Security
Agreements, collectively.
"Supplemental Collateral Agent" has the meaning assigned to that term
in subsection 9.1B.
"Swing Line Lender" means DLJ, or any Person serving as a successor
Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder.
"Swing Line Loan Commitment" means the commitment of Swing Line Lender
to make Swing Line Loans to Company pursuant to subsection 2.1A(iii).
"Swing Line Loans" means the Loans made by Swing Line Lender to Company
pursuant to subsection 2.1A(iii).
"Swing Line Note" means (i) the promissory note of Company issued
pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any promissory
note issued by Company to any successor Administrative Agent and Swing Line
Lender pursuant to the last sentence of subsection 9.5B, in each case
substantially in the form of Exhibit IV-C annexed hereto, as it may be amended,
supplemented or otherwise modified from time to time.
"Syndication Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"Tax" or "Taxes" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "Tax on the overall net income" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's principal office (and/or, in the
case of a Lender, its lending office) is located or in which that Person
(and/or, in the case of a Lender, its lending office) is deemed to be doing
business on all or part of the net income, profits or gains (whether worldwide,
or only insofar as such income, profits or gains are considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).
"Tender Offer" means the offer by Acquisition Co. to purchase all of
the outstanding shares of Shelby Common Stock for the Tender Offer Price, in
cash, pursuant to the Tender Offer Materials.
"Tender Offer Materials" means the Tender Offer Statement on Schedule
14D-1 filed by Acquisition Co. on May 12, 1999 with the Securities and Exchange
Commission pursuant to Section 14(d)(1) of the Exchange Act, together with all
exhibits, supplements and amendments thereto and any other amendments prior to
the date hereof.
"Tender Offer Price" means $16.50 per share of Shelby Common Stock or
such other purchase price per share as may be approved by Administrative Agent
pursuant to subsections 4.1F(i) and (ii).
"Term Loans" means the Tranche A Term Loans.
"Title Company" means one or more title insurance companies reasonably
satisfactory to Administrative Agent.
"Total Utilization of Revolving Loan Commitments" means, as at any date
of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans plus (ii) the aggregate principal amount of all
outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.
"Tranche A Term Loan Commitment" means the commitment of a Lender to
make a Tranche A Term Loan to Company pursuant to subsection 2.1A(i), and
"Tranche A Term Loan Commitments" means such commitments of all Lenders in the
aggregate.
"Tranche A Term Loan Exposure" means, with respect to any Tranche A
Term Loan Lender as of any date of determination (i) prior to the funding of all
of the Tranche A Term Loans, that Lender's original Tranche A Term Loan
Commitment and (ii) after the funding of all of the Tranche A Term Loans, the
outstanding principal amount of the Tranche A Term Loan of that Lender.
"Tranche A Term Loan Lender" means any Lender who holds a Tranche A
Term Loan Commitment, or who has made a Tranche A Term Loan hereunder and any
assignee of such Lender pursuant to subsection 10.1B.
"Tranche A Term Loans" means the Tranche A Term Loans made by Tranche A
Term Loan Lenders to Company pursuant to subsection 2.1A(i).
"Tranche A Term Notes" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E(i) on the Closing Date and (ii) any promissory notes
issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Tranche A Term Loan Commitments or Tranche A
Term Loans of any Tranche A Term Loan Lenders, in each case substantially in the
form of Exhibit IV-A annexed hereto, as they may be amended, supplemented or
otherwise modified from time to time.
"Transaction Costs" means the fees, costs and expenses payable by any
Loan Party or by Shelby in connection with the Tender Offer, the Merger, the
related financing and other transactions contemplated by the Loan Documents and
the Related Agreements in an aggregate amount not to exceed $10.5 million.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"Year 2000 Compliant" means that all Information Systems and Equipment
accurately process date data (including without limitation calculating,
comparing and sequencing) in all material respects before, during and after the
year 2000, as well as same and multi-century dates, or between the years 1999
and 2000, taking into account all leap years, including the fact that the year
2000 is a leap year, and further, that when used in combination with, or
interfacing with, other Information Systems and Equipment, shall accurately
accept, release and exchange date data, and shall in all material respects
continue to function in the same manner as it performs today and shall not
otherwise materially impair the accuracy or functionality of Information Systems
and Equipment.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
and (xii) of subsection 6.1 shall be prepared in accordance with GAAP as in
effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(iv)). Calculations in
connection with the definitions, covenants and other provisions of this
Agreement shall utilize accounting principles and policies in conformity with
those used to prepare the financial statements referred to in subsection 5.3.
1.3 Other Definitional Provisions and Rules of Construction
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. C. The use in any of the Loan Documents of the word "include" or
"including", when following any general statement, term or matter, shall not be
construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; Notes
A. Commitments. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Company herein set
forth, each Tranche A Term Loan Lender hereby severally agrees to make the
Tranche A Term Loans described in subsection 2.1A(i), each Revolving Lender
hereby severally agrees to make the Revolving Loans described in subsection
2.1A(ii), and Swing Line Lender hereby agrees to make the Swing Line Loans
described in subsection 2.1A(iii).
(i) Tranche A Term Loans. Each Tranche A Term Loan Lender
severally agrees to lend to Company on the Closing Date and on the
Merger Date an aggregate amount not exceeding its Pro Rata Share of the
aggregate amount of the Tranche A Term Loan Commitments to be used for
the purposes identified in subsection 2.5A. The amount of each Tranche
A Term Loan Lender's Tranche A Term Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate
amount of the Tranche A Term Loan Commitments is $70 million; provided
further that the Tranche A Term Loan Commitments of the Tranche A Term
Loan Lenders shall be adjusted to give effect to any assignments of the
Tranche A Term Loan Commitments pursuant to subsection 10.1B. Each
Tranche A Term Loan Lender's Term Loan Commitment (i) shall be reduced
by an amount equal to the principal amount of the Tranche A Term Loan,
if any, made by such Tranche A Term Lender on the Closing Date,
immediately after giving effect thereto, and (ii) to the extent unused,
shall expire on the close of business on the Merger Date. Amounts
borrowed under this subsection 2.1A(i) and subsequently repaid or
prepaid may not be reborrowed.
(ii) Revolving Loans. Each Revolving Lender severally agrees,
subject to the limitations set forth below with respect to the maximum
amount of Revolving Loans permitted to be outstanding from time to
time, to lend to Company from time to time during the period from the
Closing Date to but excluding the Revolving Loan Commitment Termination
Date an aggregate amount not exceeding its Pro Rata Share of the
aggregate amount of the Revolving Loan Commitments to be used for the
purposes identified in subsection 2.5B. The original amount of each
Revolving Lender's Revolving Loan Commitment is set forth opposite its
name on Schedule 2.1 annexed hereto and the aggregate original amount
of the Revolving Loan Commitments is $50 million; provided that the
Revolving Loan Commitments of the Revolving Lenders shall be adjusted
to give effect to any assignments of the Revolving Loan Commitments
pursuant to subsection 10.1B; and provided further that the amount of
the Revolving Loan Commitments shall be reduced from time to time by
the amount of any reductions thereto made pursuant to subsections
2.4B(ii) and 2.4B(iii). Each Revolving Lender's Revolving Loan
Commitment shall expire on the Revolving Loan Commitment Termination
Date and all Revolving Loans and all other amounts owed hereunder with
respect to the Revolving Loans and the Revolving Loan Commitments shall
be paid in full no later than that date. Amounts borrowed under this
subsection 2.1A(ii) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, in no event shall the Total Utilization of Revolving
Loan Commitments at any time exceed the Revolving Loan Commitments then
in effect.
(iii) Swing Line Loans. Swing Line Lender hereby agrees,
subject to the limitations set forth below with respect to the maximum
amount of Swing Line Loans permitted to be outstanding from time to
time, to make a portion of the Revolving Loan Commitments available to
Company from time to time during the period from the Closing Date to
but excluding the Revolving Loan Commitment Termination Date by making
Swing Line Loans to Company in an aggregate amount not exceeding the
amount of the Swing Line Loan Commitment to be used for the purposes
identified in subsection 2.5B, notwithstanding the fact that such Swing
Line Loans, when aggregated with Swing Line Lender's outstanding
Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of
Credit Usage then in effect, may exceed Swing Line Lender's Revolving
Loan Commitment. The original amount of the Swing Line Loan Commitment
is $3 million; provided that any reduction of the Revolving Loan
Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii) which
reduces the aggregate Revolving Loan Commitments to an amount less than
the then current amount of the Swing Line Loan Commitment shall result
in an automatic corresponding reduction of the Swing Line Loan
Commitment to the amount of the Revolving Loan Commitments, as so
reduced, without any further action on the part of Company,
Administrative Agent or Swing Line Lender. The Swing Line Loan
Commitment shall expire on the Revolving Loan Commitment Termination
Date and all Swing Line Loans and all other amounts owed hereunder with
respect to the Swing Line Loans shall be paid in full no later than
that date. Amounts borrowed under this subsection 2.1A(iii) may be
repaid and reborrowed to but excluding the Revolving Loan Commitment
Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, the Swing Line Loans and the Swing Line Loan
Commitment shall be subject to the limitation that in no event shall
the Total Utilization of Revolving Loan Commitments at any time exceed
the Revolving Loan Commitments then in effect.
With respect to any Swing Line Loans which have not been
voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing
Line Lender may, at any time in its sole and absolute discretion,
deliver to Administrative Agent (with a copy to Company), no later than
10:00 A.M. (New York City time) on the first Business Day in advance of
the proposed Funding Date, a notice (which shall be deemed to be a
Notice of Borrowing given by Company) requesting Revolving Lenders to
make Revolving Loans that are Base Rate Loans on such Funding Date in
an amount equal to the amount of such Swing Line Loans (the "Refunded
Swing Line Loans") outstanding on the date such notice is given which
Swing Line Lender requests Revolving Lenders to prepay. Anything
contained in this Agreement to the contrary notwithstanding, (i) the
proceeds of such Revolving Loans made by Revolving Lenders other than
Swing Line Lender shall be immediately delivered by Administrative
Agent to Swing Line Lender (and not to Company) and applied to repay a
corresponding portion of the Refunded Swing Line Loans and (ii) on the
day such Revolving Loans are made, Swing Line Lender's Pro Rata Share
of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of a Revolving Loan made by Swing Line Lender, and such
portion of the Swing Line Loans deemed to be so paid shall no longer be
outstanding as Swing Line Loans and shall no longer be due under the
Swing Line Note of Swing Line Lender but shall instead constitute part
of Swing Line Lender's outstanding Revolving Loans and shall be due
under the Revolving Note of Swing Line Lender. Company hereby
authorizes Administrative Agent and Swing Line Lender to charge
Company's accounts with Administrative Agent and Swing Line Lender (up
to the amount available in each such account) in order to immediately
pay Swing Line Lender the amount of the Refunded Swing Line Loans to
the extent the proceeds of such Revolving Loans made by Revolving
Lenders, including the Revolving Loan deemed to be made by Swing Line
Lender, are not sufficient to repay in full the Refunded Swing Line
Loans. If any portion of any such amount paid (or deemed to be paid) to
Swing Line Lender should be recovered by or on behalf of Company from
Swing Line Lender in bankruptcy, by assignment for the benefit of
creditors or otherwise, the loss of the amount so recovered shall be
ratably shared among all Revolving Lenders in the manner contemplated
by subsection 10.5.
Immediately upon funding of the Swing Line Loan, each
Revolving Lender shall be deemed to, and hereby agrees to, have
purchased a participation in such outstanding Swing Line Loans in an
amount equal to its Pro Rata Share of the unpaid amount of such Swing
Line Loans together with accrued interest thereon. Upon one Business
Day's notice from Swing Line Lender, each Revolving Lender shall
deliver to Swing Line Lender an amount equal to its respective
participation in same day funds at the Funding and Payment Office. In
the event any Revolving Lender fails to make available to Swing Line
Lender the amount of such Revolving Lender's participation as provided
in this paragraph, Swing Line Lender shall be entitled to recover such
amount on demand from such Revolving Lender together with interest
thereon at the Federal Funds Effective Rate for three Business Days and
thereafter at the Base Rate. In the event Swing Line Lender receives a
payment of any amount in which other Revolving Lenders have purchased
participations as provided in this paragraph, Swing Line Lender shall
promptly distribute to each such other Revolving Lender its Pro Rata
Share of such payment.
Anything contained herein to the contrary notwithstanding,
each Revolving Lender's obligation to make Revolving Loans for the
purpose of repaying any Refunded Swing Line Loans pursuant to the
second preceding paragraph and each Revolving Lender's obligation to
purchase a participation in any unpaid Swing Line Loans pursuant to the
immediately preceding paragraph shall be absolute and unconditional and
shall not be affected by any circumstance, including (a) any set-off,
counterclaim, recoupment, defense or other right which such Revolving
Lender may have against Swing Line Lender, Company or any other Person
for any reason whatsoever; (b) the occurrence or continuation of an
Event of Default or a Potential Event of Default; (c) any adverse
change in the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Company or any of its
Subsidiaries; (d) any breach of this Agreement or any other Loan
Document by any party thereto; or (e) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing;
provided that such obligations of each Revolving Lender are subject to
satisfaction of one of the following conditions (X) Swing Line Lender
believed in good faith that all conditions under Section 4 to the
making of the applicable Refunded Swing Line Loans or unpaid Swing Line
Loans, as the case may be, were satisfied at the time such Refunded
Swing Line Loans or unpaid Swing Line Loans were made or (Y) the
satisfaction of any such condition not satisfied had been waived in
accordance with subsection 10.6 prior to or at the time such Refunded
Swing Line Loans or other unpaid Swing Line Loans were made.
B. Borrowing Mechanics. Loans made on any Funding Date (other than
Revolving Loans made pursuant to a request by Swing Line Lender pursuant to
subsection 2.1A(iii) for the purpose of repaying any Refunded Swing Line Loans
or Revolving Loans made pursuant to subsection 3.3B for the purpose of
reimbursing any Issuing Lender for the amount of a drawing under a Letter of
Credit issued by it) shall be in an aggregate minimum amount of $1 million and
multiples of $100,000 in excess of that amount; provided that Loans made on any
Funding Date as LIBO Rate Loans with a particular Interest Period shall be in an
aggregate minimum amount of $5 million and multiples of $1 million in excess of
that amount. Swing Line Loans made on any Funding Date shall be in an aggregate
minimum amount of $500,000 and multiples of $100,000 in excess of that amount.
Whenever Company desires that Lenders make Loans it shall deliver to
Administrative Agent a Notice of Borrowing no later than 10:00 A.M. (New York
City time) at least three Business Days in advance of the proposed Funding Date
(in the case of a LIBO Rate Loan) or at least one Business Day in advance of the
proposed Funding Date (in the case of a Base Rate Loan). Whenever Company
desires that Swing Line Lender make a Swing Line Loan, it shall deliver to
Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York
City time) on the proposed Funding Date. The Notice of Borrowing shall specify
(i) the proposed Funding Date (which shall be a Business Day), (ii) the amount
and type of Loans requested, (iii) in the case of Swing Line Loans, that such
Loans shall be Base Rate Loans, (iv) whether such Loans shall be Base Rate Loans
or LIBO Rate Loans, and (v) in the case of any Loans requested to be made as
LIBO Rate Loans, the initial Interest Period requested therefor. Term Loans and
Revolving Loans may be continued as or converted into Base Rate Loans and LIBO
Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the
above-described Notice of Borrowing, Company may give Administrative Agent
telephonic notice by the required time of any proposed borrowing under this
subsection 2.1B; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Borrowing to Administrative Agent on or
before the applicable Funding Date.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of Loans by Lenders in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected Loans hereunder.
Company shall notify Administrative Agent prior to the funding of any
Loans in the event that any of the matters to which Company is required to
certify in the applicable Notice of Borrowing is no longer true and correct as
of the applicable Funding Date, and the acceptance by Company of the proceeds of
any Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Borrowing for a LIBO Rate Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and Company shall be bound to make a borrowing in accordance therewith.
C. Disbursement of Funds. All Loans (other than Swing Line Loans) under
this Agreement shall be made by Lenders simultaneously and proportionately to
their respective Pro Rata Shares of the Tranche A Term Loan Commitment and the
Revolving Loan Commitment, as the case may be, it being understood that no
Lender shall be responsible for any default by any other Lender in that other
Lender's obligation to make a Loan requested hereunder nor shall the Commitment
of any Lender to make the particular type of Loan requested be increased or
decreased as a result of a default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder. Promptly after receipt by
Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or
telephonic notice in lieu thereof), Administrative Agent shall notify each
Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each
Lender shall make the amount of its Loan available to Administrative Agent not
later than 1:00 P.M. (New York City time) on the applicable Funding Date, and
Swing Line Lender shall make the amount of its Swing Line Loan available to
Administrative Agent not later than 2:00 P.M. (New York City time) on the
applicable Funding Date, in each case in same day funds in Dollars, at the
Funding and Payment Office. Except as provided in subsection 2.1A(iii) or
subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing
Line Loans or to reimburse any Issuing Lender for the amount of a drawing under
a Letter of Credit issued by it, upon satisfaction or waiver of the conditions
precedent specified in subsections 4.1 (in the case of Loans made on the Closing
Date), 4.2 (in the case of Loans made on the Merger Date) and 4.3 (in the case
of all Loans), Administrative Agent shall make the proceeds of such Loans
available to Company on the applicable Funding Date by causing an amount of same
day funds in Dollars equal to the proceeds of all such Loans received by
Administrative Agent from Lenders or Swing Line Lender, as the case may be, to
be credited to the account of Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any Lender
prior to the Funding Date for any Loans that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Funding Date, Administrative Agent may assume that such Lender has made
such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Administrative Agent by
such Lender, Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the Federal Funds Effective Rate for three Business
Days and thereafter at the Base Rate. If such Lender does not pay such
corresponding amount forthwith upon Administrative Agent's demand therefor,
Administrative Agent shall promptly notify Company and Company shall immediately
pay such corresponding amount to Administrative Agent together with interest
thereon, for each day from such Funding Date until the date such amount is paid
to Administrative Agent, at the rate payable under this Agreement for Base Rate
Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender
from its obligation to fulfill its Commitments hereunder or to prejudice any
rights that Company may have against any Lender as a result of any default by
such Lender hereunder.
D. The Register.
(i) Administrative Agent shall maintain, at its address
referred to in subsection 10.8, a register for the recordation of the
names and addresses of Lenders and the Commitments and Loans of each
Lender from time to time (the "Register"). The Register shall be
available for inspection by Company or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(ii) Administrative Agent shall record in the Register the
Tranche A Term Loan Commitment and Revolving Loan Commitment and the
Tranche A Term Loan and Revolving Loans from time to time of each
Lender, the Swing Line Loan Commitment and the Swing Line Loans from
time to time of Swing Line Lender, and each repayment or prepayment in
respect of the principal amount of the Tranche A Term Loan or Revolving
Loans of each Lender or the Swing Line Loans of Swing Line Lender. Any
such recordation shall be conclusive and binding on Company and each
Lender, absent error; provided that failure to make any such
recordation, or any error in such recordation, shall not affect any
Lender's Commitments or Company's Obligations in respect of any
applicable Loans.
(iii) Each Lender shall record on its internal records
(including, without limitation, the Notes held by such Lender) the
amount of the Tranche A Term Loan and each Revolving Loan made by it
and each payment in respect thereof. Any such recordation shall be
conclusive and binding on Company, absent error; provided that failure
to make any such recordation, or any error in such recordation, shall
not affect any Lender's Commitments or Company's Obligations in respect
of any applicable Loans; and provided further that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(iv) Company, Administrative Agent and Lenders shall deem and
treat the Persons listed as Lenders in the Register as the holders and
owners of the corresponding Commitments and Loans listed therein for
all purposes hereof, and no assignment or transfer of any such
Commitment or Loan shall be effective, in each case unless and until an
Assignment Agreement effecting the assignment or transfer thereof shall
have been accepted by Administrative Agent and recorded in the Register
as provided in subsection 10.1B(ii). Prior to such recordation, all
amounts owed with respect to the applicable Commitment or Loan shall be
owed to the Lender listed in the Register as the owner thereof, and any
request, authority or consent of any Person who, at the time of making
such request or giving such authority or consent, is listed in the
Register as a Lender shall be conclusive and binding on any subsequent
holder, assignee or transferee of the corresponding Commitments or
Loans.
(v) Company hereby designates Administrative Agent to serve as
Company's agent solely for purposes of maintaining the Register as
provided in this subsection 2.1D, and Company hereby agrees that, to
the extent Administrative Agent serves in such capacity, Administrative
Agent and its officers, directors and employees shall constitute
Indemnitees for all purposes under subsection 10.3.
E. Evidence of Debt.
(i) The Register maintained by the Administrative Agent
pursuant to Section 2.1D shall include a control account, and a
subsidiary account for each Lender, in which accounts (taken together)
shall be recorded (i) the date, amount and tenor, as applicable, of
each Loan, the type of Loan and the Interest Period applicable thereto,
(ii) the terms of each Assignment Agreement delivered to and accepted
by it, (iii) the amount of any principal or interest due and payable or
to become due and payable from the Company to each Lender hereunder,
and (iv) the amount of any sum received by the Administrative Agent
from the Company hereunder and each Lender's share thereof.
(ii) The entries made in the Register shall be conclusive and
binding for all purposes, absent manifest error.
(iii) If, in the opinion of any Lender, a promissory note or
other evidence of debt is required, appropriate or desirable to reflect
or enforce the indebtedness of the Company resulting from a Tranche A
Loan, a Revolving Loan or a Swing Line Loan made, or to be made, by
such Lender to the Company, then, upon request of such Lender, the
Company shall promptly execute and deliver to such Lender a promissory
note substantially in the form of Exhibit IV-A in the case of Tranche A
Loans, Exhibit IV-B in the case of Revolving Loans and Exhibit IV-C in
the case of Swing Line Loans, payable to the order of such Lender in an
amount up to the maximum amount of Tranche A Loans, Revolving Loans or
Swing Line Loans, as the case may be, payable or to be payable by
Company to the Lender from time to time hereunder.
(iv) Administrative Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until an
Assignment Agreement effecting the assignment or transfer thereof shall
have been accepted by Administrative Agent as provided in subsection
10.1B(ii). Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on
any subsequent holder, assignee or transferee of that Note or of any
Note or Notes issued in exchange therefor.
F. Special Provisions Governing Foreign Currency Letters of Credit.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to Letters of Credit denominated
in a currency other than Dollars, in each case as to the matters covered:
(i) Calculation of Dollar Equivalent Amount of Foreign
Currency Letters of Credit. For purposes of determining (1) whether the
Total Utilization of Commitments exceeds the Revolving Loan Commitments
then in effect or (2) the Letter of Credit Usage, Administrative Agent
shall determine the Dollar Equivalent amounts with respect to any
Letters of Credit denominated in a currency other than Dollars (a) on
the first Business Day following each monthly anniversary of the
issuance of such Letter of Credit, and (b) at such other dates as
Administrative Agent may reasonably require (each such date under
clauses (a) and (b) being a "Computation Date"). Administrative Agent
shall determine the Dollar Equivalent amount for a particular Letter of
Credit at the time a Request for Issuance of Letter of Credit is given
with respect to such Letter of Credit.
(ii) European Economic and Monetary Union. The European
Economic and Monetary Union (the "European Monetary Union") anticipates
the introduction of a single currency and the substitution of such
currency for the national currencies of the member states participating
in the European Monetary Union. On the date on which any currency under
which a Letter of Credit is issued is replaced by such single currency,
the conversion of any outstanding Letters of Credit denominated in such
foreign currency into such single currency shall take effect; provided
that the original foreign currency shall be retained for so long as
legally permissible; provided further that any such conversion shall be
based on the rate of conversion officially fixed by the European
Monetary Union on the date such single currency replaces the applicable
foreign currency. Notwithstanding anything contained herein to the
contrary, none of the introduction of such single currency, the rate of
conversion nor any economic consequences that arise from any of the
aforementioned events or otherwise in connection with the European
Monetary Union shall give rise to any right to terminate prematurely,
contest, cancel, rescind, modify or renegotiate this Agreement or any
of its provisions or to raise any other objections and/or exceptions or
to assert any claim for compensation.
(iii) Limitation to Permitted Currencies. Letters of Credit
issued in a currency other than Dollars shall only be issued in a
Permitted Currency.
2.2 Interest on the Loans
A. Rate of Interest. Subject to the provisions of subsections 2.6 and
2.7, each Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate or the Adjusted LIBO Rate. Subject to
the provisions of subsection 2.7, each Swing Line Loan shall bear interest on
the unpaid principal amount thereof from the date made through maturity (whether
by acceleration or otherwise) at a rate determined by reference to the Base
Rate. The applicable basis for determining the rate of interest with respect to
any Loan shall be selected by Company initially at the time a Notice of
Borrowing is given with respect to such Loan pursuant to subsection 2.1B, and
the basis for determining the interest rate with respect to any Loan may be
changed from time to time pursuant to subsection 2.2D. If on any day a Loan is
outstanding with respect to which notice has not been delivered to
Administrative Agent in accordance with the terms of this Agreement specifying
the applicable basis for determining the rate of interest, then for that day
that Loan shall bear interest determined by reference to the Base Rate.
(i) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche A Term Loans and the Revolving Loans shall bear interest
through maturity as follows:
(1) if a Base Rate Loan, then at the sum of the Base Rate
plus the Applicable Base Rate Margin or
(2) if a LIBO Rate Loan, then at the sum of the Adjusted
LIBO Rate plus the Applicable LIBO Rate Margin.
(ii) Subject to the provisions of subsections 2.2E and 2.7,
the Swing Line Loans shall bear interest through maturity at the sum of
the Base Rate plus the Applicable Base Rate Margin for Revolving Loans
minus the Commitment Fee Percentage.
Upon delivery of a Margin Determination Certificate by Company to
Administrative Agent pursuant to subsection 6.1(xvii), each of the Applicable
Base Rate Margin and the Applicable LIBO Rate Margin shall automatically be
adjusted in accordance with such Margin Determination Certificate, such
adjustment to become effective on the next succeeding Business Day following the
receipt by Administrative Agent of such Margin Determination Certificate;
provided that if at any time a Margin Determination Certificate is not delivered
at the time required pursuant to subsection 6.1(xvii), the highest Applicable
Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, shall be
applicable from such time until delivery of such Margin Determination
Certificate; provided further that if a Margin Determination Certificate
erroneously indicates an applicable margin more favorable to Company than should
be afforded by the actual calculation of the Consolidated Leverage Ratio,
Company shall promptly pay additional interest, letter of credit fees and all
other applicable fees or commitment fees, as the case may be, to correct such
error.
B. Interest Periods. In connection with each LIBO Rate Loan, Company
may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"Interest Period") to be applicable to such Loan, which Interest Period shall
be, at Company's option, either a one, two, three or six month period; provided
that:
(i) the initial Interest Period for any LIBO Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a
Loan initially made as a LIBO Rate Loan, or on the date specified in
the applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a LIBO Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a LIBO Rate Loan continued as such pursuant to a Notice
of Conversion/ Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period
expires;
(iii) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that, if any Interest Period
would otherwise expire on a day that is not a Business Day but is a day
of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iv) 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, subject to clause (v) of this subsection 2.2B, end on
the last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the
Tranche A Term Loans shall extend beyond the last day of the Fiscal
Quarter ending on or about April 30, 2005 and no Interest Period with
respect to any portion of the Revolving Loans shall extend beyond the
Revolving Loan Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the
Tranche A Term Loans shall extend beyond a date on which Company is
required to make a scheduled payment of principal of the Tranche A Term
Loans unless the sum of (a) the aggregate principal amount of Tranche A
Term Loans that are Base Rate Loans plus (b) the aggregate principal
amount of Tranche A Term Loans that are LIBO Rate Loans with Interest
Periods expiring on or before such date equals or exceeds the principal
amount required to be paid on the Tranche A Term Loans on such date;
(vii) there shall be no more than five (5) Interest Periods
outstanding at any time; and
(viii) in the event Company fails to specify an Interest
Period for any LIBO Rate Loan in the applicable Notice of Borrowing or
Notice of Conversion/Continuation, Company shall be deemed to have
selected an Interest Period of one month.
C. Interest Payments. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Swing Line Loans or any Revolving
Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i),
interest accrued on such Swing Line Loans or Revolving Loans through the date of
such prepayment shall be payable on the next succeeding Interest Payment Date
applicable to Base Rate Loans (or, if earlier, at final maturity).
D. Conversion or Continuation. Subject to the provisions of subsection
2.6, Company shall have the option to convert at any time all or any part of its
outstanding Loans equal to $5 million and multiples of $1 million in excess of
that amount from Loans bearing interest at a rate determined by reference to one
basis to Loans bearing interest at a rate determined by reference to an
alternative basis or (ii) upon the expiration of any Interest Period applicable
to a LIBO Rate Loan, to continue all or any portion of such Loan equal to $5
million and multiples of $1 million in excess of that amount as a LIBO Rate
Loan; provided, however, that (i) a LIBO Rate Loan may only be converted into a
Base Rate Loan on the expiration date of an Interest Period applicable thereto.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a LIBO Rate Loan). A Notice of Conversion/Continuation shall
specify (i) the proposed conversion/continuation date (which shall be a Business
Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of a conversion
to, or a continuation of, a LIBO Rate Loan, the requested Interest Period, and
(v) in the case of a conversion to, or a continuation of, a LIBO Rate Loan, that
no Potential Event of Default or Event of Default has occurred and is
continuing. In lieu of delivering the above-described Notice of
Conversion/Continuation, Company may give Administrative Agent telephonic notice
by the required time of any proposed conversion/continuation under this
subsection 2.2D; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Conversion/ Continuation to Administrative
Agent on or before the proposed conversion/continuation date. Upon receipt of
written or telephonic notice of any proposed conversion/continuation under this
subsection 2.2D, Administrative Agent shall promptly transmit such notice by
telefacsimile or telephone to each Lender.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise acting in good faith under this subsection 2.2D, and upon conversion
or continuation of the applicable basis for determining the interest rate with
respect to any Loans in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected a conversion or continuation, as
the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Conversion/Continuation for conversion to, or continuation of, a LIBO
Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and
after the related Interest Rate Determination Date, and Company shall be bound
to effect a conversion or continuation in accordance therewith.
E. Default Rate. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2.00% per annum in excess of the interest rate
otherwise payable under this Agreement with respect to the applicable Loans (or,
in the case of any such fees and other amounts, at a rate which is 2.00% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans); provided that, in the case of LIBO Rate Loans, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective such LIBO Rate Loans shall thereupon become Base Rate
Loans and shall thereafter bear interest payable upon demand at a rate which is
2.00% per annum in excess of the interest rate otherwise payable under this
Agreement for Base Rate Loans. Payment or acceptance of the increased rates of
interest provided for in this subsection 2.2E is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of any Agent or any Lender.
F. Computation of Interest. Interest on the Loans shall be computed on
the basis of a 360-day year, in each case for the actual number of days elapsed
in the period during which it accrues. In computing interest on any Loan, the
date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a LIBO Rate Loan, the date of conversion of such LIBO Rate Loan to such
Base Rate Loan, as the case may be, shall be included, and the date of payment
of such Loan or the expiration date of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted to a LIBO Rate Loan,
the date of conversion of such Base Rate Loan to such LIBO Rate Loan, as the
case may be, shall be excluded; provided that if a Loan is repaid on the same
day on which it is made, one day's interest shall be paid on that Loan.
2.3 Fees
A. Commitment Fees.
(i) Revolving Loan Commitments. Company agrees to pay to
Administrative Agent, for distribution to each Revolving Lender in
proportion to that Lender's Pro Rata Share of the Revolving Loan
Commitments, commitment fees for the period from and including the
Closing Date to and excluding the Revolving Loan Commitment Termination
Date equal to (x) the average of the daily excess of the Revolving Loan
Commitments over the Total Utilization of Revolving Loan Commitments
(but not including any outstanding Swing Line Loans) multiplied by (y)
the Commitment Fee Percentage, such commitment fees to be calculated on
the basis of a 360-day year and the actual number of days elapsed and
to be payable quarterly in arrears on the last Business Day of each
March, June, September and December of each year, commencing on the
first such date to occur after the Closing Date, and on the Revolving
Loan Commitment Termination Date.
(ii) Tranche A Term Loan Commitments. Company agrees to pay to
Administrative Agent, for distribution to each Tranche A Term Loan
Lender in proportion to that Tranche A Term Loan Lender's Pro Rata
Share of the Tranche A Term Loan Commitments, commitment fees for the
period from and including the Closing Date to and excluding the Merger
Date (or, if earlier, the date of termination of the Tranche A Term
Loan Commitments in their entirety) equal to (x) the aggregate original
principal amount of the Tranche A Term Loan Commitments minus the
aggregate principal amount of outstanding Tranche A Term Loans
multiplied by (y) 2.50% per annum; such commitment fees to be
calculated on the basis of a 360-day year and the actual number of days
elapsed and to be payable quarterly on the last Business Day of the
Fiscal Quarter ending on or about the last day of each October,
January, April and July, commencing on the first such date to occur
after the Closing Date, and on the Merger Date.
B. Other Fees. Company agrees to pay to Arranger and Administrative
Agent such other fees in the amounts and at the times separately agreed upon
between Company, Arranger and Administrative Agent.
2.4 Repayments, Prepayments and Reductions in Loan Commitments; General
Provisions Regarding Payments
A. Scheduled Payments of Tranche A Term Loans.
Company shall make principal payments on the Tranche A Term Loans on
the last Business Day of the Fiscal Quarter ending on or about each of the
following dates in the aggregate amount set forth opposite such date in the
table set forth below:
-----------------------------------------------------------------------
Scheduled Repayment
Scheduled Repayment Date of Tranche A Term Loans
-----------------------------------------------------------------------
July 31, 2000 $1,750,000
October 31, 2000 $1,750,000
January 31, 2001 $1,750,000
April 30, 2001 $1,750,000
July 31, 2001 $2,625,000
October 31, 2001 $2,625,000
January 31, 2002 $2,625,000
April 30, 2002 $2,625,000
July 31, 2002 $3,500,000
October 30, 2002 $3,500,000
January 31, 2003 $3,500,000
April 30, 2003 $3,500,000
July 31, 2003 $4,375,000
October 31, 2003 $4,375,000
January 31, 2004 $4,375,000
April 30, 2004 $4,375,000
July 31, 2004 $5,250,000
October 31, 2004 $5,250,000
January 31, 2005 $5,250,000
April 30, 2005 $5,250,000
----------------------------
Total $70,000,000
; provided that the scheduled installments of principal of the Tranche A
Term Loans set forth above shall be reduced in connection with any voluntary
or mandatory prepayments of the Tranche A Term Loans in accordance with
subsection 2.4B(iv); and provided further that the Tranche A Term Loans and all
other amounts owed hereunder with respect to the Tranche A Term Loans shall be
paid in full no later than the last Business Day of the Fiscal Quarter ending on
or about April 30, 2005, and the final installment payable by Company in respect
of the Tranche A Term Loans on such date shall be in an amount, if such amount
is different from that specified above, sufficient to repay all amounts owing by
Company under this Agreement with respect to the Tranche A Term Loans.
B. Prepayments and Unscheduled Reductions in Revolving Loan
Commitments.
(i) Voluntary Prepayments.
(a) Company may, upon written or telephonic notice to
Administrative Agent on or prior to 12:00 Noon (New York City time) on
the date of prepayment, which notice, if telephonic, shall be promptly
confirmed in writing, at any time and from time to time prepay, without
premium or penalty, any Swing Line Loan on any Business Day in whole or
in part in an aggregate minimum amount of $500,000 and multiples of
$100,000 in excess of that amount. Company may, upon not less than one
Business Day's prior written or telephonic notice, in the case of Base
Rate Loans, and three Business Days' prior written or telephonic
notice, in the case of LIBO Rate Loans, in each case given to
Administrative Agent by 12:00 Noon (New York City time) on the date
required and, if given by telephone, promptly confirmed in writing to
Administrative Agent (which original written or telephonic notice
Administrative Agent will promptly transmit by telefacsimile or
telephone to each Lender), at any time and from time to time prepay,
without premium or penalty, any Loans on any Business Day in whole or
in part in an aggregate minimum amount of $1 million and multiples of
$100,000 in excess of that amount; provided, however, that a LIBO Rate
Loan may only be prepaid on the expiration of the Interest Period
applicable thereto unless Company complies with subsection 2.6D with
respect to any breakage costs resulting from such prepayment being made
on a date prior to the expiration of the applicable Interest Period.
Notice of prepayment having been given as aforesaid, the principal
amount of the Loans specified in such notice shall become due and
payable on the prepayment date specified therein. Any such voluntary
prepayment shall be applied as specified in subsection 2.4B(iv).
(b) In the event Company is entitled to replace a
non-consenting Lender pursuant to subsection 10.6B, Company shall have
the right, upon five Business Days' written notice to Administrative
Agent (which notice Administrative Agent shall promptly transmit to
each of the Lenders), to prepay all Loans, together with accrued and
unpaid interest, fees and other amounts owing to such Lender (including
without limitation amounts owing to such Lender pursuant to subsection
2.6D) in accordance with subsection 10.6B so long as (1) in the case of
the prepayment of the Revolving Loans of any Lender pursuant to this
subsection 2.4B(i)(b), the Revolving Loan Commitment of such Lender is
terminated concurrently with such prepayment pursuant to subsection
2.4B(ii)(b) (at which time Schedule 2.1 shall be deemed modified to
reflect the changed Revolving Loan Commitments), and (2) in the case of
the prepayment of the Loans of any Lender, the consents required by
subsection 10.6B in connection with the prepayment pursuant to this
subsection 2.4B(i)(b) shall have been obtained, and at such time, such
Lender shall no longer constitute a "Lender" for purposes of this
Agreement, except with respect to indemnifications under this Agreement
(including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2 and
10.3), which shall survive as to such Lender.
(ii) Voluntary Reductions of Loan Commitments.
(a) Company may, upon not less than three Business
Days' prior written or telephonic notice confirmed in writing to
Administrative Agent (which original written or telephonic notice
Administrative Agent will promptly transmit by telefacsimile or
telephone to each Revolving Lender), at any time and from time to time
terminate in whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments in an amount up to the amount
by which the Revolving Loan Commitments exceed the Total Utilization of
Revolving Loan Commitments at the time of such proposed termination or
reduction; provided that any such partial reduction shall be in an
aggregate minimum amount of $1 million and multiples of $100,000 in
excess of that amount. Company's notice to Administrative Agent shall
designate the date (which shall be a Business Day) of such termination
or reduction and the amount of any partial reduction, and such
termination or reduction of the Revolving Loan Commitments shall be
effective on the date specified in Company's notice and shall reduce
the Revolving Loan Commitment of each Revolving Lender proportionately
to its Pro Rata Share.
(b) In the event Company is entitled to replace a
non-consenting Lender pursuant to subsection 10.6B, Company shall have
the right, upon five Business Days' written notice to Administrative
Agent (which notice Administrative Agent shall promptly transmit to
each of the Lenders), to terminate the entire Revolving Loan Commitment
of such Lender so long as (1) all Loans, together with accrued and
unpaid interest, fees and other amounts owing to such Lender are
repaid, including without limitation amounts owing to such Lender
pursuant to subsection 2.6D, pursuant to subsection 2.4B(i)(b)
concurrently with the effectiveness of such termination (at which time
Schedule 2.1 shall be deemed modified to reflect such changed amounts),
and (2) the consents required by subsection 10.6B in connection with
the prepayment pursuant to subsection 2.4B(i)(b) shall have been
obtained, and at such time, such Lender shall no longer constitute a
"Lender" for purposes of this Agreement, except with respect to
indemnifications under this Agreement (including, without limitation,
subsections 2.6D, 2.7, 3.6, 10.2 and 10.3), which shall survive as to
such Lender.
(iii) Mandatory Prepayments and Mandatory Reductions of Loan
Commitments. The Loans shall be prepaid and/or the Revolving Loan
Commitments shall be permanently reduced in the amounts and under the
circumstances set forth below, all such prepayments and/or reductions
to be applied as set forth below or as more specifically provided in
subsection 2.4B(iv); provided however that prior to the Merger Date,
no prepayment and/or Revolving Loan Commitment reduction shall be
required as a result of (i) any Asset Sale of Shelby Common Stock or
(ii) any receipt of Net Asset Sale Proceeds or Net Insurance/
Condemnation Proceeds by Shelby and its Subsidiaries:
(a) Prepayments and Reductions From Net Asset Sale
Proceeds. No later than the first Business Day following the date of
receipt by Company or any of its Subsidiaries of any Net Asset Sale
Proceeds in respect of any Asset Sale, Company shall prepay the Loans
and/or the Revolving Loan Commitments shall be permanently reduced in
an aggregate amount equal to 100% of such Net Asset Sale Proceeds minus
any such Net Asset Sale Proceeds (the "Proposed Asset Sale Reinvestment
Proceeds") that Company or any Subsidiary intends to use within 360
days of such date of receipt to acquire any asset used or useful to the
Company or such Subsidiary in conducting its business; provided that
Company shall have delivered to Administrative Agent, on or before such
first Business Day, an Officers' Certificate setting forth the proposed
use of the Proposed Asset Sale Reinvestment Proceeds and such other
information with respect to such proposed use as Administrative Agent
may reasonably request. In addition, no later than 360 days after
receipt of any Net Asset Sale Proceeds, Company shall prepay the Loans
and/or the Revolving Loan Commitments shall be permanently reduced in
an amount equal to the amount of any related Proposed Asset Sale
Reinvestment Proceeds that have not been applied to the purchase of an
asset by Company or such Subsidiary as provided above; provided further
that the aggregate amount of any such Proposed Asset Sale Reinvestment
Proceeds so reinvested in the business of Company or any Subsidiary
shall not exceed $10 million for any Fiscal Year;
If, following the receipt by Company or any of its
Subsidiaries of any Net Asset Sale Proceeds, Company is required to
apply or cause to be applied any portion of such Net Asset Sale
Proceeds to prepay any Indebtedness evidenced by any of the Related
Agreements pursuant to the applicable Related Agreement, then,
notwithstanding anything contained in this subsection 2.4B(iii)(a),
Company shall prepay the Loans and/or reduce the Revolving Loan
Commitments as set forth in this subsection 2.4B(iii)(a) so as to
eliminate any obligation to prepay such Indebtedness.
(b) Prepayments and Reductions from Net
Insurance/Condemnation Proceeds. No later than the first Business Day
following the date of receipt by Administrative Agent or by Company or
any of its Subsidiaries of any Net Insurance/Condemnation Proceeds,
Company shall, or shall instruct the Administrative Agent to, prepay
the Loans and/or the Revolving Loan Commitments shall be permanently
reduced in an aggregate amount equal to 100% of the amount of such Net
Insurance/Condemnation Proceeds minus any such Net Insurance/
Condemnation Proceeds (the "Proposed Reinvestment Proceeds") that
Company or such Subsidiary intends to use within 360 days of such date
of receipt to pay or reimburse the costs of repairing, restoring or
replacing the assets in respect of which such Net Insurance/
Condemnation Proceeds were received; provided that Company shall have
delivered to Administrative Agent, on or before such first Business
Day, an Officers' Certificate setting forth the proposed use of the
Proposed Reinvestment Proceeds and such other information with respect
to such proposed use as Administrative Agent may reasonably request. In
addition, no later than 360 days after receipt of any Net
Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or
the Revolving Loan Commitments shall be permanently reduced in an
amount equal to the amount of any related Proposed Reinvestment
Proceeds that have not been applied to the costs of repairing,
restoring or replacing the applicable assets of Company or such
Subsidiary as provided above; provided further that the aggregate
amount of any such Proposed Reinvestment Proceeds so applied to such
repair, restoration or replacement shall not exceed $10 million for any
Fiscal Year;
(c) Prepayments and Reductions Due to Issuance of
Equity Securities. No later than the first Business Day following
receipt by Company or any of its Subsidiaries of the Cash proceeds (any
such Cash proceeds, net of underwriting discounts and commissions and
other reasonable costs and expenses associated therewith, including
reasonable legal fees and expenses, being "Net Equity Securities
Proceeds"), from the issuance of equity Securities of Company (other
than proceeds from common equity Securities of Company issued to
officers, employees, directors, consultants and certain other qualified
persons of Company and its Subsidiaries pursuant to option plans or
other similar plans or agreements adopted by Company's Board of
Directors), Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate amount equal
to 50% of such Net Equity Securities Proceeds; provided that if the
Consolidated Leverage Ratio on the last day of the four Fiscal Quarter
period most recently ended prior to the date of receipt of such Net
Securities Proceeds for which Company has delivered a Margin
Determination Certificate to Administrative Agent pursuant to
subsection 6.1(xvii) is less than or equal to 3.00:1.00, such
percentage shall be reduced to 0.
(d) Prepayments and Reductions Due to Issuance of
Debt Securities. No later than the first Business Day following receipt
by Company or any of its Subsidiaries of the Cash proceeds (any such
Cash proceeds, net of underwriting discounts and commissions and other
reasonable costs and expenses associated therewith, including
reasonable legal fees and expenses, being "Net Debt Securities
Proceeds"), from the issuance of debt Securities of Company or any of
its Subsidiaries after the Closing Date (other than Net Debt Securities
Proceeds of Indebtedness permitted under subsection 7.1 as in effect on
the Closing Date, except for Senior Subordinated Debt Securities issued
pursuant to subsection 7.1(vi) which are not used to make Permitted
Acquisitions), Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate amount equal
to 100% of such Net Debt Securities Proceeds.
(e) Prepayments and Reductions from Consolidated
Excess Cash Flow. In the event that there shall be Consolidated Excess
Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending
on or about October 31, 2000), Company shall, no later than ninety (90)
days after the end of such Fiscal Year, prepay the Loans and/or the
Revolving Loan Commitments shall be permanently reduced in an aggregate
amount equal to 75% of such Consolidated Excess Cash Flow.
(f) Prepayments Due to Restrictions on Revolving
Loans Commitments or Currency Fluctuations. Company shall from time to
time prepay first the Swing Line Loans and second the Revolving Loans
to the extent necessary so that the Total Utilization of Revolving Loan
Commitments shall not exceed the Revolving Loan Commitments then in
effect. If on any Computation Date Administrative Agent shall have
determined that the Total Utilization of Revolving Loan Commitments
exceeds the Revolving Loan Commitments because of a change in
applicable rates of exchange between Dollars and any other currency
under which a Letter of Credit has been issued, then Administrative
Agent shall give notice to the Company that a prepayment is required
under this subsection 2.4B(iii)(f) and Company shall promptly (x)
prepay first its Swing Line Loans and second its Revolving Loans and/or
(y) cash collateralize its outstanding Letters of Credit by depositing
Dollars into the Collateral Account established under the Collateral
Account Agreement, in each case to the extent necessary so that the
Total Utilization of Revolving Loan Commitments shall not exceed the
Revolving Loan Commitments.
(g) Calculations of Net Proceeds Amounts; Additional
Prepayments and Reductions Based on Subsequent Calculations.
Concurrently with any prepayment of the Loans and/or reduction of the
Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e),
Company shall deliver to Administrative Agent an Officers' Certificate
demonstrating the calculation of the amount (the "Net Proceeds Amount")
of the applicable Net Asset Sale Proceeds or Net Insurance/Condemnation
Proceeds, or Net Equity Securities Proceeds (as such term is defined in
subsection 2.4B(iii)(c)) or Net Debt Securities Proceeds (as such term
is defined in subsection 2.4B(iii)(d)) or the applicable Consolidated
Excess Cash Flow, as the case may be, that gave rise to such prepayment
and/or reduction. In the event that Company shall subsequently
determine that the actual Net Proceeds Amount was greater than the
amount set forth in such Officers' Certificate, Company shall promptly
make an additional prepayment of the Loans (and/or, if applicable, the
Revolving Loan Commitments shall be permanently reduced) in an amount
equal to the amount of such excess, and Company shall concurrently
therewith deliver to Administrative Agent an Officers' Certificate
demonstrating the derivation of the additional Net Proceeds Amount
resulting in such excess.
(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of
Loans and Order of Maturity. Any voluntary prepayments pursuant to
subsection 2.4B(i) shall be applied to the Loans as specified by
Company in the applicable notice of prepayment; provided that in the
event Company fails to specify the Loans to which any such prepayment
shall be applied, such prepayment shall be applied first to repay
outstanding Swing Line Loans to the full extent thereof, second to
repay outstanding Revolving Loans to the full extent thereof and third
to repay outstanding Tranche A Term Loans to the full extent thereof.
Any voluntary prepayments of the Term Loans pursuant to subsection
2.4B(i) (whether the application thereof is specified by Company or
not) shall be applied to reduce the scheduled installments of principal
of the Tranche A Term Loans set forth in subsection 2.4A on a pro rata
basis.
(b) Application of Mandatory Prepayments by Type of
Loans. Any amount (the "Applied Amount") required to be applied as a
mandatory prepayment of the Loans and/or a reduction of the Revolving
Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e) shall be
applied first to prepay the Term Loans to the full extent thereof as
provided in subsection 2.4B(iv)(c), second, to the extent of any
remaining portion of the Applied Amount, to prepay the Swing Line Loans
to the full extent thereof and to permanently reduce the Revolving Loan
Commitments by the amount of such prepayment, third, to the extent of
any remaining portion of the Applied Amount, to prepay the Revolving
Loans to the full extent thereof and to further permanently reduce the
Revolving Loan Commitments by the amount of such prepayments, and
fourth, to the extent of any remaining portion of the Applied Amount,
to further permanently reduce the Revolving Loan Commitments to the
full extent thereof.
(c) Application of Mandatory Prepayments of Term
Loans to Tranche A Term Loans and the Scheduled Installments of
Principal Thereof. Any mandatory prepayments of the Term Loans pursuant
to subsection 2.4B(iii) shall be applied to prepay the Tranche A Term
Loans. All mandatory prepayments of the Term Loans pursuant to
subsection 2.4B(iii) shall reduce the scheduled installments of
principal of the Tranche A Term Loans set forth in subsection 2.4A on a
pro rata basis.
(d) Application of Prepayments to Base Rate Loans and
LIBO Rate Loans. Considering Tranche A Term Loans and Revolving Loans
being prepaid separately, any prepayment thereof shall be applied first
to Base Rate Loans to the full extent thereof before application to
LIBO Rate Loans, in each case in a manner which minimizes the amount of
any payments required to be made by Company pursuant to subsection
2.6D.
C. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 12:00 Noon (New York
City time) on the date due at the Funding and Payment Office for the
account of Lenders; funds received by Administrative Agent after that
time on such due date shall be deemed to have been paid by Company on
the next succeeding Business Day. Company hereby authorizes
Administrative Agent to charge its accounts with Administrative Agent
in order to cause timely payment to be made to Administrative Agent of
all principal, interest, fees and expenses due hereunder (subject to
sufficient funds being available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest. Except
as provided in subsection 2.2C, all payments in respect of the
principal amount of any Loan shall include payment of accrued interest
on the principal amount being repaid or prepaid, and all such payments
(and, in any event, any payments in respect of any Loan on a date when
interest is due and payable with respect to such Loan) shall be applied
to the payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and
interest payments in respect of Loans shall be apportioned among all
outstanding Loans to which such payments relate, in each case
proportionately to Lenders' respective Pro Rata Shares. Administrative
Agent shall promptly distribute to each Lender, at its primary address
set forth below its name on the appropriate signature page hereof or at
such other address as such Lender may request, its Pro Rata Share of
all such payments received by Administrative Agent and the commitment
fees of such Lender when received by Administrative Agent pursuant to
subsection 2.3. Notwithstanding the foregoing provisions of this
subsection 2.4C(iii), if, pursuant to the provisions of subsection
2.6C, any Notice of Conversion/Continuation is withdrawn as to any
Affected Lender or if any Affected Lender makes Base Rate Loans in lieu
of its Pro Rata Share of any LIBO Rate Loans, Administrative Agent
shall give effect thereto in apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the commitment
fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under such Note shall not limit
or otherwise affect the obligations of Company hereunder or under such
Note with respect to any Loan or any payments of principal or interest
on such Note.
D. Application of Proceeds of Collateral and Payments Under Guaranties
(i) Application of Proceeds of Collateral. Except as provided
in subsection 2.4B(iii)(a) with respect to prepayments from Net Asset
Sale Proceeds, all proceeds received by Administrative Agent in respect
of any sale of, collection from, or other realization upon all or any
part of the Collateral under any Collateral Document may, in the
discretion of Administrative Agent, be held by Administrative Agent as
Collateral for, and/or (then or at any time thereafter) applied in full
or in part by Administrative Agent against, the applicable Secured
Obligations (as defined in such Collateral Document) in the following
order of priority:
(a) To the payment of all costs and expenses of such
sale, collection or other realization, including reasonable
compensation to Administrative Agent and its agents and counsel, and
all other expenses, liabilities and advances made or incurred by
Administrative Agent in connection therewith, and all amounts for which
Administrative Agent is entitled to indemnification under such
Collateral Document and all advances made by Administrative Agent
thereunder for the account of the applicable Loan Party, and to the
payment of all costs and expenses paid or incurred by Administrative
Agent in connection with the exercise of any right or remedy under such
Collateral Document, all in accordance with the terms of this Agreement
and such Collateral Document;
(b) thereafter, to the extent of any excess such
proceeds, to the payment of all other such Secured Obligations for the
ratable benefit of the holders thereof;
(c) thereafter, to the extent of any excess such
proceeds, to the payment of cash collateral for Letters of Credit for
the ratable benefit of the Issuing Lenders thereof and holders of
participations therein; and (d) thereafter, to the extent of any excess
such proceeds, to the payment to or upon the order of such Loan Party
or to whosoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
(ii) Application of Payments Under Guaranties. All payments
received by Administrative Agent under any of the Guaranties shall be
applied promptly from time to time by Administrative Agent in the
following order of priority:
(a) to the payment of the costs and expenses of any
collection or other realization under the Guaranties, including
reasonable compensation to Administrative Agent and its agents and
counsel, and all expenses, liabilities and advances made or incurred by
Administrative Agent in connection therewith, all in accordance with
the terms of this Agreement and such Guaranty;
(b) thereafter, to the extent of any excess such
payments, to the payment of all other Guarantied Obligations (as
defined in such Guaranty) for the ratable benefit of the holders
thereof; (c) thereafter, to the extent of any excess such payments, to
the payment of cash collateral for Letters of Credit for the ratable
benefit of the Issuing Lenders thereof and holders of participations
therein; and (d) thereafter, to the extent of any excess such payments,
to the payment to the applicable Subsidiary Guarantor or to whosoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
2.5 Use of Proceeds
A. Term Loans. On the Closing Date, after application of not less than
$7.5 million in cash on hand of the Company and the cash proceeds, if any, of
$100 million of the Senior Subordinated Debt Securities as described in
subsection 4.1D, then the proceeds of the Tranche A Term Loans shall be applied
by Company to pay any remaining Acquisition Financing Requirements on the
Closing Date. On the Merger Date, the proceeds of any Tranche A Term Loans not
made on the Closing Date shall be applied by Company to pay the Acquisition
Financing Requirements not otherwise paid on the Closing Date.
B. Revolving Loans; Swing Line Loans. The proceeds of the Revolving
Loans and any Swing Line Loans shall be applied by Company for working capital
and general corporate purposes, which may include the making of interest
payments on the Loans, Permitted Acquisitions and the making of intercompany
loans to any of Company's Subsidiaries in accordance with subsection 7.1(iv) for
their own working capital purposes, and Letters of Credit may be issued for the
purposes set forth in the definition of such term.
C. Margin Regulations. No portion of the proceeds of any borrowing
under this Agreement shall be used by Company or any of its Subsidiaries in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation U, Regulation T or Regulation X of the Board of Governors of
the Federal Reserve System or any other regulation of such Board or to violate
the Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds.
2.6 Special Provisions Governing LIBO Rate Loans
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to LIBO Rate Loans as to the
matters covered:
A. Determination of Applicable Interest Rate. As soon as practicable
after 10:00 A.M. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the LIBO Rate Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to Company and each
Lender.
B. Inability to Determine Applicable Interest Rate. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any LIBO Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted LIBO Rate, Administrative Agent
shall on such date give notice (by telefacsimile or by telephone confirmed in
writing) to Company and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, LIBO Rate Loans until such time as
Administrative Agent notifies Company and Lenders that the circumstances giving
rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice
of Conversion/Continuation given by Company with respect to the Loans in respect
of which such determination was made shall be deemed to be rescinded by Company.
C. Illegality or Impracticability of LIBO Rate Loans. In the event that
on any date any Lender shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto but shall be made only after
consultation with Company and Administrative Agent) that the making, maintaining
or continuation of its LIBO Rate Loans (i) has become unlawful as a result of
compliance by such Lender in good faith with any law, treaty, governmental rule,
regulation, guideline or order (or would conflict with any such treaty,
governmental rule, regulation, guideline or order not having the force of law
even though the failure to comply therewith would not be unlawful) or (ii) has
become impracticable, or would cause such Lender material hardship, as a result
of contingencies occurring after the date of this Agreement which materially and
adversely affect the London interbank market or the position of such Lender in
that market, then, and in any such event, such Lender shall be an "Affected
Lender" and it shall on that day give notice (by telefacsimile or by telephone
confirmed in writing) to Company and Administrative Agent of such determination
(which notice Administrative Agent shall promptly transmit to each other
Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as,
or to convert Loans to, LIBO Rate Loans shall be suspended until such notice
shall be withdrawn by the Affected Lender, (b) to the extent such determination
by the Affected Lender relates to a LIBO Rate Loan then being requested by
Company pursuant to a Notice of Borrowing or a Notice of Conversion/
Continuation, the Affected Lender shall make such Loan as (or convert such Loan
to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation
to maintain its outstanding LIBO Rate Loans (the "Affected Loans") shall be
terminated at the earlier to occur of the expiration of the Interest Period then
in effect with respect to the Affected Loans or when required by law, and (d)
the Affected Loans shall automatically convert into Base Rate Loans on the date
of such termination. Notwithstanding the foregoing, to the extent a
determination by an Affected Lender as described above relates to a LIBO Rate
Loan then being requested by Company pursuant to a Notice of Borrowing or a
Notice of Conversion/Continuation, Company shall have the option, subject to the
provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of
Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or
by telephone confirmed in writing) to Administrative Agent of such rescission on
the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission Administrative Agent shall promptly
transmit to each other Lender). Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6C shall affect the obligation of any
Lender other than an Affected Lender to make or maintain Loans as, or to convert
Loans to, LIBO Rate Loans in accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest Periods.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth in reasonable detail the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its LIBO Rate Loans and any loss, expense or liability sustained by that Lender
in connection with the liquidation or re-employment of such funds) which that
Lender may sustain: (i) if for any reason (other than a default by that Lender)
a borrowing of any LIBO Rate Loan does not occur on a date specified therefor in
a Notice of Borrowing or a telephonic request for borrowing, or a conversion to
or continuation of any LIBO Rate Loan does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment (including any prepayment
pursuant to subsection 2.4B(i)) or other principal payment or any conversion of
any of its LIBO Rate Loans occurs on a date prior to the last day of an Interest
Period applicable to that Loan, (iii) if any prepayment of any of its LIBO Rate
Loans is not made on any date specified in a notice of prepayment given by
Company, or (iv) as a consequence of any other default by Company in the
repayment of its LIBO Rate Loans when required by the terms of this Agreement.
E. Booking of LIBO Rate Loans. Any Lender may make, carry or transfer
LIBO Rate Loans at, to, or for the account of any of its branch offices or the
office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of LIBO Rate Loans. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant LIBO Rate Loans through the purchase of a LIBO deposit bearing interest
at the rate obtained pursuant to clause (i) of the definition of Adjusted LIBO
Rate in an amount equal to the amount of such LIBO Rate Loan and having a
maturity comparable to the relevant Interest Period and through the transfer of
such LIBO deposit from an offshore office of that Lender to a domestic office of
that Lender in the United States of America; provided, however, that each Lender
may fund each of its LIBO Rate Loans in any manner it sees fit and the foregoing
assumptions shall be utilized only for the purposes of calculating amounts
payable under this subsection 2.6 and under subsection 2.7A.
G. LIBO Rate Loans After Default. After the occurrence of and during
the continuation of a Potential Event of Default or an Event of Default, (i)
Company may not elect to have a Loan be made or maintained as, or converted to,
a LIBO Rate Loan after the expiration of any Interest Period then in effect for
that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of
Borrowing or Notice of Conversion/Continuation given by Company with respect to
a requested borrowing or conversion/continuation that has not yet occurred shall
be deemed to be rescinded by Company.
2.7 Increased Costs; Taxes; Capital Adequacy
A. Compensation for Increased Costs and Taxes. Subject to the
provisions of subsection 2.7B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that the adoption, effectiveness, phase-in or
applicability after the date hereof of any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof, or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to
any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of such
Lender (other than any such reserve or other requirements with respect
to LIBO Rate Loans that are reflected in the definition of Adjusted
LIBO Rate); or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto in an amount deemed by such Lender (in its sole discretion) to
be material; then, in any such case, Company shall promptly pay to such Lender,
upon receipt of the statement referred to in the next sentence, such additional
amount or amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as may be necessary to compensate such Lender for any such increased
cost or reduction in amounts received or receivable hereunder. Such Lender shall
deliver to Company (with a copy to Administrative Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this subsection 2.7A, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by Company
under this Agreement and the other Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any
deduction or withholding on account of, any Tax (other than a Tax on
the overall net income of any Lender) imposed, levied, collected,
withheld or assessed by or within the United States of America or any
political subdivision in or of the United States of America or any
other jurisdiction from or to which a payment is made by or on behalf
of Company or by any federation or organization of which the United
States of America or any such jurisdiction is a member at the time of
payment.
(ii) Grossing-up of Payments. If Company or any other Person
is required by law to make any deduction or withholding on account of
any such Tax from any sum paid or payable by Company to Administrative
Agent or any Lender under any of the Loan Documents:
(a) Company shall notify Administrative Agent of any
such requirement or any change in any such requirement as soon as
Company becomes aware of it;
(b) Company shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on Company) for its own account or (if that
liability is imposed on Administrative Agent or such Lender, as the
case may be) on behalf of and in the name of Administrative Agent or
such Lender;
(c) the sum payable by Company in respect of which
the relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, Administrative Agent or such
Lender, as the case may be, receives on the due date a net sum equal to
what it would have received had no such deduction, withholding or
payment been required or made; and
(d) within 30 days after paying any sum from which it
is required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required by
clause (b) above to pay, Company shall deliver to Administrative Agent
evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after the
date hereof (in the case of each Lender listed on the signature pages hereof) or
after the date of the Assignment Agreement pursuant to which such Lender became
a Lender (in the case of each other Lender) in any such requirement for a
deduction, withholding or payment as is mentioned therein shall result in an
increase in the rate of such deduction, withholding or payment from that in
effect at the date of this Agreement or at the date of such Assignment
Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent for
transmission to Company, on or prior to the Closing Date (in the case
of each Lender listed on the signature pages hereof) or on or prior to
the date of the Assignment Agreement pursuant to which it becomes a
Lender (in the case of each other Lender), and at such other times as
may be necessary in the determination of Company or Administrative
Agent (each in the reasonable exercise of its discretion), (1) two
original copies of Internal Revenue Service Form 1001 or 4224 (or any
successor forms), properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
under the Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or withholding
of United States federal income tax with respect to any payments to
such Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents or (2) if such Lender is not a "bank" or
other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (1) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service Form W-8
(or any successor form), properly completed and duly executed by such
Lender, together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations issued
thereunder to establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the Loan
Documents.
(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States federal
income tax withholding matters pursuant to subsection 2.7B(iii)(a)
hereby agrees, from time to time after the initial delivery by such
Lender of such forms, certificates or other evidence, whenever a lapse
in time or change in circumstances renders such forms, certificates or
other evidence obsolete or inaccurate in any material respect, that
such Lender shall promptly (1) deliver to Administrative Agent for
transmission to Company two new original copies of Internal Revenue
Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two
original copies of Internal Revenue Service Form W-8, as the case may
be, properly completed and duly executed by such Lender, together with
any other certificate or statement of exemption required in order to
confirm or establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to
payments to such Lender under the Loan Documents or (2) notify
Administrative Agent and Company of its inability to deliver any such
forms, certificates or other evidence.
(c) Company shall not be required to pay any additional
amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if
such Lender shall have failed to satisfy the requirements of clause (a)
or (b)(1) of this subsection 2.7B(iii); provided that if such Lender
shall have satisfied the requirements of subsection 2.7B(iii)(a) on the
Closing Date (in the case of each Lender listed on the signature pages
hereof) or on the date of the Assignment Agreement pursuant to which it
became a Lender (in the case of each other Lender), nothing in this
subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay
any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in
the event that, as a result of any change in any applicable law, treaty
or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is
no longer properly entitled to deliver forms, certificates or other
evidence at a subsequent date establishing the fact that such Lender is
not subject to withholding as described in subsection 2.7B(iii)(a).
C. Capital Adequacy Adjustment. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within five Business Days after receipt by Company from
such Lender of the statement referred to in the next sentence, Company shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or such controlling corporation on an after-tax basis for such reduction. Such
Lender shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis of the calculation of
such additional amounts, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of
Lender
A. Mitigation. Each Lender and Issuing Lender agrees that, as promptly
as practicable after the officer of such Lender or Issuing Lender responsible
for administering the Loans or Letters of Credit of such Lender or Issuing
Lender, as the case may be, becomes aware of the occurrence of an event or the
existence of a condition that would cause such Lender to become an Affected
Lender or that would entitle such Lender or Issuing Lender to receive payments
under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent
with the internal policies of such Lender or Issuing Lender and any applicable
legal or regulatory restrictions, use reasonable efforts (i) to make, issue,
fund or maintain the Commitments of such Lender or the affected Loans or Letters
of Credit of such Lender or Issuing Lender through another lending or letter of
credit office of such Lender or Issuing Lender, or (ii) take such other measures
as such Lender or Issuing Lender may deem reasonable, if as a result thereof the
circumstances which would cause such Lender to be an Affected Lender would cease
to exist or the additional amounts which would otherwise be required to be paid
to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6
would be materially reduced and if, as determined by such Lender or Issuing
Lender in its sole discretion, the making, issuing, funding or maintaining of
such Commitments or Loans or Letters of Credit through such other lending or
letter of credit office or in accordance with such other measures, as the case
may be, would not otherwise materially adversely affect such Commitments or
Loans or Letters of Credit or the interests of such Lender or Issuing Lender;
provided that such Lender or Issuing Lender will not be obligated to utilize
such other lending or letter of credit office pursuant to this subsection 2.8
unless Company agrees to pay all incremental expenses incurred by such Lender or
Issuing Lender as a result of utilizing such other lending or letter of credit
office as described in clause (i) above. A certificate as to the amount of any
such expenses payable by Company pursuant to this subsection 2.8 (setting forth
in reasonable detail the basis for requesting such amount) submitted by such
Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall
be conclusive absent manifest error.
B. Replacement of Lender. If Company receives a notice pursuant to
subsection 2.7A, 2.7B, 2.7C or 3.6, a Lender defaults in its obligations
hereunder or in the event a Lender has not consented to a proposed change,
waiver, discharge or termination with respect to this Agreement which requires
the consent of all Lenders and which has been approved by Requisite Lenders, as
provided in subsection 10.6B, Company shall have the right, if no Potential
Event of Default or Event of Default then exists, to replace such Lender (a
"Replaced Lender") with one or more Eligible Assignees (collectively, the
"Replacement Lender") acceptable to Administrative Agent; provided that (i) at
the time of any replacement pursuant to this subsection 2.8, the Replacement
Lender shall enter into one or more Assignment Agreements pursuant to subsection
10.1B (and with all fees payable pursuant to such subsection 10.1B to be paid by
the Replacement Lender) pursuant to which the Replacement Lender shall acquire
all of the outstanding Loans and Commitments of, and in each case participations
in Letters of Credit and Swing Line Loans by, the Replaced Lender and, in
connection therewith, shall pay to (x) the Replaced Lender in respect thereof an
amount equal to the sum of (A) an amount equal to the principal of, and all
accrued interest on, all outstanding Loans of the Replaced Lender, (B) an amount
equal to all unpaid drawings with respect to Letters of Credit that have been
funded by (and not reimbursed to) such Replaced Lender, together with all then
unpaid interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, fees owing to the Replaced Lender with respect
thereto, (y) the appropriate Issuing Lender an amount equal to such Replaced
Lender's Pro Rata Share of any unpaid drawings with respect to Letters of Credit
(which at such time remains an unpaid drawing) issued by it to the extent such
amount was not theretofore funded by such Replaced Lender, and (z) Swing Line
Lender an amount equal to such Replaced Lender's Pro Rata Share of any Refunded
Swing Line Loans to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations (including without limitation all such
amounts, if any, owing under subsection 2.6D) of Company owing to the Replaced
Lender (other than those specifically described in clause (i) above in respect
of which the assignment purchase price has been, or is concurrently being,
paid), shall be paid in full to such Replaced Lender concurrently with such
replacement. Upon the execution of the respective Assignment Agreements,
recordation of such assignment in the Register by Administrative Agent pursuant
to subsection 2.1D, the payment of amounts referred to in clauses (i) and (ii)
above and delivery to the Replacement Lender of the appropriate Note or Notes
executed by Company, the Replacement Lender shall become a Lender hereunder and
the Replaced Lender shall cease to constitute a Lender hereunder except with
respect to indemnification provisions under this Agreement which by the terms of
this Agreement survive the termination of this Agreement, which indemnification
provisions shall survive as to such Replaced Lender. Notwithstanding anything to
the contrary contained above, no Issuing Lender may be replaced hereunder at any
time while it has Letters of Credit outstanding hereunder unless arrangements
satisfactory to such Issuing Lender (including the furnishing of a Standby
Letter of Credit in form and substance, and issued by an issuer, satisfactory to
such Issuing Lender or the furnishing of cash collateral in amounts and pursuant
to arrangements satisfactory to such Issuing Lender) have been made with respect
to such outstanding Letters of Credit.
Section 3. LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations
Therein
A. Letters of Credit. In addition to Company requesting that Revolving
Lenders make Revolving Loans pursuant to subsection 2.1A(ii) and that Swing Line
Lender make Swing Line Loans pursuant to subsection 2.1A(iii), Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Closing Date to but excluding the date which is
thirty (30) days prior to Revolving Loan Commitment Termination Date, that one
or more Revolving Lenders issue Letters of Credit payable on a sight basis for
the account of Company for the purposes specified in the definitions of
Commercial Letters of Credit and Standby Letters of Credit. Subject to the terms
and conditions of this Agreement and in reliance upon the representations and
warranties of Company herein set forth, any one or more Revolving Lenders may,
but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue
such Letters of Credit in accordance with the provisions of this subsection 3.1;
provided that Company shall not request that any Revolving Lender issue (and no
Revolving Lender shall issue):
(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $5 million;
(iii) any Standby Letter of Credit having an expiration date
later than the earlier of (a) the date which is ten (10) Business Days
prior to the Revolving Loan Commitment Termination Date and (b) the
date that is one year from the date of issuance of such Standby Letter
of Credit; provided that the immediately preceding clause (b) shall not
prevent any Issuing Lender from agreeing that a Standby Letter of
Credit will automatically be extended for one or more successive
periods not to exceed one year each unless such Issuing Lender elects
not to extend for any such additional period; and provided further that
such Issuing Lender shall elect not to extend such Standby Letter of
Credit if it has knowledge that an Event of Default has occurred and is
continuing (and has not been waived in accordance with subsection 10.6)
at the time such Issuing Lender must elect whether or not to allow such
extension;
(iv) any Commercial Letter of Credit having an expiration date
(a) later than the earlier of (X) the date which is thirty (30) days
prior to the Revolving Loan Commitment Termination Date and (Y) the
date which is 180 days from the date of issuance of such Commercial
Letter of Credit or (b) that is otherwise unacceptable to the
applicable Issuing Lender in its reasonable discretion;
(v) any Letter of Credit at a tenor other than at sight; or
(vi) any Letter of Credit denominated in a currency other than Dollars
if, after giving effect to such issuance, the Dollar Equivalent of the
Letter of Credit Usage for all Letters of Credit denominated in a
currency other than Dollars would exceed $2 million.
B. Mechanics of Issuance.
(i) Request for Issuance. Whenever Company desires the
issuance of a Letter of Credit, it shall deliver to Administrative
Agent a Request for Issuance of Letter of Credit in the form of Exhibit
III annexed hereto no later than 12:00 Noon (New York City time) at
least five Business Days, or such shorter period as may be agreed to by
the Issuing Lender in any particular instance, in advance of the
proposed date of issuance. The Request for Issuance of Letter of Credit
shall specify (a) the proposed date of issuance (which shall be a
Business Day), (b) whether the Letter of Credit is to be a Standby
Letter of Credit or a Commercial Letter of Credit, (c) the face amount
of the Letter of Credit, (d) in the case of a Letter of Credit which
Company requests to be denominated in a currency other than Dollars,
the currency in which Company requests such Letter of Credit to be
issued, (e) the expiration date of the Letter of Credit, (f) the name
and address of the beneficiary, and (g) either the verbatim text of the
proposed Letter of Credit or the proposed terms and conditions thereof,
including a precise description of any documents to be presented by the
beneficiary which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require the Issuing
Lender to make payment under the Letter of Credit; provided that the
Issuing Lender, in its reasonable discretion, may require changes in
the text of the proposed Letter of Credit or any such documents.
Company shall notify the applicable Issuing Lender (and
Administrative Agent, if Administrative Agent is not such Issuing
Lender) prior to the issuance of any Letter of Credit in the event that
any of the matters to which Company is required to certify in the
applicable Request for Issuance of Letter of Credit is no longer true
and correct as of the proposed date of issuance of such Letter of
Credit, and upon the issuance of any Letter of Credit Company shall be
deemed to have re-certified, as of the date of such issuance, as to the
matters to which Company is required to certify in the applicable
Request for Issuance of Letter of Credit.
(ii) Determination of Issuing Lender. Upon receipt by
Administrative Agent of a Request for Issuance of Letter of Credit
pursuant to subsection 3.1B(i) requesting the issuance of a Letter of
Credit, in the event Administrative Agent elects to issue such Letter
of Credit, Administrative Agent shall promptly so notify Company, and
Administrative Agent shall be the Issuing Lender with respect thereto.
In the event that Administrative Agent, in its sole discretion, elects
not to issue such Letter of Credit, Administrative Agent shall promptly
so notify Company, whereupon Administrative Agent shall request any
other Revolving Lender to issue such Letter of Credit by delivering to
such Revolving Lender a copy of the applicable Request for Issuance of
Letter of Credit. Any Revolving Lender so requested to issue such
Letter of Credit shall promptly notify Administrative Agent whether or
not, in its sole discretion, it has elected to issue such Letter of
Credit, and any such Lender which so elects to issue such Letter of
Credit shall be the Issuing Lender with respect thereto. In the event
that all other Revolving Lenders shall have declined to issue such
Letter of Credit, notwithstanding the prior election of Administrative
Agent not to issue such Letter of Credit, Administrative Agent shall be
obligated to issue such Letter of Credit and shall be the Issuing
Lender with respect thereto, notwithstanding the fact that the Letter
of Credit Usage with respect to such Letter of Credit and with respect
to all other Letters of Credit issued by Administrative Agent, when
aggregated with Administrative Agent's outstanding Revolving Loans and
Swing Line Loans, may exceed Administrative Agent's Revolving Loan
Commitment then in effect; provided that Administrative Agent shall not
be obligated to issue any Letter of Credit denominated in a foreign
currency which in the judgment of Administrative Agent is not readily
and freely available..
(iii) Issuance of Letter of Credit. Upon satisfaction or
waiver (in accordance with subsection 10.6) of the conditions set forth
in subsection 4.4, the Issuing Lender shall issue the requested Letter
of Credit in accordance with the Issuing Lender's standard operating
procedures.
(iv) Notification to Revolving Lenders. Upon the issuance of
or amendment to any Letter of Credit the applicable Issuing Lender
shall promptly notify Administrative Agent and each other Revolving
Lender of such issuance or amendment. The notice to Administrative
Agent shall be accompanied by a copy of such Letter of Credit or
amendment and in the event a Revolving Lender requests a copy of such
issuance or amendment, such copies will be provided by Administrative
Agent. Promptly after receipt of such notice (or, if Administrative
Agent is the Issuing Lender, together with such notice), Administrative
Agent shall notify each Revolving Lender of the amount of such Lender's
respective participation in such Letter of Credit, determined in
accordance with subsection 3.1C.
(v) Reports to Revolving Lenders. In the event that the
Issuing Lender is other than Administrative Agent, such Issuing Lender
will send by facsimile transmission to Administrative Agent, promptly
on the first Business Day of each month, the daily maximum amount
available to be drawn for the Letters of Credit for the previous month.
Administrative Agent shall deliver to each Revolving Lender, upon each
Letter of Credit fee payment, a report setting forth for such period
the daily maximum amount available to be drawn under the Letters of
Credit issued by all Issuing Lenders during such period.
(vi) Collateralization of Letters of Credit Due to Currency
Fluctuation. If on any Computation Date Administrative Agent shall have
determined that the Letter of Credit Usage exceeds the amount permitted
under subsection 3.1A(ii) by an amount greater than $50,000 because of
a change in applicable rates of exchange between Dollars and any
foreign currency, then Administrative Agent shall give notice to the
Company that cash collateralization of the Letter of Credit Usage
exceeding the amount permitted under subsection 3.1A(ii) is required
and Company shall cash collateralize its outstanding Letters of Credit
by depositing Dollars into the Collateral Account established under the
Collateral Account Agreement in an amount equal to the extent that the
Letter of Credit Usage exceeds the amount permitted under subsection
3.1A(ii).
C. Revolving Lenders' Purchase of Participations in Letters of Credit.
Immediately upon the issuance of each Letter of Credit, each Revolving Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and any drawings honored
thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the
maximum amount which is or at any time may become available to be drawn
thereunder. Upon satisfaction of the conditions set forth in subsection 4.1, the
Existing Letters of Credit shall, effective as of the Closing Date, become
Letters of Credit under this Agreement to the same extent as if initially issued
hereunder and each Revolving Loan Lender shall be deemed to have irrevocably
purchased from the Issuing Lender(s) of such Existing Letters of Credit a
participation in such Letters of Credit and drawings thereunder in an amount
equal to such Revolving Lender's Pro Rata Share of the maximum amount which is
or at any time may become available to be drawn thereunder. All such Existing
Letters of Credit which become Letters of Credit under this Agreement shall be
fully secured by the Collateral commencing on the Closing Date to the same
extent as if initially issued hereunder on such date.
3.2 Letter of Credit Fees
Company agrees to pay the following amounts with respect to Letters of
Credit issued hereunder:
(i) with respect to each Letter of Credit, (a) a fronting fee,
payable directly to the applicable Issuing Lender for its own account,
equal to the greater of (x) $500 and (y) 0.25% per annum the Dollar
Equivalent of the daily amount available to be drawn under such Letter
of Credit and (b) a letter of credit fee, payable to Administrative
Agent for the account of Revolving Lenders (based upon their respective
Pro Rata Shares), equal to (x) the Applicable LIBO Rate Margin
multiplied by (y) the Dollar Equivalent of the daily maximum amount
available from time to time to be drawn under such Letter of Credit,
each such fronting fee or letter of credit fee to be payable in arrears
on and to (but excluding) the last Business Day of each March, June,
September and December of each year and computed on the basis of a
360-day year for the actual number of days elapsed; and
(ii) with respect to the issuance, amendment or transfer of
each Letter of Credit and each payment of a drawing made thereunder
(without duplication of the fees payable under clause (i) above),
documentary and processing charges payable directly to the applicable
Issuing Lender for its own account in accordance with such Issuing
Lender's standard schedule for such charges in effect at the time of
such issuance, amendment, transfer or payment, as the case may be.
For purposes of calculating any fees payable under clause (i) of this subsection
3.2, (1) the Dollar Equivalent of the daily amount available to be drawn under
any Letter of Credit shall be determined as of the close of business on any date
of determination and (2) the Dollar Equivalent of any amount described in such
clause which is denominated in a currency other than Dollars shall be determined
by the applicable Exchange Rate for such currency as of the immediately
preceding monthly anniversary of the date of issuance of such Letter of Credit.
Promptly upon receipt by Administrative Agent of any amount described in clause
(i)(b) of this subsection 3.2, Administrative Agent shall distribute to each
Revolving Lender its Pro Rata Share of such amount. With respect to Existing
Letters of Credit, the fees described in clauses (i) and (ii) above shall accrue
from and including the Closing Date.
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit
A. Responsibility of Issuing Lender With Respect to Drawings. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in substantial accordance with
the terms and conditions of such Letter of Credit.
B. Reimbursement by Company of Amounts Paid Under Letters of Credit. In
the event an Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "Reimbursement Date") in an amount in Dollars (which amount, in the
case of a drawing under a Letter of Credit which is denominated in a currency
other than Dollars, shall be calculated by reference to the applicable Exchange
Rate) and in same day funds equal to the amount of such drawing; provided that,
anything contained in this Agreement to the contrary notwithstanding, (i) unless
Company shall have notified Administrative Agent and such Issuing Lender prior
to 10:00 A.M. (New York City time) on the date such drawing is honored that
Company intends to reimburse such Issuing Lender for the amount of such drawing
with funds other than the proceeds of Revolving Loans, Company shall be deemed
to have given a timely Notice of Borrowing to Administrative Agent requesting
Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement
Date in an amount in Dollars (which amount, in the case of a drawing under a
Letter of Credit which is denominated in a currency other than Dollars, shall be
calculated by reference to the applicable Exchange Rate) equal to the amount of
such drawing and (ii) subject to satisfaction or waiver of the conditions
specified in subsection 4.3B, Revolving Lenders shall, on the Reimbursement
Date, make Revolving Loans that are Base Rate Loans in the amount of such
drawing, the proceeds of which shall be applied directly by Administrative Agent
to reimburse such Issuing Lender for the amount of such drawing; and provided
further that if for any reason proceeds of Revolving Loans are not received by
such Issuing Lender on the Reimbursement Date in an amount equal to the amount
of such drawing, Company shall reimburse such Issuing Lender, on demand, in an
amount in same day funds equal to the excess of the amount of such drawing over
the aggregate amount of such Revolving Loans, if any, which are so received.
Nothing in this subsection 3.3B shall be deemed to relieve any Revolving Lender
from its obligation to make Revolving Loans on the terms and conditions set
forth in this Agreement, and Company shall retain any and all rights it may have
against any Revolving Lender resulting from the failure of such Lender to make
such Revolving Loans under this subsection 3.3B.
C. Payment by Revolving Lenders of Unreimbursed Amounts Paid Under
Letters of Credit.
(i) Payment by Revolving Lenders. In the event that Company
shall fail for any reason to reimburse any Issuing Lender as provided
in subsection 3.3B in an amount (calculated, in the case of a drawing
under a Letter of Credit denominated in a currency other than Dollars,
by reference to the applicable Exchange Rate) equal to the amount of
any drawing honored by such Issuing Lender under a Letter of Credit
issued by it, such Issuing Lender shall promptly notify each other
Revolving Lender of the unreimbursed amount of such drawing and of such
other Revolving Lender's respective participation therein based on such
Revolving Lender's Pro Rata Share. Each Revolving Lender shall make
available to such Issuing Lender an amount equal to its respective
participation, in Dollars and in same day funds, at the office of such
Issuing Lender specified in such notice, not later than 12:00 Noon (New
York City time) on the first business day (under the laws of the
jurisdiction in which such office of such Issuing Lender is located)
after the date notified by such Issuing Lender. In the event that any
Revolving Lender fails to make available to such Issuing Lender on such
business day the amount of such Revolving Lender's participation in
such Letter of Credit as provided in this subsection 3.3C, such Issuing
Lender shall be entitled to recover such amount on demand from such
Revolving Lender together with interest thereon at the Federal Funds
Effective Rate for three Business Days and thereafter at the Base Rate.
Nothing in this subsection 3.3C shall be deemed to prejudice the right
of any Revolving Lender to recover from any Issuing Lender any amounts
made available by such Revolving Lender to such Issuing Lender pursuant
to this subsection 3.3C in the event that it is determined by the final
judgment of a court of competent jurisdiction that the payment with
respect to a Letter of Credit by such Issuing Lender in respect of
which payment was made by such Revolving Lender constituted gross
negligence or willful misconduct on the part of such Issuing Lender.
(ii) Distribution to Revolving Lenders of Reimbursements
Received From Company. In the event any Issuing Lender shall have been
reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i)
for all or any portion of any drawing honored by such Issuing Lender
under a Letter of Credit issued by it, such Issuing Lender shall
distribute to each other Revolving Lender which has paid all amounts
payable by it under subsection 3.3C(i) with respect to such honored
drawing such other Revolving Lender's Pro Rata Share of all payments
subsequently received by such Issuing Lender from Company in
reimbursement of such honored drawing when such payments are received.
Any such distribution shall be made to a Revolving Lender at its
primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Revolving Lender may
request.
D. Interest on Amounts Paid Under Letters of Credit.
(i) Payment of Interest by Company. Company agrees to pay to
each Issuing Lender, with respect to drawings honored under any Letters
of Credit issued by it, interest on the amount paid by such Issuing
Lender in respect of each such drawing from the date such drawing is
honored to but excluding the date such amount is reimbursed by Company
(including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B) at a rate equal to (a) for the
period from the date of such drawing to but excluding the Reimbursement
Date, the rate then in effect under this Agreement with respect to
Revolving Loans that are Base Rate Loans and (b) thereafter, a rate
which is 2.00% per annum in excess of the rate of interest otherwise
payable under this Agreement with respect to Revolving Loans that are
Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i)
shall be computed on the basis of a 360-day year for the actual number
of days elapsed in the period during which it accrues and shall be
payable on demand or, if no demand is made, on the date on which the
related drawing under a Letter of Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender.
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i) with respect to a drawing under a Letter
of Credit issued by it, (a) such Issuing Lender shall distribute to
each other Revolving Lender, out of the interest received by such
Issuing Lender in respect of the period from the date of such drawing
to but excluding the date on which such Issuing Lender is reimbursed
for the amount of such drawing (including any such reimbursement out of
the proceeds of Revolving Loans pursuant to subsection 3.3B), the
amount that such other Revolving Lender would have been entitled to
receive in respect of the letter of credit fee that would have been
payable in respect of such Letter of Credit for such period pursuant to
subsection 3.2 if no drawing had been honored under such Letter of
Credit, and (b) in the event such Issuing Lender shall have been
reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i)
for all or any portion of such drawing, such Issuing Lender shall
distribute to each other Revolving Lender which has paid all amounts
payable by it under subsection 3.3C(i) with respect to such drawing
such other Revolving Lender's Pro Rata Share of any interest received
by such Issuing Lender in respect of that portion of such drawing so
reimbursed by other Revolving Lenders for the period from the date on
which such Issuing Lender was so reimbursed by other Revolving Lenders
to but excluding the date on which such portion of such drawing is
reimbursed by Company. Any such distribution shall be made to a
Revolving Lender at its primary address set forth below its name on the
appropriate signature page hereof or at such other address as such
Revolving Lender may request.
3.4 Obligations Absolute
The obligation of Company to reimburse each Issuing Lender for drawings
made under the Letters of Credit issued by it and to repay any Revolving Loans
made by Revolving Lenders pursuant to subsection 3.3B and the obligations of
Revolving Lenders under subsection 3.3C(i) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other
right which Company or any Revolving Lender may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any
Persons for whom any such transferee may be acting), any Issuing Lender
or other Lender or any other Person or, in the case of a Lender,
against Company, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction
(including any underlying transaction between Company or one of its
Subsidiaries and the beneficiary for which any Letter of Credit was
procured);
(iii) any draft or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the applicable Issuing Lender under any Letter
of Credit against presentation of a draft or other document which does
not substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Company or any of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document
by any party thereto;
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event
of Default shall have occurred and be continuing;
provided, in each case, that payment by the applicable Issuing
Lender under the applicable Letter of Credit shall not have constituted gross
negligence or willful misconduct of such Issuing Lender under the circumstances
in question (as determined by a final judgment of a court of competent
jurisdiction).
3.5 Indemnification; Nature of Issuing Lenders' Duties
A. Indemnification. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by such Issuing Lender of a proper demand for payment made under any Letter of
Credit issued by it or (ii) the failure of such Issuing Lender to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
B. Nature of Issuing Lenders' Duties. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, such Issuing Lender shall not be responsible (absent a
determination of a court of competent jurisdiction of gross negligence or
willful misconduct by such Issuing Lender) for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any such Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective for
any reason; (iii) failure of the beneficiary of any such Letter of Credit to
comply fully with any conditions required in order to draw upon such Letter of
Credit; (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) errors in interpretation of technical terms; (vi)
any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of such Issuing Lender,
including any Governmental Acts, and none of the above shall affect or impair,
or prevent the vesting of, any of such Issuing Lender's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection
3.5, Company shall retain any and all rights it may have against any Issuing
Lender for any liability arising solely out of the gross negligence or willful
misconduct of such Issuing Lender, as determined by a final judgment of a court
of competent jurisdiction.
3.6 Increased Costs and Taxes Relating to Letters of Credit
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that any
Issuing Lender or Revolving Lender shall determine (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) that any law, treaty or governmental rule, regulation or order, or any
change therein or in the interpretation, administration or application thereof
(including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by any
Issuing Lender or Revolving Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Issuing Lender or Revolving Lender (or its
applicable lending or letter of credit office) to any additional Tax
(other than any Tax on the overall net income of such Issuing Lender or
Revolving Lender) with respect to the issuing or maintaining of any
Letters of Credit or the purchasing or maintaining of any
participations therein or any other obligations under this Section 3,
whether directly or by such being imposed on or suffered by any
particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by any Issuing
Lender or participations therein purchased by any Revolving Lender; or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Issuing Lender or Revolving Lender
(or its applicable lending or letter of credit office) regarding this
Section 3 or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Revolving Lender of agreeing to issue, issuing or maintaining any
Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or Revolving Lender (or its applicable lending or letter of
credit office) with respect thereto (in any amount deemed by such Issuing Lender
(in its sole discretion) to be material); then, in any case, Company shall
promptly pay to such Issuing Lender or Revolving Lender, upon receipt of the
statement referred to in the next sentence, such additional amount or amounts as
may be necessary to compensate such Issuing Lender or Revolving Lender for any
such increased cost or reduction in amounts received or receivable hereunder.
Such Issuing Lender or Revolving Lender shall deliver to Company a written
statement, setting forth in reasonable detail the basis for calculating the
additional amounts owed to such Issuing Lender or Revolving Lender under this
subsection 3.6, which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters of
Credit hereunder are subject to, and the Existing Letters of Credit shall become
Letters of Credit under this Agreement upon, the satisfaction of the following
conditions:
4.1 Conditions to Initial Loans
The obligations of Lenders to make the initial Loans to be made on the
Closing Date are, in addition to the conditions precedent specified in
subsection 4.3, subject to prior or concurrent satisfaction of the following
conditions:
A. Loan Party Documents. On or before the Closing Date, Company shall,
and shall cause each other Loan Party to, deliver to Lenders (or to
Administrative Agent for Lenders with sufficient originally executed copies,
where appropriate, for each Lender and its counsel) the following with respect
to Company or such Loan Party, as the case may be, each, unless otherwise noted,
dated the Closing Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and
each other state in which such Person is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such jurisdictions, each dated a recent date prior
to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person
approving and authorizing the execution, delivery and performance of
the Loan Documents and the Related Agreements to which it is a party,
and the consummation of the transactions contemplated by the foregoing,
certified as of the Closing Date by the corporate secretary or an
assistant secretary of such Person as being in full force and effect
without modification or amendment;
(iv) Signature and incumbency certificates of the officers of
such Person executing the Loan Documents to which it is a party;
(v) Executed originals of the Loan Documents, in each case to
which such Person is a party; and (vi) Such other documents as
Administrative Agent may reasonably request.
B. No Material Adverse Change. Since October 31, 1998, Company and each
of its Subsidiaries and, since December 31, 1998, Shelby and each of its
Subsidiaries, shall have conducted its business in the ordinary course of
business and consistent with past practice and there shall not have been any
Material Adverse Effect.
C. Corporate Structure, Ownership, Management, Etc. The corporate
organizational structure of Company and its Subsidiaries, both before and after
consummation of the Tender Offer and the Merger, shall be as set forth on
Schedule 5.1 annexed hereto. The senior management of Company, Shelby and their
respective Subsidiaries shall be satisfactory to Administrative Agent in all
material respects.
D. Senior Subordinated Debt Securities; Use of Proceeds
(i) On or before the Closing Date (1) the Senior Subordinated
Debt Indenture, the Senior Subordinated Debt Securities and any
guaranties relating thereto shall be satisfactory to Administrative
Agent and shall be in full force and effect and shall not have been
amended, supplemented, waived or otherwise modified without the consent
of Administrative Agent, and executed or conformed copies thereof
(including all exhibits and schedules thereto) and any amendments
thereto and all documents executed in connection therewith shall have
been delivered to Administrative Agent, and (2) Company shall have
received the gross cash proceeds from the issuance of an aggregate
principal amount of $100 million in Senior Subordinated Debt
Securities.
(ii) On or before the Closing Date, (1) Company shall have
contributed the net cash proceeds from the Senior Subordinated Debt
Securities issuance to Acquisition Co., and Company and Acquisition Co.
shall have applied such proceeds to the Acquisition Financing
Requirements; and (2) Company shall have applied at least $7.5 million
in cash on hand to the Acquisition Financing Requirements.
E. Necessary Governmental Authorizations and Consents; Expiration of
Waiting Periods, Etc. Company, Acquisition Co. and Shelby shall have obtained
all Governmental Authorizations and all consents of other Persons, in each case
that are necessary or advisable in connection with the Tender Offer, the Merger,
the related financings and the other transactions contemplated by the Loan
Documents and the Related Agreements and the continued operation of the business
conducted by Company and its Subsidiaries and Shelby and its Subsidiaries in
substantially the same manner as conducted prior to the consummation of the
Tender Offer, the Merger, the related financings and the other transactions
contemplated by the Loan Documents and the Related Agreements, and each of the
foregoing shall be in full force and effect, in each case other than those the
failure to obtain or maintain which, either individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. All
applicable waiting periods relating to competition or antitrust laws and
regulations shall have expired without any action being taken or threatened by
any competent authority which would restrain, prevent or otherwise impose
adverse conditions on the Tender Offer, the Merger, the related financings and
the transactions contemplated by the Loan Documents and the Related Agreements.
No action, request for stay, petition for review or rehearing, reconsideration,
or appeal with respect to any of the foregoing shall be pending, and the time
for any applicable agency to take action to set aside its consent on its own
motion shall have expired.
F. Tender Offer Matters.
(i) Tender Offer Materials. The Tender Offer Materials shall
be satisfactory to Administrative Agent and shall not have been
amended, supplemented, waived or otherwise modified in any respect
determined by Administrative Agent to be material (including, without
limitation, any increase in the price to be paid for the Shelby Common
Stock to an amount in excess of $16.50 per share) without the consent
of Administrative Agent.
(ii) Merger Agreement and certain other Related Agreements.
Administrative Agent shall have received fully executed or conformed
copies of the Merger Agreement and any documents executed in connection
therewith, and the Merger Agreement shall be in full force and effect
and no provision thereof shall have been amended, supplemented, waived
or otherwise modified in any respect determined by Administrative Agent
to be material (including, without limitation, any increase in the
price to be paid for the Shelby Common Stock to an amount in excess of
$16.50 per share), in each case without the consent of Administrative
Agent.
(iii) Consummation of Tender Offer; Minimum Shares.
Contemporaneously with the application of the proceeds of the Senior
Subordinated Debt Securities and the Company's cash on hand described
in subsection 4.1D and the initial Loans to be made on the Closing
Date, the Tender Offer shall have been consummated in all respects in
accordance with the Tender Offer Materials and no term or condition of
the Tender Offer shall have been amended, supplemented, waived or
otherwise modified in any respect determined by Administrative Agent to
be material without the consent of Administrative Agent. The cash
consideration paid to the holders of the shares of Shelby Common Stock
shall not exceed the Tender Offer Price. Not less than the Minimum
Shares shall have been tendered and accepted for payment in the Tender
Offer, the depository shall have delivered a report as to the number of
shares of Shelby Common Stock being held by it that have been validly
tendered and not withdrawn as of the Closing Date, and Company shall
have delivered an Officers' Certificate to the total number of shares
of Shelby Common Stock outstanding on a fully diluted basis as of the
Closing Date.
(iv) Use of Proceeds. Company shall have provided evidence
satisfactory to Administrative Agent that the proceeds of the Senior
Subordinated Debt Securities and the Company's cash on hand described
in subsection 4.1D have been irrevocably committed, prior to the
application of the proceeds of the Tranche A Term Loans made on the
Closing Date, to the payment of a portion of the Acquisition Financing
Requirements. Acquisition Co. shall have deposited with the depository
not less than the aggregate purchase price for the Shelby Common Stock
to be purchased by Acquisition Co. in the Tender Offer in immediately
available funds contemporaneously with the application of the initial
Loans to be made on the Closing Date.
(v) Officers' Certificates. Administrative Agent shall have an
Officers' Certificate from Company to the effect that the
representations and warranties of each of Acquisition Co. and Shelby in
the Merger Agreement are true, correct and complete in all material
respects on and as of the Closing Date to the same extent as though
made on and as of that date. Administrative Agent shall have received
Officers' Certificates from Company to the effect that (a) the Merger
Agreement is in full force and effect and no provision thereof has been
amended, supplemented, waived or otherwise modified in any material
respect without the consent of Administrative Agent and (b) each of the
parties to the Merger Agreement has complied with all agreements, terms
and conditions contained in the Merger Agreement and any agreements or
documents referred to therein required to be performed or complied with
by each of them on or before the Closing Date, except where such
failure to comply or perform could not reasonably be expected to have a
Material Adverse Effect, and none of such Persons are in default in
their performance or compliance with any of the terms or provisions
thereof, except where such default could not reasonably be expected to
have a Material Adverse Effect.
(vi) Existing Company Indebtedness; Release of Liens. As of
the Closing Date, the Existing Company Indebtedness shall not exceed
approximately $20 million plus accrued interest and fees thereon.
Contemporaneously with the application of the proceeds of the initial
Loans to be made on the Closing Date:
(a) Company shall have repaid in full its Indebtedness
under the Credit Agreement dated April 22, 1998 between Company and
NationsBank, N.A., and shall have terminated any commitments to lend or
make other extensions of credit thereunder and no other Existing
Company Indebtedness shall remain outstanding other than the
Indebtedness permitted under Section 7.1(v);
(b) Company shall have delivered to Administrative Agent
all documents and instruments and taken all other actions, in each case
necessary to release all Liens securing the Existing Company
Indebtedness in connection therewith;
(c) Company shall have made arrangements satisfactory to
Administrative Agent with respect to the cancellation of any letters of
credit (other than the Existing Letters of Credit) outstanding
thereunder or the issuance of Letters of Credit to support the
obligations of Company and its Subsidiaries with respect thereto;
(d) Administrative Agent shall have received an Officers'
Certificate of Company stating that, after giving effect to the
transactions described in this subsection 4.1F(vi), there shall be no
existing Indebtedness of Company or its Subsidiaries outstanding after
consummation of the Closing Date transactions other than the
Indebtedness permitted under subsection 7.1, such Indebtedness to be in
form and substance satisfactory to Administrative Agent.
(vii) Existing Shelby Indebtedness. As of the Closing Date,
the Existing Shelby Indebtedness shall not exceed approximately $3.0
million plus accrued interest and fees thereon. Contemporaneously with
the application of the proceeds of the initial Loans to be made on the
Closing Date:
(a) Shelby and its Subsidiaries shall have repaid in full
the Existing Shelby Indebtedness;
(b) Shelby and its Subsidiaries shall have terminated any
commitments to lend or make other extensions of credit thereunder;
(c) Shelby shall have delivered to Administrative Agent
all documents and instruments and taken all other actions, in each case
necessary to release all Liens securing the Existing Shelby
Indebtedness in connection therewith;
(d) Shelby shall have made arrangements satisfactory to
Administrative Agent with respect to the cancellation of any letters of
credit (other than the Existing Letters of Credit) outstanding
thereunder or the issuance of Letters of Credit to support the
obligations of Shelby and its Subsidiaries with respect thereto; (e)
Company shall cause Shelby and its Domestic Subsidiaries to deliver to
Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its
counsel) the following with respect such Person, each, unless otherwise
noted, dated the Closing Date:
(1) Certified copies of the Certificate or Articles
of Incorporation of such Person, together with a good standing
certificate from the Secretary of State of its jurisdiction of
incorporation and each other state in which such Person is qualified as
a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to
payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such jurisdictions, each dated
a recent date prior to the Closing Date;
(2) Copies of the Bylaws of such Person, certified
as of the Closing Date by such Person's corporate secretary or an
assistant secretary;
(3) Resolutions of the Board of Directors of such
Person approving and authorizing the execution, delivery and
performance of the Loan Documents and the Related Agreements to which
it is a party, and the consummation of the transactions contemplated by
the foregoing, certified as of the Closing Date by the corporate
secretary or an assistant secretary of such Person as being in full
force and effect without modification or amendment; and
(4) Signature and incumbency certificates of the
officers of such Person executing the Loan Documents to which it is a
party.
(viii) Existing Letters of Credit. On the Closing Date, the
Existing Letters of Credit shall have become Letters of Credit under
this Agreement. Company shall have furnished to Administrative Agent
copies of all Existing Letters of Credit and all amendments thereto.
Company shall have paid to the issuing lenders with respect to such
Existing Letters of Credit all fees and other amounts owing with
respect thereto through and including the Closing Date.
G. Mortgages; Mortgage Policies; Etc. Administrative Agent shall have
received from Company and each applicable Subsidiary of Company:
(i) Mortgages. Fully executed and notarized Mortgages and any
assignments thereof in favor of Administrative Agent, on behalf of
Lenders (each a "Closing Date Mortgage" and, collectively, the "Closing
Date Mortgages"), in proper form for recording in all appropriate
places in all applicable jurisdictions, encumbering each Real Property
Asset listed in Schedule 5.5 annexed hereto and identified as a Closing
Date mortgaged property (each a "Closing Date Mortgaged Property" and,
collectively, the "Closing Date Mortgaged Properties");
(ii) Matters Relating to Flood Hazard Properties. (a)
Evidence, which may be in the form of a letter from an insurance broker
or a municipal engineer, as to whether (1) any Closing Date Mortgaged
Property is a Flood Hazard Property and (2) the community in which any
such Flood Hazard Property is located is participating in the National
Flood Insurance Program, (b) if there are any such Flood Hazard
Properties, such Person's written acknowledgement of receipt of written
notification from Administrative Agent (1) as to the existence of each
such Flood Hazard Property and (2) as to whether the community in which
each such Flood Hazard Property is located is participating in the
National Flood Insurance Program, and (c) in the event any such Flood
Hazard Property is located in a community that participates in the
National Flood Insurance Program, evidence that Company or the
applicable Subsidiary of Company has obtained flood insurance in
respect of such Flood Hazard Property to the extent required under the
applicable regulations of the Board of Governors of the Federal Reserve
System;
(iii) Opinions of Local Counsel. If required by Administrative
Agent, an opinion of counsel (which counsel shall be reasonably
satisfactory to Administrative Agent) in each state in which a Closing
Date Mortgaged Property is located with respect to the enforceability
of the form(s) of Closing Date Mortgages to be recorded in such state
and such other matters as Administrative Agent may reasonably request,
in each case in form and substance reasonably satisfactory to
Administrative Agent;
(iv) Landlord Consents and Estoppels; Recorded Leasehold
Interests. In the case of each Closing Date Mortgaged Property
consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel
with respect thereto and (b) evidence that such Leasehold Property is a
Recorded Leasehold Interest;
(v) Title Insurance. (a) ALTA mortgagee title insurance
policies or unconditional commitments therefor (the "Closing Date
Mortgage Policies") issued by the Title Company with respect to the
Closing Date Mortgaged Properties listed on Schedule 5.5 annexed
hereto, in amounts not less than the respective amounts designated
therein with respect to any particular Closing Date Mortgaged
Properties, insuring fee simple title to, or a valid leasehold interest
in, each such Closing Date Mortgaged Property vested in such Loan Party
and assuring Administrative Agent that the applicable Closing Date
Mortgages create valid and enforceable First Priority mortgage Liens on
the respective Closing Date Mortgaged Properties encumbered thereby
(provided that Company may cause to be delivered to Administrative
Agent on the Closing Date a Closing Date Mortgage Policy listing as an
exception any of the items set forth on Schedule 5.5 so long as such
exception is removed by endorsement within 15 days of the Closing
Date), which Closing Date Mortgage Policies (1) shall include an
endorsement for mechanics' liens, for future advances under this
Agreement and for any other matters reasonably requested by
Administrative Agent and (2) shall provide for affirmative insurance
and such reinsurance as Administrative Agent may reasonably request,
all of the foregoing in form and substance reasonably satisfactory to
Administrative Agent; and (b) evidence satisfactory to Administrative
Agent that such Loan Party has (i) delivered to the Title Company all
certificates and affidavits required by the Title Company in connection
with the issuance of the Closing Date Mortgage Policies and (ii) paid
to the Title Company or to the appropriate governmental authorities all
expenses and premiums of the Title Company in connection with the
issuance of the Closing Date Mortgage Policies and all recording and
stamp taxes (including mortgage recording and intangible taxes) payable
in connection with recording the Closing Date Mortgages in the
appropriate real estate records;
(vi) Surveys. Unless otherwise approved by Administrative
Agent for delivery pursuant to subsection 6.9D, ALTA Surveys of each
Closing Date Mortgaged Property satisfactory in form and substance to
the Administrative Agent and the Title Company reasonably current and
certified to Administrative Agent and Title Company by a licensed
surveyor. Notwithstanding anything to the contrary herein, if
Administrative Agent, in its sole discretion, determines not to record
a Mortgage against one or more Mortgaged Properties on the Closing Date
or Merger Date, as the case may be, because the survey for such
Mortgaged Property has not been delivered to Administrative Agent,
Company shall not be in default hereunder for failure to satisfy the
requirements of this subsection with respect to such Mortgaged
Property; provided, however, that Company or the applicable Subsidiary
Guarantor shall satisfy such requirements no later than forty-five (45)
days after the Closing Date or Merger Date, as the case may be.
(vii) Copies of Documents Relating to Title Exceptions. Copies
of all recorded documents listed as exceptions to title or otherwise
referred to in the Closing Date Mortgage Policies; and
(viii) Environmental Indemnity. If requested by Administrative
Agent, an environmental indemnity agreement, reasonably satisfactory in
form and substance to Administrative Agent and its counsel, with
respect to the indemnification of Agents and Lenders for any
liabilities that may be imposed on or incurred by any of them as a
result of any Hazardous Materials Activity.
H. Security Interests in Personal and Mixed Property. To the extent not
otherwise satisfied pursuant to subsection 4.1G, Administrative Agent shall have
received evidence satisfactory to it that Company and Subsidiary Guarantors
(other than Acquisition Co. and Shelby and its Subsidiaries in the event that
less than 90% of the Shelby Common Stock is tendered in the Tender Offer) shall
have taken or caused to be taken all such actions, executed and delivered or
caused to be executed and delivered all such agreements, documents and
instruments, and made or caused to be made all such filings and recordings
(other than the filing or recording of items described in clauses (iii) and (iv)
below) that may be necessary or, in the opinion of Administrative Agent,
desirable in order to create in favor of Administrative Agent, for the benefit
of Lenders, a valid and (upon such filing and recording) perfected First
Priority security interest in the entire personal and mixed property Collateral.
Such actions shall include the following:
(i) Schedules to Collateral Documents. Delivery to
Administrative Agent of accurate and complete schedules to all of the
applicable Collateral Documents;
(ii) Stock Certificates and Instruments. Delivery to
Administrative Agent of (a) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to Administrative
Agent) representing all capital stock pledged pursuant to the Pledge
Agreement executed by Company and the Subsidiary Pledge Agreements
executed by the applicable existing Domestic Subsidiaries of Company
and (b) all promissory notes or other instruments (duly endorsed, where
appropriate, in a manner satisfactory to Administrative Agent)
evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery
to Administrative Agent of (a) the results of a recent search, by a
Person satisfactory to Administrative Agent, of all effective UCC
financing statements and fixture filings which may have been made with
respect to any personal or mixed property of any Loan Party, together
with copies of all such filings disclosed by such search, and (b) UCC
termination statements duly executed by all applicable Persons for
filing in all applicable jurisdictions as may be necessary to terminate
any effective UCC financing statements or fixture filings disclosed in
such search (other than any such financing statements or fixture
filings in respect of Liens permitted to remain outstanding pursuant to
the terms of this Agreement);
(iv) UCC Financing Statements and Fixture Filings. Delivery to
Administrative Agent of UCC financing statements and, where
appropriate, fixture filings, duly executed by each applicable Loan
Party with respect to all personal and mixed property Collateral of
such Loan Party, for filing in all jurisdictions as may be necessary
or, in the opinion of Administrative Agent, desirable to perfect the
security interests created in such Collateral pursuant to the
Collateral Documents;
(v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of
all cover sheets or other documents or instruments required to be filed
with the PTO in order to create or perfect Liens in respect of any IP
Collateral; and
(vi) Opinions of Local Counsel. To the extent required by
Administrative Agent, delivery to Administrative Agent of an opinion of
counsel (which counsel shall be reasonably satisfactory to
Administrative Agent) under the laws of each jurisdiction in which any
Loan Party or any personal or mixed property Collateral is located with
respect to the creation and perfection of the security interests in
favor of Administrative Agent in such Collateral and such other matters
governed by the laws of such jurisdiction regarding such security
interests as Administrative Agent may reasonably request, in each case
in form and substance reasonably satisfactory to Administrative Agent.
I. Environmental Reports. Administrative Agent shall have received
reports and other information, in form, scope and substance satisfactory to
Administrative Agent, regarding environmental matters relating to Company, its
Subsidiaries, Shelby and its Subsidiaries and the Facilities, which reports
shall include (i) a Phase I, and, if necessary, a Phase II, environmental
assessment for each of the Facilities located within the United States currently
owned, leased, operated or used by Company, Shelby or any of their Subsidiaries
(collectively, the "Phase I and II Reports") which (a) conforms to the ASTM
Standard Practice for Environmental Site Assessments: Phase I Environmental Site
Assessment Process, E 1527, and the equivalent with respect to Phase II
assessments, (b) was conducted no more than six months prior to the Closing Date
by one or more environmental consulting firms reasonably satisfactory to
Administrative Agent, and (c) includes an estimate of the reasonable worst-case
cost of investigating and remediating any Hazardous Materials Activity
identified in the Phase I and II Reports as giving rise to an actual or
potential material violation of any Environmental Law or as presenting a
material risk of giving rise to a material Environmental Claim, and (ii) a
current compliance audit setting forth an assessment of Company's and Shelby's,
their Subsidiaries' and such Facilities' current and past compliance with
Environmental Laws and an estimate of the cost of rectifying any non-compliance
with current Environmental Laws identified therein and the cost of compliance
with reasonably anticipated future Environmental Laws identified therein.
J. Financial Statements; Pro Forma Balance Sheet. Lenders shall have
received (i) audited financial statements of Company and its Subsidiaries for
the Fiscal Years ended October 31, 1998, November 1, 1997 and November 2, 1996,
consisting of balance sheets and the related consolidated statements of income,
stockholders' equity and cash flows for such Fiscal Years, (ii) unaudited
financial statements of Company and its Subsidiaries for the Fiscal Quarters
ending on or about January 31 and, if available, April 30, 1999, consisting of a
balance sheet and the related consolidated statements of income, stockholders'
equity and cash flows for the three- and six-month periods ending on such dates,
all in reasonable detail and certified by the chief financial officer of Company
that they fairly present the financial condition of Company and its Subsidiaries
as at the dates indicated and the results of their operations and their cash
flows for the periods indicated, subject to changes from audit and normal
year-end adjustments, (iii) pro forma consolidated balance sheets of Company and
its Subsidiaries and of Shelby and its Subsidiaries as at the Merger Date,
prepared in accordance with GAAP and reflecting the consummation of the Tender
Offer, the related financings and the other transactions contemplated by the
Loan Documents and the Related Agreements, which pro forma financial statements
shall be in form and substance satisfactory to Agents and Lenders, and (iv)
projected financial statements (including balance sheets and related statements
of operations, stockholders' equity and cash flows) of, Company and its
Subsidiaries through and including the last day of Company's Fiscal Year ended
on or about October 31, 2005, which projected financial statements shall be in
form and substance satisfactory to Agents and Lenders.
K. Solvency Assurances. On the Closing Date, Administrative Agent and
Lenders shall have received a Financial Condition Certificate, with appropriate
attachments, in each case demonstrating that, after giving effect to the Tender
Offer, the related financings and the other transactions contemplated by the
Loan Documents and the Related Agreements, Company and its Subsidiaries will be
Solvent.
L. Evidence of Insurance. Administrative Agent shall have received a
certificate from Company's insurance broker or other evidence satisfactory to it
that all insurance required to be maintained pursuant to subsection 6.4 is in
full force and effect and that Administrative Agent on behalf of Lenders has
been named as additional insured and/or loss payee thereunder to the extent
required under subsection 6.4.
M. Opinions of Counsel to Loan Parties; Reliance Letters. Lenders and
their respective counsel shall have received originally executed copies of one
or more favorable written opinions of Gallop, Johnson & Neuman, L.C., counsel
for Loan Parties, in form and substance reasonably satisfactory to
Administrative Agent and its counsel, dated as of the Closing Date and setting
forth substantially the matters in the opinions designated in Exhibit VII
annexed hereto and as to such other matters as Administrative Agent acting on
behalf of Lenders may reasonably request. Administrative Agent and its counsel
shall have received copies of each of the opinions of counsel delivered to the
parties under the Related Agreements on or prior to the Closing Date, together
with a letter from each such counsel authorizing Lenders to rely upon such
opinion to the same extent as though it were addressed to Lenders.
N. Opinions of Administrative Agent's Counsel. Lenders shall have
received originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, counsel to Administrative Agent, dated as of the Closing
Date, substantially in the form of Exhibit IX annexed hereto and as to such
other matters as Administrative Agent acting on behalf of Lenders may reasonably
request.
O. Fees. Company shall have paid to Arranger, Agents and Lenders the
fees payable on the Closing Date.
P. Representations and Warranties; Performance of Agreements. Company
shall have delivered to Administrative Agent an Officers' Certificate, in form
and substance satisfactory to Administrative Agent, to the effect that the
representations and warranties in Section 5 hereof are true, correct and
complete in all material respects on and as of the Closing Date to the same
extent as though made on and as of that date (or, to the extent such
representations and warranties specifically relate to an earlier date, that such
representations and warranties were true, correct and complete in all material
respects on and as of such earlier date) and that Company shall have performed
in all material respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before the
Closing Date except as otherwise disclosed to and agreed to in writing by
Administrative Agent and Requisite Lenders.
Q. Additional Information. There shall have been no information
relating to conditions or events not previously disclosed to Administrative
Agent or relating to new information or additional developments concerning
conditions of events previously disclosed to Administrative Agent which may have
a Material Adverse Effect on the business, operations, properties, assets,
liabilities, condition (financial or otherwise) or prospects of Company, Shelby
and their respective Subsidiaries. The results of Administrative Agent's legal,
tax, regulatory and environmental investigations with respect to Shelby and its
Subsidiaries, the Tender Offer, the Merger, the related financings and the other
transactions contemplated by the Loan Documents and the Related Agreements shall
be reasonably satisfactory in all material respects to Administrative Agent.
R. Completion of Proceedings. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Administrative
Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in
form and substance to Administrative Agent and such counsel, and Administrative
Agent and such counsel shall have received all such counterpart originals or
certified copies of such documents as Administrative Agent may reasonably
request.
Each Lender hereby agrees that by its execution and delivery of its
signature page hereto and by the funding of its Loans to be made on the Closing
Date, such Lender approves of and consents to each of the matters set forth in
this subsection 4.1 which must be approved by, or satisfactory to, Requisite
Lenders; provided that, in the case of any agreement or document which must be
approved by, or which must be satisfactory to, Requisite Lenders, a copy of such
agreement or document shall have been delivered to such Lender on or prior to
the Closing Date.
4.2 Conditions to Loans Made on Merger Date
The obligations of Lenders to make the Loans to be made on the Merger
Date are, in addition to the conditions precedent specified in subsection 4.3,
subject to the prior or concurrent satisfaction of the following conditions:
A. Shelby Documents. On or before the Merger Date, Company shall, or
shall cause Shelby and its Domestic Subsidiaries to, as the case may be, deliver
to Lenders (or to Administrative Agent for Lenders with sufficient originally
executed copies, where appropriate, for each Lender and its counsel) the
following, each, unless otherwise noted, dated the Merger Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of each of Shelby and its Domestic Subsidiaries, together
with, where applicable, a good standing certificate from the Secretary
of State of its jurisdiction of incorporation and each other state in
which Shelby or any of its Domestic Subsidiaries is qualified as a
foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to
payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such jurisdictions, each dated
a recent date prior to the Merger Date;
(ii) Copies of the Bylaws of each of Shelby and its Domestic
Subsidiaries, certified as of the Merger Date by such Person's
corporate secretary or an assistant secretary;
(iii) Resolutions of the Board of Directors of Shelby and its
Domestic Subsidiaries approving and authorizing the execution, delivery
and performance of the Loan Documents and the Related Agreements to
which it is a party and the consummation of the transactions
contemplated by the foregoing, each certified as of the Merger Date by
the corporate secretary or an assistant secretary of such Person as
being in full force and effect without modification or amendment;
(iv) Signature and incumbency certificates of the officers of
Shelby and its Subsidiaries executing the Loan Documents to which it is
a party;
(v) Originals of the Subsidiary Guaranty, the Subsidiary
Pledge Agreements, the Subsidiary Security Agreements and the
Mortgages, in each case executed by Shelby and each of its Domestic
Subsidiaries, as the case may be; and
(vi) Such other documents as Administrative Agent may
reasonably request;
provided, however, that to the extent the documents required to be delivered
pursuant to subsections 4.2A(i)-(iv) have been previously delivered pursuant to
subsections 4.1A(i)-(iv) or subsection 4.1F(vii)(e) on the Closing Date,
Company, Shelby or its Subsidiaries, as the case may be, may deliver a
certificate from the corporate secretary or assistant secretary of such Person
certifying that each such document has been previously delivered and has not
been amended, supplemented, waived or otherwise modified since the Closing Date
and each such document is in full force and effect.
B. Satisfaction of Conditions in Subsection 4.1. On or before the
Merger Date, all conditions precedent set forth in subsection 4.1 shall have
been satisfied or waived in writing by Requisite Lenders and (unless the Closing
Date is also the Merger Date as determined in accordance with subsection 6.10)
and Lenders shall have made the initial Loans on the Closing Date.
C. Related Agreements. To the extent not otherwise satisfied pursuant
to subsection 4.1F, Administrative Agent shall have received a fully executed or
conformed copy of each Related Agreement and any documents executed in
connection therewith, and each such Related Agreement shall be in full force and
effect and no provision thereof shall have been amended, supplemented, waived or
otherwise modified in any respect determined by Administrative to be material,
in each case without the consent of Administrative Agent.
D. Consummation of Merger.
(i) All conditions to the Merger set forth in the Merger
Agreement shall have been satisfied or the fulfillment of any such
conditions shall have been waived with the consent of Administrative
Agent and Requisite Lenders;
(ii) the Merger shall have become effective in accordance with
the terms of the Merger Agreement and the Delaware General Corporation
Law;
(iii) Administrative Agent shall have received satisfactory
evidence of the filing of the documents with the Secretary of State of
the State of Delaware effecting the Merger on the Merger Date;
(iv) the aggregate cash consideration for the shares of Shelby
Common Stock to be acquired in any manner whatsoever in connection with
the Tender Offer and the Merger shall not exceed approximately $148.3
million in the aggregate or the Tender Offer Price;
(v) Transaction Costs incurred as of the Merger Date
(including any such amounts incurred on or before the Closing Date)
shall not exceed $10.5 million and Administrative Agent shall have
received evidence to its satisfaction to such effect; and
(vi) Administrative Agent shall have received an Officers'
Certificate of Company to the effect set forth in clauses (i)-(v)
above.
E. Mortgages; Mortgage Policies; Etc. Administrative Agent shall have
received from Company and each applicable Subsidiary Guarantor:
(i) Mortgages. Fully executed and notarized Mortgages (each a
"Merger Date Mortgage" and, collectively, the "Merger Date Mortgages")
in proper form for recording in all appropriate places in all
applicable jurisdictions, encumbering each Real Property Asset listed
in Schedule 5.5 annexed hereto and identified as a Merger Date
mortgaged property (each a "Merger Date Mortgaged Property" and,
collectively, the "Merger Date Mortgaged Properties"); and
(ii) Matters Relating to Flood Hazard Properties. (a)
Evidence, which may be in the form of a letter from an insurance broker
or a municipal engineer, as to whether (1) any Merger Date Mortgaged
Property is a Flood Hazard Property and (2) the community in which any
such Flood Hazard Property is located is participating in the National
Flood Insurance Program, (b) if there are any such Flood Hazard
Properties, such Person's written acknowledgement of receipt of written
notification from Administrative Agent (1) as to the existence of each
such Flood Hazard Property and (2) as to whether the community in which
each such Flood Hazard Property is located is participating in the
National Flood Insurance Program, and (c) in the event any such Flood
Hazard Property is located in a community that participates in the
National Flood Insurance Program, evidence that Company or the
applicable Subsidiary of Company has obtained flood insurance in
respect of such Flood Hazard Property to the extent required under the
applicable regulations of the Board of Governors of the Federal Reserve
System;
(iii) Opinions of Local Counsel. To the extent required by
Administrative Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to Administrative Agent) in each state in which
a Merger Date Mortgaged Property is located with respect to the
enforceability of the form(s) of Merger Date Mortgages to be recorded
in such state and such other matters as Administrative Agent may
reasonably request, in each case in form and substance reasonably
satisfactory to Administrative Agent;
(iv) Landlord Consents and Estoppels; Recorded Leasehold
Interests. In the case of each Merger Date Mortgaged Property
consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel
with respect thereto and (b) evidence that such Leasehold Property is a
Recorded Leasehold Interest;
(v) Title Insurance. (a) ALTA mortgagee title insurance
policies or unconditional commitments therefor (the "Merger Date
Mortgage Policies") issued by the Title Company with respect to the
Merger Date Mortgaged Properties listed on Schedule 5.5 annexed hereto,
in amounts not less than the respective amounts designated therein with
respect to any particular Merger Date Mortgaged Properties, insuring
fee simple title to, or a valid leasehold interest in, each such Merger
Date Mortgaged Property vested in such Loan Party and assuring
Administrative Agent that the applicable Merger Date Mortgages create
valid and enforceable First Priority mortgage Liens on the respective
Merger Date Mortgaged Properties encumbered thereby (provided that
Company may cause to be delivered to Administrative Agent on the Merger
Date a Merger Date Mortgage Policy listing as an exception any of the
items set forth on Schedule 5.5 so long as such exception is removed by
endorsement within 15 days of the Merger Date), which Merger Date
Mortgage Policies (1) shall include an endorsement for mechanics'
liens, for future advances under this Agreement and for any other
matters reasonably requested by Administrative Agent and (2) shall
provide for affirmative insurance and such reinsurance as
Administrative Agent may reasonably request, all of the foregoing in
form and substance reasonably satisfactory to Administrative Agent; and
(b) evidence satisfactory to Administrative Agent that such Loan Party
has (i) delivered to the Title Company all certificates and affidavits
required by the Title Company in connection with the issuance of the
Merger Date Mortgage Policies and (ii) paid to the Title Company or to
the appropriate governmental authorities all expenses and premiums of
the Title Company in connection with the issuance of the Merger Date
Mortgage Policies and all recording and stamp taxes (including mortgage
recording and intangible taxes) payable in connection with recording
the Merger Date Mortgages in the appropriate real estate records;
(vi) Surveys. Unless otherwise approved by Administrative
Agent for delivery pursuant to subsection 6.9D, ALTA Surveys of each
Merger Date Mortgaged Property satisfactory in form and substance to
the Administrative Agent and the Title Company reasonably current and
certified to Administrative Agent and Title Company by a licensed
surveyor. Notwithstanding anything to the contrary herein, if
Administrative Agent, in its sole discretion, determines not to record
a Mortgage against one or more Mortgaged Properties on the Closing Date
or Merger Date, as the case may be, because the survey for such
Mortgaged Property has not been delivered to Administrative Agent,
Company shall not be in default hereunder for failure to satisfy the
requirements of this subsection with respect to such Mortgaged
Property; provided, however, that Company or the applicable Subsidiary
Guarantor shall satisfy such requirements no later than forty-five (45)
days after the Closing Date or Merger Date, as the case may be.
(vii) Copies of Documents Relating to Title Exceptions. Copies
of all recorded documents listed as exceptions to title or otherwise
referred to in the Merger Date Mortgage Policies or in the title
reports delivered pursuant to subsection 4.2E(vi); and
(viii) Environmental Indemnity. If requested by Administrative
Agent, an environmental indemnity agreement, reasonably satisfactory in
form and substance to Administrative Agent and its counsel, with
respect to the indemnification of Agents and Lenders for any
liabilities that may be imposed on or incurred by any of them as a
result of any Hazardous Materials Activity.
F. Security Interests in Personal and Mixed Property. To the extent not
otherwise satisfied pursuant to subsection 4.1G, 4.1H or 4.2E, Administrative
Agent shall have received evidence satisfactory to it that Company and
Subsidiary Guarantors shall have taken or caused to be taken all such actions,
executed and delivered or caused to be executed and delivered all such
agreements, documents and instruments, and made or caused to be made all such
filings and recordings (other than the filing or recording of items described in
clauses (iii) and (iv) below) that may be necessary or, in the opinion of
Administrative Agent, desirable in order to create in favor of Administrative
Agent, for the benefit of Lenders, a valid and (upon such filing and recording)
perfected First Priority security interest in the entire personal and mixed
property Collateral. Such actions shall include the following:
(i) Schedules to Collateral Documents. Delivery to
Administrative Agent of accurate and complete schedules to all of the
applicable Collateral Documents;
(ii) Stock Certificates and Instruments. Delivery to
Administrative Agent of (a) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to Administrative
Agent) representing all capital stock pledged pursuant to the Pledge
Agreement executed by Company and the Subsidiary Pledge Agreements
executed by the Subsidiaries of Company and (b) all promissory notes or
other instruments (duly endorsed, where appropriate, in a manner
satisfactory to Administrative Agent) evidencing any Collateral;
(iii) UCC Financing Statements and Fixture Filings. Delivery
to Administrative Agent of UCC financing statements and, where
appropriate, fixture filings, duly executed by each applicable Loan
Party with respect to all personal and mixed property Collateral of
such Loan Party, for filing in all jurisdictions as may be necessary
or, in the opinion of Administrative Agent, desirable to perfect the
security interests created in such Collateral pursuant to the
Collateral Documents;
(iv) PTO Cover Sheets, Etc. Delivery to Administrative Agent
of all cover sheets or other documents or instruments required to be
filed with the PTO in order to create or perfect Liens in respect of
any IP Collateral; and
(v) Opinions of Local Counsel. If required by Administrative
Agent, delivery to Administrative Agent of an opinion of counsel (which
counsel shall be reasonably satisfactory to Administrative Agent) under
the laws of each jurisdiction in which any Loan Party or any personal
or mixed property Collateral is located with respect to the creation
and perfection of the security interests in favor of Administrative
Agent in such Collateral and such other matters governed by the laws of
such jurisdiction regarding such security interests as Administrative
Agent may reasonably request, in each case in form and substance
reasonably satisfactory to Administrative Agent.
G. Opinions of Counsel to Loan Parties; Reliance Letters. Lenders and
their respective counsel shall have received originally executed copies of one
or more favorable written opinions of Gallop, Johnson & Neuman, L.C., counsel
for Loan Parties, in form and substance satisfactory to Administrative Agent s
and Lenders, dated as of the Merger Date and setting forth substantially the
matters in the opinions designated in Exhibit VIII annexed hereto and as to such
other matters as Administrative Agent acting on behalf of Lenders may reasonably
request and unless otherwise agreed by Administrative Agent. Administrative
Agent and its counsel shall have received copies of each of the opinions of
counsel delivered to the parties under the Related Agreements after the Closing
Date, together with a letter from each such counsel authorizing Lenders to rely
upon such opinion to the same extent as though it were addressed to Lenders.
H. Fees. Company shall have paid to Arrangers, Agents and Lenders the
fees payable on the Merger Date.
I. Representations and Warranties; Performance of Agreements. Company
shall have delivered to Administrative Agent an Officers' Certificate, in form
and substance satisfactory to Administrative Agent, to the effect that the
representations and warranties in Section 5 hereof are true, correct and
complete in all material respects on and as of the Merger Date to the same
extent as though made on and as of that date (or, to the extent such
representations and warranties specifically relate to an earlier date, that such
representations and warranties were true, correct and complete in all material
respects on and as of such earlier date) and that Company shall have performed
in all material respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before the Merger
Date except as otherwise disclosed to and agreed to in writing by Administrative
Agent and Requisite Lenders.
4.3 Conditions to All Loans
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Administrative Agent shall have received before that Funding Date,
in accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer, the
chief financial officer or the treasurer of Company or by any executive officer
of Company designated by any of the above-described officers on behalf of
Company in a writing delivered to Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in
the other Loan Documents shall be true, correct and complete in all
material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date;
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Borrowing that would constitute an Event of Default or a
Potential Event of Default;
(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before
that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date
shall not violate any law including Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System;
and
(vi) There shall not be pending or, to the knowledge of
Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries that
has not been disclosed by Company in writing pursuant to subsection 5.6
or 6.1(ix) prior to the making of the last preceding Loans (or, in the
case of the initial Loans, prior to the execution of this Agreement),
and there shall have occurred no development not so disclosed in any
such action, suit, proceeding, governmental investigation or
arbitration so disclosed, that, in either event, in the opinion of
Administrative Agent or of Requisite Lenders, would be expected to have
a Material Adverse Effect; and no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise
prevent the consummation of, or to recover any damages or obtain relief
as a result of, the transactions contemplated by this Agreement or the
making of the Loans hereunder.
4.4 Conditions to Letters of Credit
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), an originally executed Request for Issuance of Letter of
Credit, in each case signed by the chief executive officer, the chief financial
officer or the treasurer of Company or by any executive officer of Company
designated by any of the above-described officers on behalf of Company in a
writing delivered to Administrative Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as the
applicable Issuing Lender may reasonably require in connection with the issuance
of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.3B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and the Agents to enter into this Agreement
and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and
to induce other Lenders to purchase participations therein, Company represents
and warrants to each Lender and the Agents, on the date of this Agreement, on
each Funding Date and on the date of issuance of each Letter of Credit, that the
following statements are true, correct and complete:
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries
A. Organization and Powers. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization as specified in Schedule 5.1
annexed hereto. Each Loan Party has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
as proposed to be conducted, to enter into the Loan Documents and the Related
Agreements to which it is a party and to carry out the transactions contemplated
thereby.
B. Qualification and Good Standing. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions, individually or in the aggregate for all such jurisdictions,
where the failure to be so qualified or in good standing has not had and will
not have a Material Adverse Effect.
C. Conduct of Business. Company and its Subsidiaries are engaged only
in the businesses permitted to be engaged in pursuant to subsection 7.13.
D. Subsidiaries. All of the Subsidiaries of Company, including any
Inactive Subsidiaries, are identified in Schedule 5.1 annexed hereto, as said
Schedule 5.1 may be supplemented from time to time pursuant to the provisions of
subsection 6.1(xv). The capital stock of each of the Subsidiaries of Company
identified in Schedule 5.1 is duly authorized, validly issued, fully paid and
nonassessable and none of such capital stock (other than the Shelby Common
Stock) constitutes Margin Stock. Each of the Subsidiaries of Company identified
in Schedule 5.1 is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
organization set forth therein, has all requisite corporate power and authority
to own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted, and is qualified to do business and in good
standing in every jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, in each case except where
failure to be so qualified or in good standing or a lack of such corporate power
and authority, individually or in the aggregate, has not had and will not have a
Material Adverse Effect. Schedule 5.1 correctly sets forth the ownership
interest of Company and each of its Subsidiaries in each of the Subsidiaries of
Company identified therein.
5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance
of the Loan Documents and the Related Agreements have been duly authorized by
all necessary actions on the part of each Loan Party that is a party thereto.
B. No Conflict. The execution, delivery and performance by Loan Parties
of the Loan Documents and the Related Agreements and the consummation of the
transactions contemplated by the Loan Documents and the Related Agreements do
not and will not (i) violate any provision of any law or any governmental rule
or regulation applicable to Company or any of its Subsidiaries, the Certificate
or the Articles of Incorporation or Bylaws of Company or any of Company's
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on Company or any of Company's Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of Company or any of its
Subsidiaries, except for such breaches, conflicts and defaults which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Company or any of Company's
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Administrative Agent on behalf of Lenders), or (iv) require any
approval of or consent of any Person under any Contractual Obligation of Company
or any of Company's Subsidiaries, except for such approvals or consents which
will be obtained on or before the Closing Date and disclosed in writing to
Lenders or which the failure to obtain could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
C. Governmental Consents. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements and the
consummation of the transactions contemplated by the Loan Documents and the
Related Agreements do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, any federal, state or
other governmental authority or regulatory body, except for filings required in
connection with the perfection of security interests granted pursuant to the
Loan Documents, and such other registrations, consents, approvals, notices or
other actions which have been or will be made, obtained, given or taken on or
before the Closing Date or which the failure to obtain or take could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
D. Binding Obligation. Each of the Loan Documents and the Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. Valid Issuance of Equity Securities. The capital stock of
Acquisition Co. to be sold on or before the Closing Date, when issued and
delivered, will be duly and validly issued, fully paid and nonassessable. No
stockholder of Acquisition Co. has or will have any preemptive rights to
subscribe for any additional equity Securities of Acquisition Co. The issuance
of sale of such common equity Securities of Acquisition Co., upon such issuance
and sale, will either (a) have been registered or qualified under applicable
federal and state securities laws or (b) be exempt therefrom.
F. Senior Subordinated Debt Securities. Company has the corporate power
and authority to issue the Senior Subordinated Debt Securities. The Senior
Subordinated Debt Securities, when issued, will be the legally valid and binding
obligations of Company, enforceable against Company in accordance with their
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability. The subordination
provisions of the Senior Subordinated Debt Securities are enforceable against
the holders thereof in accordance with their terms and the Loans, Letters of
Credit and all other monetary Obligations hereunder are within the definitions
of "Senior Indebtedness" and "Designated Senior Indebtedness" included in such
provisions. The Senior Subordinated Debt Securities are either (a) registered or
qualified under applicable federal and state securities laws or (b) are exempt
therefrom.
5.3 Financial Condition
Company has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheets of Company and its Subsidiaries as at October 31, 1998, November
1, 1997 and November 2, 1996 and the audited consolidated balance sheets of
Shelby and its Subsidiaries as at December 31, 1998, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
of Company, Shelby and their respective Subsidiaries for the Fiscal Years then
ended and (ii) the unaudited consolidated balance sheet of Company and its
Subsidiaries for the Fiscal Quarters ending on or about January 31, 1999 and of
Shelby and its Subsidiaries as of March 31, 1999, and the related unaudited
consolidated statements of income, stockholders' equity and cash flows of
Company, Shelby and their respective Subsidiaries for the three months then
ended. All such statements were prepared in conformity with GAAP and fairly
present, in all material respects, the financial position (on a consolidated
basis) of the entities described in such financial statements as at the
respective dates thereof and the results of operations and cash flows (on a
consolidated basis) of the entities described therein for each of the periods
then ended, subject, in the case of any such unaudited financial statements, to
changes resulting from normal year-end adjustments. Company does not (and will
not following the funding of the initial Loans) have any Contingent Obligation,
contingent liability or liability for taxes, long-term lease or unusual forward
or long-term commitment that is not reflected in the foregoing financial
statements or the notes thereto and which in any such case is material in
relation to the business, operations, properties, assets, condition (financial
or otherwise) or prospects of Company or any of its Subsidiaries, taken as a
whole.
5.4 No Material Adverse Change; No Restricted Junior Payments
Since October 31, 1998, no event or change has occurred that has caused
or evidences, either in any case or in the aggregate, a Material Adverse Effect,
and neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or made, or set apart any sum or property for, any
Restricted Junior Payment or agreed to do so except as permitted under
subsection 7.5.
5.5 Title to Properties; Liens; Real Property
A. Title to Properties; Liens. Company and its Subsidiaries have (i)
good, sufficient and legal title to (in the case of fee interests in real
property), (ii) valid leasehold interests in (in the case of leasehold interests
in real or personal property), or (iii) good title to (in the case of all other
personal property), all of their respective properties and assets reflected in
the financial statements referred to in subsection 5.3 or in the most recent
financial statements delivered pursuant to subsection 6.1, in each case except
for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 7.7.
Except as permitted by this Agreement, all such properties and assets are free
and clear of Liens. With respect to those Liens set forth on Schedule 5.5, the
debts secured thereby have been paid in full and are no longer outstanding.
B. Real Property. As of the Closing Date, Schedule 5.5 annexed hereto
contains a true, accurate and complete list of (i) all real property owned by
Company or any Subsidiary and (ii) all leases, subleases or assignments of
leases (together with all amendments, modifications, supplements, renewals or
extensions of any thereof) affecting each Real Property Asset of any Loan Party,
regardless of whether such Loan Party is the landlord or tenant (whether
directly or as an assignee or successor in interest) under such lease, sublease
or assignment. Except as specified in Schedule 5.5, each agreement listed in
clause (ii) of the immediately preceding sentence is in full force and effect
and Company does not have knowledge of any default that has occurred and is
continuing thereunder, and each such agreement constitutes the legally valid and
binding obligation of each applicable Loan Party, enforceable against such Loan
Party in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles.
5.6 Litigation; Adverse Facts
Except as set forth in Schedule 5.6 annexed hereto, there are no
actions, suits, proceedings, arbitrations or governmental investigations
(whether or not purportedly on behalf of Company or any of its Subsidiaries) at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign (including any Environmental Claims) that are pending or, to
the knowledge of Company, threatened against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries and that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect or could reasonably be expected to prevent or unduly
delay the Merger or the consummation of the Tender Offer. Neither Company nor
any of its Subsidiaries (i) is in violation of any applicable laws (including
Environmental Laws) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, or (ii) is subject to or in
default with respect to any final judgments, writs, injunctions, decrees, rules
or regulations of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
5.7 Payment of Taxes
Except to the extent permitted by subsection 6.3 and except as
described or referred to on Schedule 5.7 annexed hereto, all tax returns and
reports of Company and its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes shown on such tax returns to be due and payable
and all assessments, fees and other governmental charges upon Company and its
Subsidiaries and upon their respective properties, assets, income, businesses
and franchises which are due and payable have been paid when due and payable.
Company knows of no proposed tax assessment against Company or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect and which is not being actively contested by Company or such Subsidiary
in good faith and by appropriate proceedings; provided that such reserves or
other appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made or provided therefor.
5.8 Performance of Agreements; Materially Adverse Agreements
A. Neither Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
B. Neither Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
5.9 Governmental Regulation
Neither Company nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
5.10 Securities Activities
A. Neither Company nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any Margin Stock.
B. Not more than 25% of the value of the assets (either of Company only
or of Company and its Subsidiaries on a consolidated basis) that are subject to
the restrictions on Liens or dispositions contained in subsection 7.2 or 7.7 or
subject to any restriction contained in any agreement or instrument, between
Company and any Lender or any Affiliate of any Lender, relating to Indebtedness
and within the scope of subsection 8.2, will be Margin Stock.
5.11 Employee Benefit Plans
A. Company and each of its Subsidiaries are in compliance with all
applicable provisions and requirements of ERISA and the regulations and
published interpretations thereunder with respect to each Company Employee
Benefit Plan, and have performed all their obligations under each Company
Employee Benefit Plan, except where a failure to comply or perform could not
reasonably be expected to have a Material Adverse Effect. Each Company Employee
Benefit Plan which is intended to qualify under Section 401(a) of the Internal
Revenue Code is so qualified.
B. No ERISA Event has occurred or is reasonably expected to occur.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code or other applicable law or individual contract, no Company Employee
Benefit Plan provides health or welfare benefits (through the purchase of
insurance or otherwise) for any retired or former employee of Company, any of
its Subsidiaries or any of their respective ERISA Affiliates.
D. As of the most recent valuation date for any Pension Plan, and
excluding for purposes of such computation all Pension Plans with respect to
which assets exceed benefit liabilities (as defined in Section 4001(a)(16) of
ERISA), the sum of:
(i) the unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA) individually or in the aggregate for all Company
Pension Plans; and
(ii) the liability that Company or its Subsidiaries could
reasonably be expected to incur as the result of such unfunded benefit
liabilities, individually or in the aggregate, for all Pension Plans
other than Company Pension Plans (assuming amortization of such
unfunded benefit liabilities over ten years);
does not exceed $1 million.
E. As of the most recent valuation date for which an actuarial report
has been received and based on information available pursuant to Section 4221(e)
of ERISA, the sum of:
(i) the potential liability of Company and its Subsidiaries
for a complete withdrawal from all Multiemployer Plans (within the
meaning of Section 4203 of ERISA) to which Company or any of its
Subsidiaries contribute; and
(ii) the liability of Company or its Subsidiaries could be
reasonably be expected to incur as a result of the complete withdrawal
from all Multiemployer Plans to which neither Company nor any of its
Subsidiaries contribute, after considering the financial condition of
all of the ERISA Affiliates most closely related to the contributing
employer(s);
does not exceed $1 million.
5.12 Certain Fees
Other than as disclosed in the Tender Offer Materials, no broker's or
finder's fee or commission will be payable with respect to this Agreement or any
of the transactions contemplated hereby, and Company hereby indemnifies Lenders
against, and agrees that it will hold Lenders harmless from, any claim, demand
or liability for any such broker's or finder's fees alleged to have been
incurred in connection herewith or therewith and any expenses (including
reasonable fees, expenses and disbursements of counsel) arising in connection
with any such claim, demand or liability.
5.13 Environmental Protection
Except as set forth in Schedule 5.13 annexed hereto:
(i) neither Company nor any of its Subsidiaries nor any of
their respective Facilities or operations are subject to any
outstanding written order, consent decree or settlement agreement with
any Person relating to (a) any Environmental Law, (b) any Environmental
Claim, or (c) any Hazardous Materials Activity, except where such an
order, consent, decree or settlement agreement, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse
Effect;
(ii) neither Company nor any of its Subsidiaries has received
any letter or request for information under Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act
(42 U.S.C. ss. 9604) or any comparable state law, except where such a
letter or request, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect;
(iii) there are and, to Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim
against Company or any of its Subsidiaries, except where such a
condition, occurrence or Hazardous Materials Activity, individually or
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect;
(iv) neither Company nor any of its Subsidiaries nor, to
Company's knowledge, any predecessor of Company or any of its
Subsidiaries has filed any notice under any Environmental Law
indicating past or present treatment of Hazardous Materials at any
Facility, and none of Company's or any of its Subsidiaries' operations
involves the generation, transportation, treatment, storage or disposal
of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any
state equivalent, except where such treatment or generation,
transportation, storage or disposal, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect; and
(v) compliance with all current or reasonably foreseeable
future requirements pursuant to or under Environmental Laws will not,
individually or in the aggregate, have a reasonable possibility of
giving rise to a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no
event or condition has occurred or is occurring with respect to Company or any
of its Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity, including any matter disclosed
on Schedule 5.13 annexed hereto, which individually or in the aggregate, has had
or could reasonably be expected to have a Material Adverse Effect.
5.14 Employee Matters
There is no strike or work stoppage in existence or threatened
involving Company or any of its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
5.15 Solvency
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
5.16 Matters Relating to Collateral
A. Creation, Perfection and Priority of Liens. The execution and
delivery of the Collateral Documents by Loan Parties, together with actions
taken pursuant to subsections 4.1G, 4.1H, 4.2E, 4.2F, 6.8 and 6.9 are effective
or, in the case of subsections 4.2E and 4.2F, will be effective as of the Merger
Date, or in the case of subsections 6.8 and 6.9, will be effective at the time
of the acquisition of such Subsidiaries, to create in favor of Administrative
Agent for the benefit of Lenders, as security for the respective Secured
Obligations (as defined in the applicable Collateral Document in respect of any
Collateral), a valid and perfected First Priority Lien on all of the Collateral.
B. Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of Administrative Agent pursuant
to any of the Collateral Documents or (ii) the exercise by Administrative Agent
of any rights or remedies in respect of any Collateral (whether specifically
granted or created pursuant to any of the Collateral Documents or created or
provided for by applicable law), except for filings or recordings contemplated
by subsection 5.16A and except as may be required, in connection with the
disposition of any Pledged Collateral, by laws generally affecting the offering
and sale of securities.
C. Absence of Third-Party Filings. Except such as may have been filed
in favor of Administrative Agent, (i) no effective UCC financing statement,
fixture filing or other instrument similar in effect covering all or any part of
the Collateral is on file in any filing or recording office and (ii) no
effective filing covering all or any part of the IP Collateral is on file in the
PTO.
D. Margin Regulations. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System. E. Information Regarding Collateral.
All information supplied to Agents by or on behalf of any Loan Party with
respect to any of the Collateral (in each case taken as a whole with respect to
any particular Collateral) is accurate and complete in all material respects.
5.17 Related Agreements
A. Delivery of Related Agreements. Company has delivered to Lenders
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. Warranties. Subject to the qualifications set forth therein, each of
the representations and warranties given by Company, Acquisition Co. and Shelby
in the Merger Agreement is true and correct in all material respects as of the
date hereof (or as of any earlier date to which such representation and warranty
specifically relates) and will be true and correct in all material respects as
of the Closing Date and the Merger Date (or such earlier date as the case may
be).
C. Survival. Notwithstanding anything in the Merger Agreement to the
contrary, the representations and warranties of Company set forth in subsection
5.17B shall, solely for purposes of this Agreement, survive the Closing Date and
the Merger Date for the benefit of Lenders.
5.18 Disclosure
A. Loan Documents. No representation or warranty of any Loan Party
contained in any Loan Document or Related Agreement or in any other document,
certificate or written statement furnished to Lenders by or on behalf of Company
or any of its Subsidiaries for use in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact (known to Company, in the case of any document
not furnished by it) necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which the same were
made. Any projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by
Company to be reasonable at the time made, it being recognized by Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results. There are no facts known (or which should
upon the reasonable exercise of diligence be known) to Company (other than
matters of a general economic nature) that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect and that
have not been disclosed herein or in such other documents, certificates and
statements furnished to Lenders for use in connection with the transactions
contemplated hereby.
B. Tender Offer Materials. The Tender Offer Materials do not contain
any untrue statement of a material fact or omit to state a material fact (known
to Company or any of its Subsidiaries, in the case of any document not furnished
by it) necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made.
5.19 Year 2000 Compliance
All Information Systems and Equipment are either Year 2000 Compliant,
or any reprogramming, remediation or any other corrective action, including the
internal testing of all such Information Systems and Equipment, will be
completed by June 30, 1999. To the extent that such reprogramming/remediation
and testing action is required, the cost thereof, as well as the cost of the
reasonably foreseeable consequences of failure to become Year 2000 Compliant, to
Company and its Subsidiaries (including without limitation reprogramming errors
and the failure or other systems or equipment) will not result in an Event of
Default or a Material Adverse Effect.
Section 6. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 6.
6.1 Financial Statements and Other Reports
Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Company will deliver to Agents and Lenders:
(i) Quarterly Financials: as soon as available and in any
event within 45 days after the end of each Fiscal Quarter, (a) the
consolidated balance sheets of Company and its Subsidiaries as at the
end of such Fiscal Quarter and the related consolidated statements of
income, stockholders' equity and cash flows of Company and its
Subsidiaries for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous
Fiscal Year and the corresponding figures from the Financial Plan for
the current Fiscal Year, all in reasonable detail and certified by the
chief financial officer of Company that they fairly present, in all
material respects, the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments, and (b) a
narrative report describing the operations of Company and its
Subsidiaries in the form prepared for presentation to senior management
for such Fiscal Quarter and for the period from the beginning of the
then current Fiscal Year to the end of such Fiscal Quarter (it being
understood and agreed that the "Management Discussion and Analysis"
contained in the Company's quarterly report on Form 10-Q filed with the
Securities and Exchange Commission for such period or in Company's
annual report on Form 10-K filed with the Securities and Exchange
Commission shall be deemed to comply with the foregoing requirement);
(ii) Year-End Financials: as soon as available and in any
event within 90 days after the end of each Fiscal Year, (a) the
consolidated balance sheets of Company and its Subsidiaries as at the
end of such Fiscal Year and the related consolidated statements of
income, stockholders' equity and cash flows of Company and its
Subsidiaries for such Fiscal Year, setting forth in each case in
comparative form the corresponding figures for the previous Fiscal Year
and, the corresponding figures from the Financial Plan for the Fiscal
Year covered by such financial statements, all in reasonable detail and
certified by the chief financial officer, chief accounting officer or
controller of Company that they fairly present, in all material
respects, the financial condition of Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, (b) a narrative report describing the
operations of Company and its Subsidiaries in the form prepared for
presentation to senior management for such Fiscal Year, and (c) in the
case of such consolidated financial statements, a report thereon of
Arthur Andersen LLP or other independent certified public accountants
of recognized national standing selected by Company and satisfactory to
Administrative Agent, which report shall be unqualified, shall express
no doubts about the ability of Company and its Subsidiaries to continue
as a going concern, and shall state that such consolidated financial
statements fairly present, in all material respects, the consolidated
financial position of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for
the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iii) Officers' and Compliance Certificates: together with
each delivery of financial statements pursuant to subdivisions (i) and
(ii) above, (a) an Officers' Certificate of Company stating that the
signers have reviewed the terms of this Agreement and have made, or
caused to be made under their supervision, a review in reasonable
detail of the transactions and condition of Company and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not
have knowledge of the existence as at the date of such Officers'
Certificate, of any condition or event that constitutes an Event of
Default or Potential Event of Default, or, if any such condition or
event existed or exists, specifying the nature and period of existence
thereof and what action Company has taken, is taking and proposes to
take with respect thereto and (b) a Compliance Certificate
demonstrating in reasonable detail compliance during and at the end of
the applicable accounting periods with the restrictions contained in
Section 7, in each case to the extent compliance with such restrictions
is required to be tested at the end of the applicable accounting
period;
(iv) Reconciliation Statements: if, as a result of any change
in accounting principles and policies from those used in the
preparation of the audited financial statements referred to in
subsection 5.3, the consolidated financial statements of Company and
its Subsidiaries delivered pursuant to subdivisions (i), (ii) or (xii)
of this subsection 6.1 will differ in any material respect from the
consolidated financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting
principles and policies been made, then (a) together with the first
delivery of financial statements pursuant to subdivision (i), (ii) or
(xii) of this subsection 6.1 following such change, consolidated
financial statements of Company and its Subsidiaries for (x) the
current Fiscal Year to the effective date of such change and (y) the
full Fiscal Year immediately preceding the Fiscal Year in which such
change is made, in each case prepared on a pro forma basis as if such
change had been in effect during such periods, and (b) together with
each delivery of financial statements pursuant to subdivision (i), (ii)
or (xii) of this subsection 6.1 following such change, a written
statement of the chief accounting officer or chief financial officer of
Company setting forth the differences (including without limitation any
differences that would affect any calculations relating to the
financial covenants set forth in subsection 7.6) which would have
resulted if such financial statements had been prepared without giving
effect to such change;
(v) Accountants' Certification: together with each delivery of
consolidated financial statements of Company and its Subsidiaries
pursuant to subdivision (ii) above, a written statement by the
independent certified public accountants giving the report thereon (a)
stating that their audit examination has included a review of the terms
of Section 7 of this Agreement as they relate to accounting matters,
(b) stating whether, in connection with their audit examination, any
condition or event that constitutes an Event of Default or Potential
Event of Default has come to their attention and, if such a condition
or event has come to their attention, specifying the nature and period
of existence thereof; provided that such accountants shall not be
liable by reason of any failure to obtain knowledge of any such Event
of Default or Potential Event of Default that would not be disclosed in
the course of their audit examination, and (c) stating that based on
their audit examination nothing has come to their attention that causes
them to believe either or both that the information contained in the
certificates delivered therewith pursuant to subdivision (iii) above is
not correct or that the matters set forth in the Compliance
Certificates delivered therewith pursuant to clause (c) of subdivision
(iii) above for the applicable Fiscal Year are not stated in accordance
with the terms of this Agreement;
(vi) Accountants' Reports: promptly upon receipt thereof
(unless restricted by applicable professional standards), copies of all
reports submitted to Company by independent certified public
accountants in connection with each annual, interim or special audit of
the financial statements of Company and its Subsidiaries made by such
accountants, including any comment letter submitted by such accountants
to management in connection with their annual audit;
(vii) SEC Filings and Press Releases: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by
Company to its security holders or by any Subsidiary of Company to its
security holders other than Company or another Subsidiary of Company,
(b) all regular and periodic reports and all registration statements
(other than on Form S-8 or a similar form) and prospectuses, if any,
filed by Company or any of its Subsidiaries with any securities or with
the Securities and Exchange Commission or any governmental or private
regulatory authority, and (c) all press releases and other statements
made available generally by Company or any of its Subsidiaries to the
public concerning material developments in the business of Company or
any of its Subsidiaries;
(viii) Events of Default, etc.: promptly upon any officer of
Company obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, or
becoming aware that any Lender has given any notice (other than to
Administrative Agent) or taken any other action with respect to a
claimed Event of Default or Potential Event of Default, (b) that any
Person has given any notice to Company or any of its Subsidiaries or
taken any other action with respect to a claimed default or event or
condition of the type referred to in subsection 8.2, (c) of any
condition or event that would be required to be disclosed in a current
report filed by Company with the Securities and Exchange Commission on
Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date
hereof) whether or not Company is required to file such reports under
the Exchange Act, or (d) of the occurrence of any event or change that
has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or
specifying the notice given or action taken by any such Person and the
nature of such claimed Event of Default, Potential Event of Default,
default, event or condition, and what action Company has taken, is
taking and proposes to take with respect thereto;
(ix) Litigation or Other Proceedings: (a) promptly upon any
officer of Company obtaining knowledge of (X) the institution of, or
non-frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or
any property of Company or any of its Subsidiaries (collectively,
"Proceedings") not previously disclosed in writing by Company to
Lenders or (Y) any material development in any Proceeding that, in any
case:
(1) if adversely determined, could reasonably be expected
to have a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their respective
counsel to evaluate such matters; and (b) within twenty days after the
end of each Fiscal Quarter, a schedule of all Proceedings involving an
alleged liability of, or claims against or affecting, Company or any of
its Subsidiaries equal to or greater than $500,000, and promptly after
request by Administrative Agent such other information as may be
reasonably requested by Administrative Agent to enable Administrative
Agent and its respective counsel to evaluate any of such Proceedings;
(x) ERISA Events: promptly upon Company becoming aware of the
occurrence of or forthcoming occurrence of any ERISA Event, a written
notice specifying the nature thereof, what action Company, any of its
Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(xi) ERISA Notices: with reasonable promptness, copies of (a)
all notices received by Company, any of its Subsidiaries or (if
obtained by Company) any of their respective ERISA Affiliates from a
Multiemployer Plan sponsor concerning an ERISA Event; and (b) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as Administrative Agent shall reasonably request;
(xii) Financial Plans: as soon as practicable and in any event
no later than thirty (30) days after the beginning of the Fiscal Year
ending on or about October 31, 1999 and thirty (30) days prior to the
beginning of each subsequent Fiscal Year, a consolidated and
consolidating plan and financial forecast for such Fiscal Year and the
next four succeeding Fiscal Years (the "Financial Plan" for such Fiscal
Years), including (a) a forecasted consolidated balance sheet and
forecasted consolidated statements of income and cash flows of Company
and its Subsidiaries for each such Fiscal Year and an explanation of
the assumptions on which such forecasts are based, (b) forecasted
consolidated statements of income and cash flows of Company and its
Subsidiaries for each quarter of the first such Fiscal Year, together
with pro forma financial covenant calculations for such Fiscal Year
determined in a manner consistent with financial covenant calculations
shown in a Compliance Certificate, together with an explanation of the
assumptions on which such forecasts are based, (c) the amount of
forecasted unallocated overhead for each such Fiscal Year, and (d) such
other information and projections as Administrative Agent or any Lender
may reasonably request;
(xiii) Insurance: as soon as practicable and in any event by
the last day of each Fiscal Year, a report in form and substance
satisfactory to Administrative Agent outlining all material insurance
coverage maintained as of the date of such report by Company and its
Subsidiaries and all material insurance coverage planned to be
maintained by Company and its Subsidiaries in the immediately
succeeding Fiscal Year;
(xiv) Board of Directors: with reasonable promptness, written
notice of any change in the Board of Directors of Company;
(xv) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to
such Person (a) the date on which such Person became a Subsidiary of
Company and (b) all of the data required to be set forth in Schedule
5.1 with respect to all Subsidiaries of Company (it being understood
that such written notice shall be deemed to supplement Schedule 5.1 for
all purposes of this Agreement);
(xvi) UCC Search Report: As promptly as practicable after the
date of delivery to Administrative Agent of any UCC financing statement
executed by any Loan Party pursuant to subsection 4.1H, 4.2F or 6.8A,
copies of completed UCC searches evidencing the proper filing,
recording and indexing of all such UCC financing statement and listing
all other effective financing statements that name such Loan Party as
debtor, together with copies of all such other financing statements not
previously delivered to Administrative Agent by or on behalf of Company
or such Loan Party;
(xvii) Margin Determination Certificate: together with each
delivery of financial statements pursuant to subdivisions (i) and (ii)
above, a Margin Determination Certificate demonstrating in reasonable
detail the calculation of the Consolidated Leverage Ratio for the four
consecutive Fiscal Quarters ending on the day of the accounting period
covered by such financial statements; and
(xviii) Other Information: with reasonable promptness, such
other information and data with respect to Company or any of its
Subsidiaries as from time to time may be reasonably requested by
Administrative Agent or any Lender.
6.2 Legal Existence, etc.
Except as permitted under subsection 7.7, Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its legal existence and all rights and franchises material to its
business; provided, however, that neither Company nor any of its Subsidiaries
shall be required to preserve any such right or franchise if the Board of
Directors of Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Company or such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to Company, such Subsidiary or Lenders.
6.3 Payment of Taxes and Claims; Tax Consolidation
A. Company will, and will cause each of its Subsidiaries to, pay all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a material Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided that no such charge or claim need be
paid if it is being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, so long as (1) such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor and (2) in the case of a charge or claim which has
or may become a Lien against any of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the Collateral to
satisfy such charge or claim.
B. Company will not, nor will it permit any of its Subsidiaries to,
file or consent to the filing of any consolidated income tax return with any
Person (other than Company or any of its Subsidiaries).
6.4 Maintenance of Properties; Insurance; Application of Net Insurance/
Condemnation Proceeds
A. Maintenance of Properties. Company will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Company and its Subsidiaries (including all
Intellectual Property) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof.
B. Insurance. Company will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Company and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the generality
of the foregoing, Company will maintain or cause to be maintained (i) flood
insurance with respect to each Flood Hazard Property that is located in a
community that participates in the National Flood Insurance Program, in each
case in compliance with any applicable regulations of the Board of Governors of
the Federal Reserve System, and (ii) replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
satisfactory to Administrative Agent in its commercially reasonable judgment.
Each such policy of insurance shall (a) name Administrative Agent for the
benefit of Lenders as an additional insured thereunder as its interests may
appear and (b) in the case of each business interruption and casualty insurance
policy, contain a loss payable clause or endorsement, satisfactory in form and
substance to Administrative Agent, that names Administrative Agent for the
benefit of Lenders as the loss payee thereunder for any covered loss in excess
of $1 million and provides for at least 30 days prior written notice to
Administrative Agent of any modification or cancellation of such policy.
C. Application of Net Insurance/Condemnation Proceeds.
(i) Business Interruption Insurance. Upon receipt by Company
or any of its Subsidiaries of any business interruption insurance
proceeds constituting Net Insurance/Condemnation Proceeds, (a) so long
as no Event of Default or Potential Event of Default shall have
occurred and be continuing, Company or such Subsidiary may retain and
apply such Net Insurance/Condemnation Proceeds for working capital
purposes, and (b) if an Event of Default or Potential Event of Default
shall have occurred and be continuing, Company shall apply an amount
equal to such Net Insurance/Condemnation Proceeds to prepay the Loans
(and/or the Revolving Loan Commitments shall be reduced) as provided in
subsection 2.4B(iii)(b);
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
Company or any of its Subsidiaries of any Net Insurance/Condemnation
Proceeds other than from business interruption insurance, (a) so long
as no Event of Default or Potential Event of Default shall have
occurred and be continuing, Company shall, or shall cause one or more
of its Subsidiaries to, promptly and diligently apply such Net
Insurance/Condemnation Proceeds to pay or reimburse the costs of
repairing, restoring or replacing the assets in respect of which such
Net Insurance/Condemnation Proceeds were received or, to the extent not
so applied, to prepay the Loans (and/or the Revolving Loan Commitments
shall be reduced) as provided in subsection 2.4B(iii)(b), and (b) if an
Event of Default or Potential Event of Default shall have occurred and
be continuing, Company shall apply an amount equal to such Net
Insurance/Condemnation Proceeds to prepay the Loans (and/or the
Revolving Loan Commitments shall be reduced) as provided in subsection
2.4B(iii)(b); provided that the aggregate amount applied by Company to
pay or reimburse the costs of repairing, restoring or replacing such
assets pursuant to the foregoing clause (a) shall not exceed $10
million for any Fiscal Year.
(iii) Net Insurance/Condemnation Proceeds Received by
Administrative Agent. Upon receipt by Administrative Agent of any Net
Insurance/Condemnation Proceeds as loss payee, if and to the extent
Company would have been required to apply such Net
Insurance/Condemnation Proceeds (if it had received them directly) to
prepay the Loans and/or reduce the Revolving Loan Commitments,
Administrative Agent shall, and Company hereby authorizes
Administrative Agent to, apply such Net Insurance/Condemnation Proceeds
to prepay the Loans (and/or the Revolving Loan Commitments shall be
reduced) as provided in subsection 2.4B(iii)(b), and (b) to the extent
the foregoing clause (a) does not apply and (1) the aggregate amount of
such Net Insurance/Condemnation Proceeds received (and reasonably
expected to be received) by Administrative Agent in respect of any
covered loss does not exceed $5 million, Administrative Agent shall
deliver such Net Insurance/Condemnation Proceeds to Company, and
Company shall, or shall cause one or more of its Subsidiaries to,
promptly apply such Net Insurance/Condemnation Proceeds to the costs of
repairing, restoring, or replacing the assets in respect of which such
Net Insurance/Condemnation Proceeds were received, and (2) if the
aggregate amount of Net Insurance/Condemnation Proceeds received (and
reasonably expected to be received) by Administrative Agent in respect
of any covered loss exceeds $5 million, Administrative Agent shall hold
such Net Insurance/Condemnation Proceeds pursuant to the terms of the
Collateral Account Agreement and, so long as Company or any of its
Subsidiaries proceeds diligently to repair, restore or replace the
assets of Company or such Subsidiary in respect of which such Net
Insurance/Condemnation Proceeds were received, Administrative Agent
shall from time to time disburse to Company or such Subsidiary from the
Collateral Account, to the extent of any such Net
Insurance/Condemnation Proceeds remaining therein in respect of the
applicable covered loss, amounts necessary to pay the cost of such
repair, restoration or replacement after the receipt by Administrative
Agent of invoices or other documentation reasonably satisfactory to
Administrative Agent relating to the amount of costs so incurred and
the work performed (including, if required by Administrative Agent,
lien releases and architects' certificates); provided, however that if
at any time Administrative Agent reasonably determines (A) that Company
or such Subsidiary is not proceeding diligently with such repair,
restoration or replacement or (B) that such repair, restoration or
replacement cannot be completed with the Net Insurance/Condemnation
Proceeds then held by Administrative Agent for such purpose, together
with funds otherwise available to Company for such purpose, or that
such repair, restoration or replacement cannot be completed within 360
days after the receipt by Administrative Agent of such Net
Insurance/Condemnation Proceeds, Administrative Agent shall, and
Company hereby authorizes Administrative Agent to, apply such Net
Insurance/ Condemnation Proceeds to prepay the Loans (and/or the
Revolving Loan Commitments shall be reduced) as provided in subsection
2.4B(iii)(b).
6.5 Inspection Rights; Lender Meeting
A. Inspection Rights. Company shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives designated by
Administrative Agent or any Lender to visit and inspect any of the properties of
Company or of any of its Subsidiaries, to inspect, copy and take extracts from
its and their financial and accounting records, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants (provided that Company may, if it so chooses, be present at
or participate in any such discussion), all upon reasonable notice and at such
reasonable times during normal business hours and as often as may reasonably be
requested.
B. Lender Meeting. Company will, upon the request of Administrative
Agent or Requisite Lenders, participate in a meeting of Administrative Agent and
Lenders once during each Fiscal Year to be held at Company's corporate offices
(or at such other location as may be agreed to by Company and Administrative
Agent) at such time as may be agreed to by Company and Administrative Agent.
6.6 Compliance with Laws, etc.
Company shall comply, and shall cause each of its Subsidiaries and all
other Persons on or occupying any Facilities to comply, with the requirements of
all applicable laws, rules, regulations and orders of any governmental authority
(including all Environmental Laws), noncompliance with which could reasonably be
expected to cause, individually or in the aggregate, a Material Adverse Effect.
6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions
Regarding Hazardous Materials Activities, Environmental Claims and Violations of
Environmental Laws
A. Environmental Review and Investigation. Company agrees that
Administrative Agent may, from time to time and in its reasonable discretion, at
Company's expense, (i) retain an independent professional consultant to review
any environmental audits, investigations, analyses and reports relating to
Hazardous Materials prepared by or for Company and (ii) conduct its own
investigation of any Facility; provided that, in the case of any Facility no
longer owned, leased, operated or used by Company or any of its Subsidiaries,
Company shall only be obligated to use its reasonable good faith efforts to
obtain permission for Administrative Agent's professional consultant to conduct
an investigation of such Facility. For purposes of conducting such a review
and/or investigation, Company hereby grants to Administrative Agent and its
respective agents, employees, consultants and contractors the right to enter
into or onto any Facilities currently owned, leased, operated or used by Company
or any of its Subsidiaries and to perform such tests on such property (including
taking samples of soil, groundwater and suspected asbestos-containing materials)
as are reasonably necessary in connection therewith. Any such investigation of
any Facility shall be conducted, unless otherwise agreed to by Company and
Administrative Agent, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at such Facility or to cause any damage or loss to any property at
such Facility. So long as no Event of Default or Potential Event of Default has
occurred and is continuing, Administrative Agent shall provide reasonable notice
to Company prior to the inspection of any Facility. Company and Administrative
Agent hereby acknowledge and agree that any report of any investigation
conducted at the request of Administrative Agent pursuant to this subsection
6.7A will be obtained and shall be used by Administrative Agent and Lenders for
the purposes of Lenders' internal credit decisions, to monitor and police the
Loans and to protect Lenders' security interests, if any, created by the Loan
Documents. Administrative Agent agrees to deliver a copy of any such report to
Company with the understanding that Company acknowledges and agrees that (x) it
will indemnify and hold harmless Administrative Agent and each Lender from any
costs, losses or liabilities relating to Company's use of or reliance on such
report, (y) none of the Administrative Agent nor any Lender makes any
representation or warranty with respect to such report, and (z) by delivering
such report to Company, none of the Administrative Agent nor any Lender is
requiring or recommending the implementation of any suggestions or
recommendations contained in such report.
B. Environmental Disclosure. Company will deliver to Administrative
Agent and Lenders:
(i) Environmental Audits and Reports. As soon as practicable
following receipt thereof, copies of all environmental audits,
investigations, analyses and reports of any kind or character, whether
prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, governmental authorities or any other Persons,
with respect to significant environmental matters at any Facility
which, individually or in the aggregate, could reasonably be expected
to result in a Material Adverse Effect or with respect to any
Environmental Claims which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect;
(ii) Notice of Certain Releases, Remedial Actions, Etc.
Promptly upon the occurrence thereof, written notice describing in
reasonable detail (a) any Release required to be reported to any
federal, state or local governmental or regulatory agency under any
applicable Environmental Laws, (b) any remedial action taken by Company
or any other Person of which Company has knowledge in response to (1)
any Hazardous Materials Activities the existence of which has a
reasonable possibility of resulting in one or more Environmental Claims
having, individually or in the aggregate, a Material Adverse Effect, or
(2) any Environmental Claims that, individually or in the aggregate,
have a reasonable possibility of resulting in a Material Adverse
Effect, and (c) Company's discovery of any occurrence or condition on
any real property adjoining or in the vicinity of any Facility that
could cause such Facility or any part thereof to be subject to any
material restrictions on the ownership, occupancy, transferability or
use thereof under any Environmental Laws.
(iii) Written Communications Regarding Environmental Claims,
Releases, Etc. As soon as practicable following the sending or receipt
thereof by Company or any of its Subsidiaries, a copy of any and all
written communications with respect to (a) any Environmental Claims
that, individually or in the aggregate, have a reasonable possibility
of giving rise to a Material Adverse Effect, (b) any Release required
to be reported to any federal, state or local governmental or
regulatory agency, and (c) any request for information from any
governmental agency that suggests such agency is investigating whether
Company or any of its Subsidiaries may be potentially responsible for
any Hazardous Materials Activity.
(iv) Notice of Certain Proposed Actions Having Environmental
Impact. Prompt written notice describing in reasonable detail (a) any
proposed acquisition of stock, assets, or property by Company or any of
its Subsidiaries that could reasonably be expected to (1) expose
Company or any of its Subsidiaries to, or result in, Environmental
Claims that could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or (2) affect the ability of
Company or any of its Subsidiaries to maintain in full force and effect
all material Governmental Authorizations required under any
Environmental Laws for their respective operations and (b) any proposed
action to be taken by Company or any of its Subsidiaries to commence
manufacturing or other industrial operations or to modify current
operations in a manner that could reasonably be expected to subject
Company or any of its Subsidiaries to any additional obligations or
requirements under any Environmental Laws.
(v) Other Information. With reasonable promptness, such other
documents and information as from time to time may be reasonably
requested by Administrative Agent in relation to any matters disclosed
pursuant to this subsection 6.7.
C. Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.
(i) Remedial Actions Relating to Hazardous Materials
Activities. Company shall promptly undertake, and shall cause each of
its Subsidiaries promptly to undertake, any and all investigations,
studies, sampling, testing, abatement, cleanup, removal, remediation or
other response actions necessary to remove, remediate, clean up or
abate any Hazardous Materials Activity on, under or about any Facility
that is in violation of any Environmental Laws or that presents a
material risk of giving rise to an Environmental Claim. In the event
Company or any of its Subsidiaries undertakes any such action with
respect to any Hazardous Materials, Company or such Subsidiary shall
conduct and complete such action in compliance with all applicable
Environmental Laws and in accordance with the policies, orders and
directives of all federal, state and local governmental authorities
except when, and only to the extent that, Company's or such
Subsidiary's liability with respect to such Hazardous Materials
Activity is being contested in good faith by Company or such
Subsidiary.
(ii) Actions with Respect to Environmental Claims and
Violations of Environmental Laws. Company shall promptly take, and
shall cause each of its Subsidiaries promptly to take, any and all
actions necessary to (a) cure any violation of applicable Environmental
Laws by Company or its Subsidiaries that could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect
and (b) make an appropriate response to any Environmental Claim against
Company or any of its Subsidiaries and discharge any obligations it may
have to any Person thereunder where failure to do so could reasonably
be expected to have, individually or in the aggregate, a Material
Adverse Effect.
6.8 Execution of Subsidiary Guaranty and Personal Property Collateral
Documents by Certain Subsidiaries and Future Subsidiaries; IP Collateral
A. Execution of Subsidiary Guaranty and Personal Property Collateral
Documents. In the event that any Person (other than an Inactive Subsidiary)
becomes a Domestic Subsidiary of Company or any Domestic Subsidiary of Company
after the Closing Date, Company will promptly notify Administrative Agent of
that fact and (i) Company or such Domestic Subsidiary shall execute and deliver
to Administrative Agent a Pledge Amendment (as defined in the Pledge Agreement
and the Subsidiary Pledge Agreements) to the Pledge Agreement or Subsidiary
Pledge Agreement executed and delivered by Company or such Domestic Subsidiary
pledging all of the stock of such Domestic Subsidiary owned by Company or such
Domestic Subsidiary and (ii) cause such Domestic Subsidiary to execute and
deliver to Administrative Agent a counterpart of the Subsidiary Guaranty and, as
applicable, a Subsidiary Pledge Agreement, a Subsidiary Security Agreement and
Additional Mortgages (as defined in subsection 6.9) and to take all such further
actions and execute all such further documents and instruments (including
actions, documents and instruments comparable to those described in subsection
4.1H) as may be necessary or, in the opinion of Administrative Agent, desirable
to create in favor of Administrative Agent, for the benefit of Lenders, a valid
and perfected First Priority Lien on all of the personal and mixed property
assets of such Subsidiary described in the applicable forms of Collateral
Documents.
B. Execution of Future Foreign Subsidiary Guaranty and Collateral
Documents. In the event that any Person (other than an Inactive Subsidiary)
becomes a direct Foreign Subsidiary of Company or any Domestic Subsidiary of
Company after the Closing Date, Company will promptly notify Administrative
Agent of that fact and Company or such Domestic Subsidiary will execute a Pledge
Amendment (as defined in the Pledge Agreement and the Subsidiary Pledge
Agreements) to the Pledge Agreement or Subsidiary Pledge Agreement executed and
delivered by Company or such Domestic Subsidiary pledging not less than 66% of
the stock of such Foreign Subsidiary. In the event that U.S. tax laws and/or any
other applicable laws in foreign jurisdictions, as the case may be, are amended
to permit a Foreign Subsidiary to guarantee the Loans without the incurrence of
an investment in U.S. property or other deemed dividends for U.S. tax purposes
or without otherwise resulting in U.S. taxable income or without otherwise
violating any other applicable laws in foreign jurisdictions, Company will
promptly notify Administrative Agent of that fact and Company or such Domestic
Subsidiary will execute Pledge Amendments to the Pledge Agreement or Subsidiary
Pledge Agreement executed and delivered by Company or such Domestic Subsidiary
pledging not less than 100% of the stock of its Foreign Subsidiaries (other than
Inactive Subsidiaries) and Company will cause its Foreign Subsidiaries (other
than Inactive Subsidiaries) to execute and deliver to Administrative Agent a
counterpart of a Subsidiary Guaranty, a Subsidiary Pledge Agreement, a
Subsidiary Security Agreement and Additional Mortgages, as applicable, and to
take all such further action and execute all such further documents and
instruments as may be reasonably required to grant and perfect in favor of
Administrative Agent, for the benefit of Lenders, a First Priority security
interest in all of the personal and mixed property assets of such Subsidiary
described in the applicable Collateral Documents.
C. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall
deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws
certified by its secretary or an assistant secretary as of a recent date prior
to their delivery to Administrative Agent, (iii) a certificate executed by the
secretary or an assistant secretary of such Subsidiary as to (a) the fact that
the attached resolutions of the Board of Directors of such Subsidiary approving
and authorizing the execution, delivery and performance of such Loan Documents
are in full force and effect and have not been modified or amended and (b) the
incumbency and signatures of the officers of such Subsidiary executing such Loan
Documents, and (iv) if required by the Administrative Agent, a favorable opinion
of counsel to such Subsidiary, in form and substance satisfactory to
Administrative Agent and its counsel, as to (a) the due organization and good
standing of such Subsidiary, (b) the due authorization, execution and delivery
by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan
Documents against such Subsidiary, (d) such other matters (including matters
relating to the creation and perfection of Liens in any Collateral pursuant to
such Loan Documents) as Administrative Agent may reasonably request, all of the
foregoing to be satisfactory in form and substance to Administrative Agent and
its counsel.
D. Pledge of Foreign Subsidiary Stock. To the extent not otherwise
satisfied on the Closing Date with respect to Company's Foreign Subsidiaries and
to the extent not otherwise satisfied on the Merger Date with respect to
Shelby's Foreign Subsidiaries, no later than ninety (90) days after the Closing
Date or the Merger Date, as the case may be, Company and Shelby shall, and shall
cause each of its Subsidiaries owning Foreign Subsidiaries to, deliver to
Administrative Agent such Pledge Agreements executed with respect to the capital
stock of each such Foreign Subsidiary (other than Inactive Subsidiaries) and to
deliver such stock certificates and such other related documents or instruments
as Administrative Agent may reasonably request.
6.9 Leasehold Properties; Matters Relating to Additional Real Property
Collateral; Certain Opinions; Removal of Liens
A. Leasehold Properties.
To the extent not otherwise satisfied on the Closing Date with respect
to Company and its Subsidiaries and to the extent not otherwise satisfied on the
Merger Date with respect to Shelby and its Subsidiaries, Company, Shelby and
each applicable Subsidiary Guarantor shall use its reasonable good faith best
efforts (without requiring Company, Shelby or such Subsidiary Guarantor to
relinquish any material rights or incur any material obligations or to expend
more than a nominal amount of money as well as reasonable attorneys' fees
incurred by (x) the landlord under the applicable lease, (y) Administrative
Agent and (z) Company, Shelby or such Subsidiary Guarantor) to:
(i) Landlord Consents and Estoppels; Recorded Leasehold
Interests. Deliver to Administrative Agent no later than 60 days after
the Closing Date, in the case of each Material Leasehold Property of
Company or its Domestic Subsidiaries existing as of the Closing Date or
each Material Leasehold Property of Shelby or its Domestic Subsidiaries
existing as of the Merger Date, as the case may be, (a) a Landlord
Consent and Estoppel with respect thereto and (b) evidence that such
Material Leasehold Property is a Recorded Leasehold Interest; and
(ii) Conforming Leasehold Interests. If Company or any of its
Subsidiaries acquires any Material Leasehold Property after the Closing
Date, Company shall, or shall cause such Subsidiary to, use its
reasonable good faith best efforts (without requiring Company or such
Subsidiary to relinquish any material rights or incur any material
obligations or to expend more than a nominal amount of money as well as
reasonable attorneys' fees incurred by (x) the landlord under the
applicable lease, (y) Administrative Agent and (z) Company or such
Subsidiary) to cause such Material Leasehold Property to be a
Conforming Leasehold Interest.
B. Additional Mortgages, Etc. From and after the Closing Date, in the
event that (i) Company or any Subsidiary Guarantor acquires any fee interest in
real property or any Material Leasehold Property or (ii) at the time any Person
becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in
real property or any Material Leasehold Property, in either case excluding any
such Real Property Asset the encumbrancing of which requires the consent of any
applicable lessor or (in the case of clause (ii) above) then-existing senior
lienholder, where Company and its Subsidiaries are unable to obtain such
lessor's or senior lienholder's consent (any such non-excluded Real Property
Asset described in the foregoing clause (i) or (ii) being an "Additional
Mortgaged Property"), Company or such Subsidiary Guarantor shall deliver to
Administrative Agent, as soon as practicable after such Person acquires such
Additional Mortgaged Property or becomes a Subsidiary Guarantor, as the case may
be, the following:
(i) Additional Mortgage. A fully executed and notarized
Mortgage (an "Additional Mortgage"), duly recorded in all appropriate
places in all applicable jurisdictions, encumbering the interest of
such Loan Party in such Additional Mortgaged Property;
(ii) Opinions of Counsel. If required by Administrative Agent,
(a) a favorable opinion of counsel to such Loan Party, in form and
substance satisfactory to Administrative Agent and its counsel, as to
the due authorization, execution and delivery by such Loan Party of
such Additional Mortgage and such other matters as Administrative Agent
may reasonably request, and (b) an opinion of counsel (which counsel
shall be reasonably satisfactory to Administrative Agent) in the state
in which such Additional Mortgaged Property is located with respect to
the enforceability of the form of Additional Mortgage recorded in such
state and such other matters (including any matters governed by the
laws of such state regarding personal property security interests in
respect of any Collateral) as Administrative Agent may reasonably
request, in each case in form and substance reasonably satisfactory to
Administrative Agent;
(iii) Landlord Consent and Estoppel; Recorded Leasehold
Interest. In the case of an Additional Mortgaged Property consisting of
a Material Leasehold Property, after using reasonable good faith best
efforts (without requiring Company or such Subsidiary Guarantor to
relinquish any material rights or incur any material obligations or to
expend more than a nominal amount of money as well as reasonable
attorneys' fees incurred by (i) the landlord under the applicable
lease, (ii) Administrative Agent and (iii) Company or such Subsidiary
Guarantor) to obtain the following, (a) a Landlord Consent and
Estoppel, unless Company or such Subsidiary is unable to obtain the
Landlord Consent and Estoppel and (b) evidence that such Material
Leasehold Property is a Recorded Leasehold Interest;
(iv) Title Insurance. (a) If required by Administrative Agent,
an ALTA mortgagee title insurance policy or an unconditional commitment
therefor (an "Additional Mortgage Policy") issued by the Title Company
with respect to such Additional Mortgaged Property, in an amount
reasonably satisfactory to Administrative Agent, insuring fee simple
title to, or a valid leasehold interest in, such Additional Mortgaged
Property vested in such Loan Party and assuring Administrative Agent
that such Additional Mortgage creates a valid and enforceable First
Priority mortgage Lien on such Additional Mortgaged Property, which
Additional Mortgage Policy (1) shall include, if available in the state
in which such Mortgaged Property is located, a lenders aggregation
endorsement, an endorsement for future advances under this Agreement
and for any other matters reasonably requested by Administrative Agent
and (2) shall provide for affirmative insurance and such reinsurance as
Administrative Agent may reasonably request, all of the foregoing in
form and substance reasonably satisfactory to Administrative Agent; and
(b) evidence satisfactory to Administrative Agent that such Loan Party
has (i) delivered to the Title Company all certificates and affidavits
required by the Title Company in connection with the issuance of the
Additional Mortgage Policy and (ii) paid to the Title Company or to the
appropriate governmental authorities all expenses and premiums of the
Title Company in connection with the issuance of the Additional
Mortgage Policy and all recording and stamp taxes (including mortgage
recording and intangible taxes) payable in connection with recording
the Additional Mortgage in the appropriate real estate records;
(v) Title Report. If no Additional Mortgage Policy is required
with respect to such Additional Mortgaged Property, a title report
issued by the Title Company with respect thereto, dated not more than
30 days prior to the date such Additional Mortgage is to be recorded
and satisfactory in form and substance to Administrative Agent;
(vi) Copies of Documents Relating to Title Exceptions. Copies
of all recorded documents listed as exceptions to title or otherwise
referred to in the Additional Mortgage Policy or title report delivered
pursuant to clause (iv) or (v) above;
(vii) Matters Relating to Flood Hazard Properties. (a)
Evidence, which may be in the form of a letter from an insurance broker
or a municipal engineer, as to (1) whether such Additional Mortgaged
Property is a Flood Hazard Property and (2) if so, whether the
community in which such Flood Hazard Property is located is
participating in the National Flood Insurance Program, (b) if such
Additional Mortgaged Property is a Flood Hazard Property, such Loan
Party's written acknowledgement of receipt of written notification from
Administrative Agent (1) that such Additional Mortgaged Property is a
Flood Hazard Property and (2) as to whether the community in which such
Flood Hazard Property is located is participating in the National Flood
Insurance Program, and (c) in the event such Additional Mortgaged
Property is a Flood Hazard Property that is located in a community that
participates in the National Flood Insurance Program, evidence that
Company has obtained flood insurance in respect of such Flood Hazard
Property to the extent required under the applicable regulations of the
Board of Governors of the Federal Reserve System; and
(viii) Surveys. ALTA Surveys of each Additional Mortgaged
Property satisfactory in form and substance to the Administrative Agent
and the Title Company reasonably current and certified to
Administrative Agent and Title Company by a licensed Surveyor.
(ix) Environmental Audit. If required by Administrative Agent,
reports and other information, in form, scope and substance
satisfactory to Administrative Agent and prepared by environmental
consultants satisfactory to Administrative Agent, concerning any
environmental hazards or liabilities to which Company or any of its
Subsidiaries may be subject with respect to such Additional Mortgaged
Property.
C. Real Estate Appraisals. Company shall, and shall cause each of its
Subsidiaries to, permit an independent real estate appraiser satisfactory to
Administrative Agent, upon reasonable notice, to visit and inspect any
Additional Mortgaged Property for the purpose of preparing an appraisal of such
Additional Mortgaged Property satisfying the requirements of any applicable laws
and regulations (in each case to the extent required under such laws and
regulations as determined by Administrative Agent in its discretion). Any such
inspection of any Additional Mortgaged Property shall be conducted, unless
otherwise agreed to by Company and Administrative Agent, during normal business
hours and, to the extent reasonably practicable, shall be conducted so as not to
interfere with the ongoing business operations at such Additional Mortgaged
Property.
D. Surveys. To the extent not otherwise satisfied on the Closing Date
with respect to Company and its Subsidiaries, and to the extent not otherwise
satisfied on the Merger Date with respect to Shelby and its Subsidiaries,
Company, Shelby and each Subsidiary Guarantor, as applicable, shall (a) no later
than thirty (30) days after the Closing Date or Merger Date, as the case may be,
deliver or cause to be delivered to Administrative Agent a survey for each of
the Mortgaged Properties, in the form more specifically described in Sections
4.1G(vi) and 4.2E(vi) above, (b) no later than fifteen (15) days after the
delivery of such surveys to Administrative Agent, cause the Title Company to
issue endorsements removing the standard survey exception (the "Survey
Endorsements") from the appropriate Closing Date Mortgage Policies and Merger
Date Mortgage Policies, (c) pay to the Title Company all costs associated with
the issuance of such Survey Endorsements and (d) in the event Administrative
Agent determined not to record a Mortgage against one or more Mortgaged
Properties on the Closing Date or the Merger Date, as the case may be, because
the survey for such Mortgaged Property was not available, Company shall deliver
such Mortgage no later than forty-five (45) days after the Closing Date or
Merger Date, as the case may be.
E. Removal of Liens. With respect to those Liens set forth on Schedule
5.5 annexed hereto, Company shall cause such Liens to be released of record
within 15 days of the Closing Date for Closing Date Mortgaged Properties or
within 15 days of the Merger Date for Merger Date Mortgaged Properties (as those
terms are defined in subsection 4.1G and 4.2E, respectively); provided that
Company may satisfy such requirement by causing Title Company to issue an
endorsement to the Closing Date Mortgage Policy and/or Merger Date Mortgage
Policy (as those terms are defined in subsection 4.1G and 4.2E, respectively)
removing the Liens set forth on Schedule 5.5 as an exception to such Title
Policies within the periods set forth herein for removal of such Liens.
6.10 Merger
Company shall cause Acquisition Co. and Shelby to comply with all
covenants set forth in the Merger Agreement applicable prior to the consummation
of the Merger. Company shall cause the Merger to be consummated as soon as
practicable in accordance with the terms and conditions of the Merger Agreement
but in any event no later than 120 calendar days after the Closing Date. In the
event that the Shelby Common Stock to be purchased concurrently with receipt of
the proceeds of the Loans on the Closing Date shall represent, in the aggregate,
not less than 90% of the outstanding shares of Shelby Common Stock so as to
permit Company to cause the Merger to occur in accordance with the terms of the
Merger Agreement and Section 253 of the Delaware General Corporation Law,
Company shall cause the Merger to be consummated as soon as practicable after
the Closing Date and in any event no later than five (5) Business Days after the
Closing Date.
6.11 Interest Rate Protection
Within ninety (90) days after the Merger Date, Company shall obtain and
shall thereafter maintain in effect for a period of not less than two years
after the Merger Date one or more Interest Rate Agreements with respect to the
Term Loans, in an aggregate notional principal amount of not less than 50% of
the Term Loans outstanding on the Merger Date, each such Interest Agreement to
be in form and substance satisfactory to Administrative Agent.
6.12 Year 2000 Compliance
Company will take all reasonable steps to ensure that its Information
Systems and Equipment are at all times after June 30, 1999 Year 2000 Compliant,
except insofar as the failure to do so will not result in a Material Adverse
Effect, and Company shall notify Administrative Agent and any Lender promptly
upon detecting any failure of the Information Systems and Equipment to be Year
2000 Compliant. In addition, Company shall provide Administrative Agent with
such information about its year 2000 computer readiness (including without
limitation information as to contingency plans, budgets and testing results) as
Administrative Agent or such Lender shall reasonably request.
Section 7. COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 7.
7.1 Indebtedness
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations permitted by subsection 7.4 and,
upon any matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations so
extinguished;
(iii) Company and its Subsidiaries may become and remain
liable with respect to Indebtedness in respect of Capital Leases
entered into after the Closing Date and incurred for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment used in the business of
the Company or its Subsidiaries; provided that the aggregate
Indebtedness incurred in respect of such Capital Leases together with
mortgage financings or Purchase Money Indebtedness incurred pursuant to
subsection 7.1(vii), in each case incurred for purpose of financing all
or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or its Subsidiaries, does not exceed $5 million;
(iv) Company may become and remain liable with respect to
Indebtedness to any of its Subsidiary Guarantors and any of its Foreign
Subsidiaries, and any Subsidiary Guarantor of Company may become and
remain liable with respect to Indebtedness to Company or any other
Subsidiary Guarantor or any Foreign Subsidiary of Company and any
Foreign Subsidiary of Company may become and remain liable with respect
to Indebtedness (A) to Company or any Subsidiary Guarantor to the
extent that such Indebtedness is a permitted Investment by Company or
such Subsidiary Guarantor under subsection 7.3 and (B) to any other
Foreign Subsidiary of Company; provided that (a) all such intercompany
Indebtedness shall be evidenced by promissory notes; (b) all such
intercompany Indebtedness owed by Company to any of its Subsidiaries
shall be subordinated in right of payment to the payment in full of the
Obligations pursuant to the terms of the applicable promissory notes or
an intercompany subordination agreement, and (c) any payment by any
Subsidiary of Company under any guaranty of the Obligations shall
result in a pro tanto reduction of the amount of any intercompany
Indebtedness owed by such Subsidiary to Company or to any of its
Subsidiaries for whose benefit such payment is made;
(v) Company and its Subsidiaries, as applicable, may remain
liable with respect to Indebtedness and Capital Leases existing as of
the Closing Date, and described in Schedule 7.1 annexed hereto;
provided that the amount of such Indebtedness does not exceed
approximately $2.5 million;
(vi) Company may become and remain liable with respect to
Indebtedness evidenced by the Senior Subordinated Debt Securities in an
aggregate principal amount which does not exceed $100 million on the
Closing Date, and Company may further become and remain liable after
the Closing Date for an additional $25 million under the Senior
Subordinated Debt Indenture; provided that the proceeds of any such
additional Senior Subordinated Debt Securities shall be applied as
required under subsection 2.4B(iii)(d) or shall be used to make a
Permitted Acquisition;
(vii) Company and its Subsidiaries may become and remain
liable with respect to Purchase Money Indebtedness in an aggregate
principal amount not to exceed $3 million;
(viii) Company and its Domestic Subsidiaries may become and
remain liable with respect to other Indebtedness and Contingent
Obligations permitted under subsection 7.4(x) in an aggregate amount
not to exceed $3 million at any time outstanding; and
(ix) Company's Foreign Subsidiaries may become and remain
liable with respect to other Indebtedness and Contingent Obligations
permitted under subsection 7.4(xi) in an aggregate amount not to exceed
$5 million; provided that any such Indebtedness is non-recourse to
Company and its Domestic Subsidiaries.
7.2 Liens and Related Matters
A. Prohibition on Liens. Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents;
(iii) Liens described in Schedule 7.2 annexed hereto;
(iv) Liens securing Indebtedness permitted under subsections
7.1(iii) and 7.1(vii) with respect to the property or assets financed
by such Indebtedness; and
(v) Liens securing Indebtedness incurred by a Foreign
Subsidiary under subsection 7.1(ix) and encumbering only the assets of
such Foreign Subsidiary.
Nothing in this subsection 7.2 shall prohibit (a) the sale, assignment,
transfer, conveyance or other disposition of any Margin Stock owned by Company
or any of its Subsidiaries for Cash at its fair value (as determined in good
faith by its Board of Directors) so long as proceeds are held as Cash or Cash
Equivalents or (b) the creation, incurrence, assumption or existence of any Lien
on or with respect to any Margin Stock.
B. Equitable Lien in Favor of Lenders. If Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A; and provided further that Company shall under no circumstances
be required to make or cause to be made effective provision whereby the
Obligations will be secured, directly or indirectly, by Margin Stock.
C. No Further Negative Pledges. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale or held in
respect of Capital Leases permitted pursuant to subsection 7.1(iii), neither
Company nor any of its Subsidiaries shall enter into any agreement (other than
an agreement prohibiting only the creation of Liens securing Subordinated
Indebtedness) prohibiting the creation or assumption of any Lien upon any of its
properties or assets, whether now owned or hereafter acquired.
D. No Restrictions on Subsidiary Distributions to Company or Other
Subsidiaries. Except as provided herein, Company will not, and will not permit
any of its Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or any
other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or
advances to Company or any other Subsidiary of Company, or (iv) transfer any of
its property or assets to Company or any other Subsidiary of Company.
7.3 Investments; Joint Ventures
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments
in Cash Equivalents;
(ii) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date in any Subsidiaries of
Company;
(iii) Company and its wholly-owned Subsidiary Guarantors may
make Investments in any of Company's wholly-owned Subsidiary Guarantors
and Subsidiaries of Company may make Investments in Company;
(iv) Company and its Subsidiaries may make Consolidated
Capital Expenditures permitted by subsection 7.8;
(v) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date and described in
Schedule 7.3 annexed hereto;
(vi) Company and its Subsidiaries may make and own Investments
in Permitted Acquisitions permitted under subsection 7.7(vii); and
(vii) Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time $5
million.
7.4 Contingent Obligations
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Subsidiaries of Company may become and remain liable with
respect to Contingent Obligations in respect of the Subsidiary
Guaranty;
(ii) Company may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit;
(iii) Company and its Subsidiaries may become and remain
liable with respect to Contingent Obligations under (x) Interest Rate
Agreements with Lenders with respect to Indebtedness in an aggregate
notional principal amount not to exceed at any time the aggregate
amount of the Commitments and (y) Currency Agreements with Lenders
entered into in the ordinary course of business for hedging purposes;
(iv) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets;
(v) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations under guarantees in the ordinary
course of business of the obligations of suppliers, customers,
franchisees and licensees of Company and its Subsidiaries in an
aggregate amount not to exceed at any time $500,000;
(vi) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of any Indebtedness
of Company or any of its wholly-owned Subsidiaries permitted by
subsection 7.1;
(vii) Company and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in Schedule 7.4
annexed hereto;
(viii) Company and its Subsidiaries may become and remain
liable with respect to Contingent Obligations in connection with
Operating Leases;
(ix) Subsidiary Guarantors may become and remain liable with
respect to Contingent Obligations arising under subordinated guaranties
of the Senior Subordinated Debt Securities as set forth in and to the
extent required under the Senior Subordinated Debt Indenture as in
effect on the Closing Date;
(x) Company and its Domestic Subsidiaries may become and
remain liable with respect to other Contingent Obligations; provided
that the maximum aggregate liability, contingent or otherwise, of
Company and its Domestic Subsidiaries in respect of all such Contingent
Obligations, together with the aggregate principal amount of all
Indebtedness permitted under subsection 7.1(viii), shall at no time
exceed $3 million; and
(xi) Company's Foreign Subsidiaries may become and remain
liable with respect to other Contingent Obligations; provided that the
Contingent Obligations are non-recourse to Company and its Domestic
Subsidiaries and the maximum aggregate liability, contingent or
otherwise, of Company's Foreign Subsidiaries in respect of all such
Contingent Obligations, together with the aggregate principal amount of
all Indebtedness permitted under subsection 7.1(ix), shall at no time
exceed $5 million.
7.5 Restricted Junior Payments
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that so long as no Potential Event of
Default or Event of Default shall have occurred and be continuing or occurs as a
result thereof:
(i) Company may make Restricted Junior Payments consisting of
cash dividends paid on Company's common stock in accordance with
Company's historical dividend policies in an aggregate amount not to
exceed $1,500,000 in any Fiscal Year;
(ii) Company may make payments in respect of statutory
appraisal rights (and any settlement thereof) exercised by holders of
outstanding Shelby Common Stock in connection with the Merger; and
(iii) Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or
set apart any sum for payment on the Senior Subordinated Debt
Securities; provided that Company may make payments of regularly
scheduled interest in respect of the Senior Subordinated Debt
Securities in accordance with the terms of and to the extent required
by, and subject to the subordination provisions contained in, the
Senior Subordinated Debt Indenture.
7.6 Financial Covenants
A. Minimum Fixed Charge Coverage Ratio. Company shall not permit the
Consolidated Fixed Charge Coverage Ratio, calculated on a Pro Forma Basis,
during any of the periods set forth below to be less than the correlative ratio
indicated:
Minimum Fixed Charge Coverage
Period Ratio
- --------------------------------------------------------------------------------
4th Fiscal Quarter of Fiscal Year 1999
to 4th Fiscal Quarter of Fiscal Year 2002 1.10:1.00
1st Fiscal Quarter of Fiscal Year 2003 and 1.05:1.00
thereafter
B. Maximum Consolidated Leverage Ratio. Company shall not permit the
Consolidated Leverage Ratio, calculated on a Pro Forma Basis, for any
four-Fiscal Quarter period ending during any of the periods set forth below to
exceed the correlative ratio indicated:
Maximum Consolidated Leverage
Period Ratio
- -------------------------------------------------------------------------------
4th Fiscal Quarter of Fiscal Year 1999 4.90:1.00
1st Fiscal Quarter of Fiscal Year 2000 4.75:1.00
through 2nd Fiscal Quarter of Fiscal
Year 2000
3rd Fiscal Quarter of Fiscal Year 2000 4.50:1.00
through 4th Fiscal Quarter of Fiscal
Year 2000
1st Fiscal Quarter of Fiscal Year 2001 4.25:1.00
through 4th Fiscal Quarter of Fiscal
Year 2001
1st Fiscal Quarter of Fiscal Year 2002 4.00:1.00
through 4th Fiscal Quarter of Fiscal
Year 2003
1st Fiscal Quarter of Fiscal Year 2004 3.75:1.00
and thereafter
C. Minimum Consolidated EBITDA. Company shall not permit Consolidated
EBITDA for any consecutive four-Fiscal Quarter period ending during any of the
periods set forth below to be less than the correlative amount indicated:
Minimum Consolidated
Period EBITDA
------------------------------------------------------------------------------
4th Fiscal Quarter of Fiscal Year 1999 $38 million
1st Fiscal Quarter of Fiscal Year 2000 $39 million
2nd Fiscal Quarter of Fiscal Year 2000
through 4th $40 million
Fiscal Quarter of Fiscal Year 2001
Fiscal Year 2002 $42 million
Fiscal Year 2003 $45 million
Fiscal Year 2004 and thereafter $47 million
D. Minimum Consolidated Net Worth. Company shall not permit
Consolidated Net Worth at any time during any of the periods set forth below to
be less than the correlative amount indicated:
Minimum Consolidated
Period Net Worth
- --------------------------------------------------------------------------------
4th Fiscal Quarter of Fiscal Year 1999 $60 million
Fiscal Year 2000 $75 million
Fiscal Year 2001 $80 million
Fiscal Year 2002 $85 million
Fiscal Year 2003 $90 million
Fiscal Year 2004 and thereafter $95 million
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions
Company shall not, and shall not permit any of Company's Subsidiaries
to, alter the corporate, capital or legal structure of Company or any of
Company's Subsidiaries, or enter into any transaction of merger or
consolidation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or
sublessor), transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person or any division or line of
business of any Person, except:
(i) any Domestic Subsidiary of Company may be merged with or
into Company or any wholly-owned Subsidiary Guarantor, or be
liquidated, wound up or dissolved, or all or any part of its business,
property or assets may be conveyed, sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions,
to Company or any wholly-owned Subsidiary Guarantor; provided that, in
the case of such a merger, Company or such wholly-owned Subsidiary
Guarantor shall be the continuing or surviving corporation;
(ii) Company and its Subsidiaries may make Consolidated
Capital Expenditures permitted under subsection 7.8;
(iii) Company and its Subsidiaries may dispose of obsolete,
worn out or surplus property in the ordinary course of business;
(iv) Company and its Subsidiaries may sell or otherwise
dispose of assets in transactions that do not constitute Asset Sales;
provided that the consideration received for such assets shall be in an
amount at least equal to the fair market value thereof;
(v) Acquisition Co. and Shelby may consummate the Merger;
(vi) Company or any of its Subsidiaries may convey, sell,
transfer or otherwise dispose for Cash of any Margin Stock, whether now
owned or hereafter acquired; provided that such disposition is for fair
value and the proceeds are held in Cash or Cash Equivalents;
(vii) Company and its Subsidiaries may acquire, whether by
purchase, issuance of stock or other equity or debt securities, merger,
reorganization or any other method, any Person, substantially all of
the assets of any Person, or any division or line of business of any
Person (any such Person, assets, division or line of business being an
"Acquired Business" and any such acquisition permitted hereunder being
a "Permitted Acquisition"), provided that each of the following
conditions is satisfied:
(a) the Acquired Business is engaged in a line of
business that Company and its Subsidiaries are permitted to engage in
under subsection 7.13A;
(b) the Acquired Business becomes a wholly-owned
Subsidiary of Company or is acquired by a wholly-owned Subsidiary of
Company in such Permitted Acquisition;
(c) the aggregate amount of Cash consideration paid by
Company and its Subsidiaries for any Permitted Acquisition or series of
related Permitted Acquisitions made after the Closing Date shall not
exceed $20 million;
(d) the excess of the Revolving Loan Commitments over the
Total Utilization of Revolving Loan Commitments immediately after
giving effect to such Permitted Acquisition will be not less than $10
million;
(e) concurrently with the consummation of such Permitted
Acquisition, Company shall, and shall cause its Subsidiaries to, comply
with the requirements of subsections 6.8 and 6.9 with respect to such
Permitted Acquisition;
(f) prior to the consummation of any such Permitted
Acquisition having a purchase price in excess of $5 million, Company
shall deliver to Administrative Agent an Officers' Certificate (1)
certifying that no Potential Event of Default or Event of Default under
this Agreement shall then exist or shall occur as a result of such
Permitted Acquisition, (2) demonstrating that after giving effect to
such Permitted Acquisition and to all Indebtedness to be incurred or
assumed or repaid in connection with or as consideration for such
Permitted Acquisition, Company will be in compliance with the financial
covenants, calculated on a Pro Forma Basis, as of the last day of the
four Fiscal Quarter period most recently ended prior to the date of the
proposed Permitted Acquisition for which the relevant financial
information is available, (3) delivering a copy, prepared in conformity
with GAAP (subject to year-end adjustments and the absence of
footnotes), of (i) financial statements of the Person or business so
acquired for the immediately preceding four consecutive Fiscal Quarter
period corresponding to the calculation period for the financial
covenants in the immediately preceding clause and (ii) audited or
reviewed financial statements of the Person or business so acquired for
the fiscal year ended within such period of such Person, and (4)
revised financial projections (in a form substantially consistent with
previously provided projections) for Company pro forma for any proposed
Permitted Acquisition in excess of $5 million for the succeeding four
Fiscal Quarters; and
(g) the aggregate total amount of all Permitted
Acquisitions that result in a new Foreign Subsidiary of Company or
result in the Acquired Business being owned by a Foreign Subsidiary of
Company shall not exceed $5 million; and
(h) a Foreign Subsidiary acquired in a Permitted
Acquisition shall be directly owned by Company or one of its
wholly-owned Domestic Subsidiaries; and
(viii) Company and its Subsidiaries may make Asset Sales of
assets having a fair market value of not in excess of $5 million in any
Fiscal Year or of $15 million in the aggregate for all such Asset
Sales; provided that in each case (x) the consideration received for
such assets shall be in an amount at least equal to the fair market
value thereof; (y) 90% of the consideration received therefor shall be
Cash; and (z) the proceeds of any such Asset Sale are applied as
required by subsection 2.4B(iii)(a).
7.8 Consolidated Capital Expenditures
Company shall not, and shall not permit its Subsidiaries to, make or
incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in
an aggregate amount in excess of the corresponding amount (the "Maximum
Consolidated Capital Expenditures Amount") set forth below opposite such Fiscal
Year; provided that the Maximum Consolidated Capital Expenditures Amount for any
Fiscal Year shall be increased by an amount equal to the excess, if any, of the
Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year
(prior to any adjustment in accordance with this proviso) over the actual amount
of Consolidated Capital Expenditures for such previous Fiscal Year; provided,
further that in no event shall the amount of such increase exceed 50% of the
Maximum Consolidated Capital Expenditures Amount for such previous Fiscal Year
(prior to any adjustment in accordance with this proviso):
<PAGE>
Fiscal Year Maximum Consolidated
Capital Expenditures
------------------------------------------------------------------------------
Fiscal Year 2000 $10.0 million
Fiscal Year 2001 $10.5 million
Fiscal Year 2002 $11.0 million
Fiscal Year 2003 $11.5 million
Fiscal Year 2004 $12.0 million
Fiscal Year 2005 $12.0 million
and thereafter
7.9 Sales and Lease-Backs
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Company or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Company or
any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) in connection with
such lease; provided that Company may remain liable as lessee with respect to
the lease of the Company's principal executive offices located at 9387 Dielman
Industrial Drive, St. Louis, Missouri, and provided further that Company and its
Subsidiaries may become and remain liable as lessee, guarantor or other surety
with respect to any such lease to the extent that (i) such lease, if a Capital
Lease, is permitted pursuant to subsection 7.1(iii), (ii) the consideration
received is at least equal to the fair market value of the property sold as
determined in good faith by Company's Board of Directors and (iii) the Net Asset
Sale Proceeds derived from the sale/leaseback of such sold properties or assets
owned by the Company or its Subsidiaries shall be applied to prepay Loans and/or
reduce commitments pursuant to subsection 2.4B(iii)(a) without regard to any
reinvestment of such Net Asset Sale Proceeds otherwise permitted under such
subsection.
7.10 Sale or Discount of Receivables
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
7.11 Transactions with Stockholders and Affiliates
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 5% or more of any class of equity Securities of
Company or with any Affiliate of Company or of any such holder, on terms that
are less favorable to Company or that Subsidiary, as the case may be, than those
that might be obtained at the time from Persons who are not such a holder or
Affiliate; provided that the foregoing restriction shall not apply to (i) any
transaction between Company and any of its wholly-owned Subsidiaries or between
any of its wholly-owned Subsidiaries, or (ii) reasonable and customary fees paid
to members of the Boards of Directors of Company and its Subsidiaries.
7.12 Disposal of Subsidiary Equity
Except pursuant to the Collateral Documents and except for any sale of
100% of the capital stock or other equity Securities of any its Subsidiaries in
compliance with the provisions of subsection 7.7(i) or 7.7(viii), Company shall
not:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to
sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock or other equity Securities of any of its Subsidiaries
(including such Subsidiary), except to Company, a Domestic Subsidiary
of Company, or to qualify directors if required by applicable law.
Nothing in this subsection 7.12 shall prohibit (a) the sale,
assignment, transfer, conveyance or other disposition of any Margin Stock owned
by Company or any of its Subsidiaries for Cash at its fair value (as determined
in good faith by its Board of Directors) so long as proceeds are held as Cash or
Cash Equivalents or (b) the creation, incurrence, assumption or existence of any
Lien on or with respect to any Margin Stock; provided, however, that except with
respect to the shares of Shelby Common Stock tendered for purchase pursuant to
the Tender Offer, Company shall not, and shall not permit any of its
Subsidiaries to, take any action which will have the effect of causing any
shares of the capital stock of any Subsidiary of Company to constitute Margin
Stock.
7.13 Conduct of Business
A. From and after the Closing Date, Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by Company and its Subsidiaries on the Closing Date and
similar or related businesses and (ii) such other lines of business as may be
consented to by Requisite Lenders.
B. Company will not permit Acquisition Co. to engage in any activities
other than those that are necessary or advisable to effect the Tender Offer upon
the terms set forth in the Tender Offer Materials, to consummate the Merger, and
to effect the transaction contemplated by this Agreement.
7.14 Amendments or Waivers of Related Agreements
A. None of Company nor any of its Subsidiaries will agree to any
material amendment to, or waive any of its material rights under, any Related
Agreement, or terminate or agree to terminate any Related Agreement without in
each case obtaining the prior written consent of Requisite Lenders to such
amendment, waiver or termination.
B. Company shall not, and shall not permit any of its Subsidiaries to,
amend or otherwise change the terms of any Subordinated Indebtedness, or make
any payment consistent with an amendment thereof or change thereto, if the
effect of such amendment or change is to increase the interest rate on such
Subordinated Indebtedness, change (to earlier dates) any dates upon which
payments of principal or interest are due thereon, change any event of default
or condition to an event of default with respect thereto (other than to
eliminate any such event of default or increase any grace period related
thereto), change the redemption, prepayment or defeasance provisions thereof,
change the subordination provisions thereof (or of any guaranty thereof), or
change any collateral therefor (other than to release such collateral), or if
the effect of such amendment or change, together with all other amendments or
changes made, is to increase materially the obligations of the obligor
thereunder or to confer any additional rights on the holders of such
Subordinated Indebtedness (or a trustee or other representative on their behalf)
which would be adverse to Company or Lenders.
C. Company shall not, and shall not permit any of its Subsidiaries to,
designate any Indebtedness as "Designated Senior Debt" (as defined in the Senior
Subordinated Debt Indenture) for purposes of the Senior Subordinated Debt
Indenture without the prior written consent of Requisite Lenders.
7.15 Fiscal Year
Company shall not change its Fiscal Year-end from the Saturday closest
to October 31 of each calendar year.
Section 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 Failure to Make Payments When Due
Failure by Company to pay any installment of principal of any Loan when
due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Company to pay when
due any amount payable to an Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Company to pay any interest on any Loan
or any fee or any other amount due under this Agreement within five days after
the date due; or
8.2 Default in Other Agreements
(i) Failure of Company or any of its Subsidiaries to pay when
due any principal of or interest on or any other amount payable in
respect of one or more items of Indebtedness (other than Indebtedness
referred to in subsection 8.1) or Contingent Obligations in an
aggregate principal amount of $2 million or more beyond the end of any
grace period provided therefor; or
(ii) breach or default by Company or any of its Subsidiaries
with respect to any other material term of (a) one or more items of
Indebtedness or Contingent Obligations in the aggregate principal
amount referred to in clause (i) above or (b) any loan agreement,
mortgage, indenture or other agreement relating to such item(s) of
Indebtedness or Contingent Obligation(s), if the effect of such breach
or default is to cause, or to permit the holder or holders of that
Indebtedness or Contingent Obligation(s) (or a trustee on behalf of
such holder or holders) to cause, that Indebtedness or Contingent
Obligation(s) to become or be declared due and payable prior to its
stated maturity or the stated maturity of any underlying obligation, as
the case may be (upon the giving or receiving of notice, lapse of time,
both, or otherwise); or
8.3 Breach of Certain Covenants
Failure of Company to perform or comply with any term or condition
contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 Breach of Warranty
Any representation, warranty, certification or other statement made by
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Company or any of its Subsidiaries in writing
pursuant hereto or thereto or in connection herewith or therewith shall be false
in any material respect on the date as of which made; or
8.5 Other Defaults Under Loan Documents
Any Loan Party shall default in the performance of or compliance with
any term contained in this Agreement or any of the other Loan Documents, other
than any such term referred to in any other subsection of this Section 8, and
such default shall not have been remedied or waived within thirty (30) days
after the earlier of (i) an officer of Company or such Loan Party becoming aware
of such default or (ii) receipt by Company and such Loan Party of notice from
Administrative Agent or any Lender of such default; or
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of Company or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against, Company or any of its Subsidiaries under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Company or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Company or any of its Subsidiaries for all or a
substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of Company or any of its Subsidiaries, and any such event described in
this clause (ii) shall continue for 60 days unless dismissed, bonded or
discharged; or
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) Company or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under
the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect, or shall consent
to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of
its property; or Company or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or
(ii) Company or any of its Subsidiaries shall be unable, or
shall fail generally, or shall admit in writing its inability, to pay
its debts as such debts become due; or the Board of Directors of
Company or any of its Subsidiaries (or any committee thereof) shall
adopt any resolution or otherwise authorize any action to approve any
of the actions referred to in clause (i) above or this clause (ii); or
8.8 Judgments and Attachments
Any money judgment, writ or warrant of attachment or similar process
involving either in any individual case or in the aggregate at any time an
amount in excess of $2 million (in either case not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against Company or any of its
Subsidiaries or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 60 days (or in any event later
than five days prior to the date of any proposed sale thereunder); or
8.9 Dissolution
Any order, judgment or decree shall be entered against, Company or any
of its Subsidiaries decreeing the dissolution or split up of Company or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 Employee Benefit Plans
There shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
Company, any of its Subsidiaries or any of their respective ERISA Affiliates in
excess of $1 million during the term of this Agreement; or there shall exist an
amount of liability calculated in accordance with the provisions of subsection
5.11D which exceeds $1 million; or
8.11 Change in Control
Any Change in Control shall occur; or
8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations
At any time after the execution and delivery thereof, (i) any Guaranty
for any reason, other than the satisfaction in full of all Obligations, shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared to be null and void, (ii) any Collateral Document shall
cease to be in full force and effect (other than by reason of a release of
Collateral thereunder in accordance with the terms hereof or thereof, the
satisfaction in full of the Obligations or any other termination of such
Collateral Document in accordance with the terms hereof or thereof) or shall be
declared null and void, or Administrative Agent shall not have or shall cease to
have a valid and perfected First Priority Lien in any Collateral purported to be
covered thereby, in each case for any reason other than the failure of any Agent
or any Lender to take any action within its control, or (iii) any Loan Party
shall contest the validity or enforceability of any Loan Document in writing or
deny in writing that it has any further liability, including with respect to
future advances by Lenders, under any Loan Document to which it is a party; or
8.13 Mergers
The Merger shall be unwound, reversed or otherwise rescinded in whole
or in part for any reason or, prior to the Merger Date, any party to the Merger
Agreement shall take any action to terminate the Merger Agreement or abandon the
Merger or the Merger shall not occur on or prior to the 120th calendar day after
the Closing Date:
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Company, and the obligation of each Lender to make any Loan, the
obligation of Administrative Agent to issue any Letter of Credit and the right
of any Lender to issue any Letter of Credit hereunder shall thereupon terminate,
and (ii) upon the occurrence and during the continuation of any other Event of
Default, Administrative Agent shall, upon the written request or may, with the
written consent of Requisite Lenders, by written notice to Company, declare all
or any portion of the amounts described in clauses (a) through (c) above to be,
and the same shall forthwith become, immediately due and payable, and the
obligation of each Lender to make any Loan, the obligation of Administrative
Agent to issue any Letter of Credit and the right of any Lender to issue any
Letter of Credit hereunder shall thereupon terminate; provided that the
foregoing shall not affect in any way the obligations of Revolving Lenders under
subsection 3.3C(i) or the obligations of Revolving Lenders to purchase
participations in any unpaid Swing Line Loans as provided in subsection
2.1A(iii).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent pursuant to the
terms of the Collateral Account Agreement and shall be applied as provided
therein.
Notwithstanding anything contained in the second preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
clause (ii) of such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as a
result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than
non-payment of the principal of and accrued interest on the Loans, in each case
which is due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to
Company, may at their option rescind and annul such acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon. The
provisions of this paragraph are intended merely to bind Lenders to a decision
which may be made at the election of Requisite Lenders and are not intended,
directly or indirectly, to benefit Company, and such provisions shall not at any
time be construed so as to grant Company the right to require Lenders to rescind
or annul any acceleration hereunder or to preclude Administrative Agent or
Lenders from exercising any of the rights or remedies available to them under
any of the Loan Documents, even if the conditions set forth in this paragraph
are met.
Section 9. THE AGENTS
9.1 Appointment
A. Appointment of Agents. DLJ is hereby appointed Administrative Agent
hereunder and under the other Loan Documents and each Lender hereby authorizes
Administrative Agent to act as its agent in accordance with the terms of this
Agreement and the other Loan Documents. First Union National Bank is hereby
appointed Syndication Agent hereunder and under the other Loan Documents and
each Lender hereby authorizes Syndication Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents.
NationsBank, N.A. is hereby appointed Documentation Agent hereunder and under
the other Loan Documents and each Lender hereby authorizes Documentation Agent
to act as its agent in accordance with the terms of this Agreement and the other
Loan Documents. Each of Administrative Agent, Syndication Agent and
Documentation Agent agrees to act upon the express conditions contained in this
Agreement and the other Loan Documents, as applicable. The provisions of this
Section 9 are solely for the benefit of each of Agents and Lenders and Company
shall have no rights as a third party beneficiary of any of the provisions
thereof. In performing its functions and duties under this Agreement, each of
Administrative Agent, Syndication Agent and Documentation Agent shall act solely
as an agent of Lenders and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or for
Company or any of its Subsidiaries.
B. Appointment of Supplemental Collateral Agents. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case Administrative Agent deems that by
reason of any present or future law of any jurisdiction it may not exercise any
of the rights, powers or remedies granted herein or in any of the other Loan
Documents or take any other action which may be desirable or necessary in
connection therewith, it may be necessary that Administrative Agent appoint an
additional individual or institution as a separate trustee, co-trustee,
collateral agent or collateral co-agent (any such additional individual or
institution being referred to herein individually as a "Supplemental Collateral
Agent" and collectively as "Supplemental Collateral Agents").
In the event that Administrative Agent appoints a Supplemental
Collateral Agent with respect to any Collateral, (i) each and every right,
power, privilege or duty expressed or intended by this Agreement or any of the
other Loan Documents to be exercised by or vested in or conveyed to
Administrative Agent with respect to such Collateral shall be exercisable by and
vest in such Supplemental Collateral Agent to the extent, and only to the
extent, necessary to enable such Supplemental Collateral Agent to exercise such
rights, powers and privileges with respect to such Collateral and to perform
such duties with respect to such Collateral, and every covenant and obligation
contained in the Loan Documents and necessary to the exercise or performance
thereof by such Supplemental Collateral Agent shall run to and be enforceable by
either Administrative Agent or such Supplemental Collateral Agent, and (ii) the
provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to
Administrative Agent shall inure to the benefit of such Supplemental Collateral
Agent and all references therein to Administrative Agent shall be deemed to be
references to Administrative Agent and/or such Supplemental Collateral Agent, as
the context may require.
Should any instrument in writing from Company or any other Loan Party
be required by any Supplemental Collateral Agent so appointed by Administrative
Agent for more fully and certainly vesting in and confirming to him or it such
rights, powers, privileges and duties, Company shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments promptly
upon request by Administrative Agent. In case any Supplemental Collateral Agent,
or a successor thereto, shall die, become incapable of acting, resign or be
removed, all the rights, powers, privileges and duties of such Supplemental
Collateral Agent, to the extent permitted by law, shall vest in and be exercised
by Administrative Agent until the appointment of a new Supplemental Collateral
Agent.
9.2 Powers and Duties; General Immunity
A. Powers; Duties Specified. Each Lender irrevocably authorizes each
Agent to take such action on such Lender's behalf and to exercise such powers,
rights and remedies hereunder and under the other Loan Documents as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents. Each Agent
may exercise such powers, rights and remedies and perform such duties by or
through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other Loan Documents, a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or any of the other Loan
Documents, expressed or implied, is intended to or shall be so construed as to
impose upon any Agent any obligations in respect of this Agreement or any of the
other Loan Documents except as expressly set forth herein or therein.
Notwithstanding anything herein to the contrary, Agent shall not be responsible
for notifying any Federal banking authority of its activities hereunder
(including pursuant to the Bank Service Company Act (12 U.S.C. 1867)).
B. No Responsibility for Certain Matters. No Agent shall be responsible
to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by such Agent to Lenders or by or on behalf of
Company to such Agent or any Lender in connection with the Loan Documents and
the transactions contemplated thereby or for the financial condition or business
affairs of Company or any other Person liable for the payment of any
Obligations, nor shall such Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or as to the existence
or possible existence of any Event of Default or Potential Event of Default.
Anything contained in this Agreement to the contrary notwithstanding,
Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Loans or the Letter of Credit Usage or the component
amounts thereof.
C. Exculpatory Provisions. None of the Agents nor any of their
respective officers, directors, employees or agents shall be liable to Lenders
for any action taken or omitted by any such Agent under or in connection with
any of the Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from
any act or the taking of any action (including the failure to take an action) in
connection with this Agreement or any of the other Loan Documents or from the
exercise of any power, discretion or authority vested in it hereunder or
thereunder unless and until such Agent shall have received instructions in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such instructions under subsection 10.6) and, upon receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such Agent shall be entitled to act or (where so instructed) refrain from
acting, or to exercise such power, discretion or authority, in accordance with
such instructions. Without prejudice to the generality of the foregoing, (i)
each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Company and its Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or (where so instructed) refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of Requisite Lenders (or such other Lenders as may be required to give such
instructions under subsection 10.6).
D. Agents Entitled to Act as Lender. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include such Agent
in its individual capacity. Any Agent and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with Company or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and
other consideration from Company for services in connection with this Agreement
and otherwise without having to account for the same to Lenders.
9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Company and
its Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent
shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and no Agent shall have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
9.4 Right to Indemnity
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against such
Agent in exercising its powers, rights and remedies or performing its duties
hereunder or under the other Loan Documents or otherwise in its capacity as
Administrative Agent, Syndication Agent or Documentation Agent, as the case may
be, in any way relating to or arising out of this Agreement or the other Loan
Documents; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from any Agent's gross negligence or
willful misconduct. If any indemnity furnished to any Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished.
9.5 Successor Agents and Swing Line Lender
A. Successor Agents. Each Agent may resign at any time by giving 30
days' prior written notice thereof to the other Agents, Lenders and Company, and
any Agent may be removed at any time with or without cause by an instrument or
concurrent instruments in writing delivered to Company and the Agents and signed
by Requisite Lenders. Upon any notice of resignation or removal of
Administrative Agent, Requisite Lenders shall have the right, upon five Business
Days' notice to Company, to appoint a successor Administrative Agent. If for any
reason Requisite Lenders cannot agree on a successor Administrative Agent, the
resigning Administrative Agent shall have the right to designate a successor
Administrative Agent, after consulting with Company. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Administrative Agent, and the retiring or removed Administrative Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring or removed Administrative Agent's resignation or removal hereunder
as Administrative Agent, the provisions of this Section 9 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.
B. Successor Swing Line Lender. Any resignation or removal of
Administrative Agent pursuant to subsection 9.5A shall also constitute the
resignation or removal of DLJ or its successor as Swing Line Lender, and any
successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon
its acceptance of such appointment, become the successor Swing Line Lender for
all purposes hereunder. In such event (i) Company shall prepay any outstanding
Swing Line Loans made by the retiring or removed Administrative Agent in its
capacity as Swing Line Lender, (ii) upon such prepayment, the retiring or
removed Administrative Agent and Swing Line Lender shall surrender the Swing
Line Note held by it to Company for cancellation, and (iii) Company shall issue
a new Swing Line Note to the successor Administrative Agent and Swing Line
Lender substantially in the form of Exhibit IV-C annexed hereto, in the
principal amount of the Swing Line Loan Commitment then in effect and with other
appropriate insertions.
9.6 Collateral Documents and Guaranties
A. Each Lender hereby further authorizes Administrative Agent, on
behalf of and for the benefit of Lenders, to enter into each Collateral Document
as secured party and to be the agent for and representative of Lenders under
each Guaranty, and each Lender agrees to be bound by the terms of each
Collateral Document and Guaranty; provided that Administrative Agent shall not
(i) enter into or consent to any material amendment, modification, termination
or waiver of any provision contained in any Collateral Document or Guaranty or
(ii) release any Collateral (except as otherwise expressly permitted or required
pursuant to the terms of this Agreement or the applicable Collateral Document),
in each case without the prior consent of Requisite Lenders (or, if required
pursuant to subsection 10.6, all Lenders); provided further, however, that,
without further written consent or authorization from Lenders, Administrative
Agent may execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented or (b) release any Subsidiary Guarantor from the
Subsidiary Guaranty if all of the equity Securities of such Subsidiary Guarantor
is sold to any Person (other than an Affiliate of Company) pursuant to a sale or
other disposition permitted hereunder or to which Requisite Lenders have
otherwise consented. Anything contained in any of the Loan Documents to the
contrary notwithstanding, Company, each Agent and each Lender hereby agree that
(X) no Lender shall have any right individually to realize upon any of the
Collateral under any Collateral Document or to enforce any Guaranty, it being
understood and agreed that all rights and remedies under the Collateral
Documents and the Guaranties may be exercised solely by Administrative Agent for
the benefit of Lenders in accordance with the terms thereof, and (Y) in the
event of a foreclosure by Administrative Agent on any of the Collateral pursuant
to a public or private sale, any Agent or any Lender may be the purchaser of any
or all of such Collateral at any such sale and Administrative Agent, as agent
for and representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing) shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Obligations as a credit on
account of the purchase price for any collateral payable by Administrative Agent
at such sale.
B. Each Lender hereby authorizes Administrative Agent to execute any
and all powers of attorney or other instruments on behalf of such Lender
necessary to effect the pledge of any Subsidiary's shares of capital stock under
the laws of a jurisdiction outside of the United States of America.
Section 10. MISCELLANEOUS
10.1 Assignments and Participations in Loans and Letters of Credit
A. General. Subject to subsection 10.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of its Commitments or
any Loan or Loans made by it or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; provided
that no such sale, assignment, transfer or participation shall, without the
consent of Company, require Company to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state; provided
further that no such sale, assignment, transfer or participation of any Letter
of Credit or any participation therein may be made separately from a sale,
assignment, transfer or participation of a corresponding interest in the
Revolving Loan Commitment and the Revolving Loans of the Revolving Lender
effecting such sale, assignment, transfer or participation; and provided further
that, anything contained herein to the contrary notwithstanding, the Swing Line
Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold,
assigned or transferred as described in clause (i) above to any Person other
than a successor Administrative Agent and Swing Line Lender to the extent
contemplated by subsection 9.5. Except as otherwise provided in this subsection
10.1, no Lender shall, as between Company and such Lender, be relieved of any of
its obligations hereunder as a result of any sale, assignment or transfer of, or
any granting of participations in, all or any part of its Commitments or the
Loans, the Letters of Credit or participations therein, or the other Obligations
owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each Commitment, Loan,
Letter of Credit or participation therein, or other Obligation may (a)
be assigned in any amount to another Lender, or to an Affiliate or
Affiliated Fund of the assigning Lender or another Lender, with the
giving of notice to Company and Administrative Agent or (b) be assigned
in an aggregate amount of not less than $1 million (or such lesser
amount as shall constitute the aggregate amount of the Commitments,
Loans, Letters of Credit and participations therein, and other
Obligations of the assigning Lender or as may be consented to by
Company and Administrative Agent) to any other Eligible Assignee with
the consent of Company (which consent shall only be required if no
Potential Event of Default or Event of Default has occurred and is
continuing) and Administrative Agent (which consent of Company and
Administrative Agent shall not be unreasonably withheld or delayed). To
the extent of any such assignment in accordance with either clause (a)
or (b) above, the assigning Lender shall be relieved of its obligations
with respect to its Commitments, Loans, Letters of Credit or
participations therein, or other Obligations or the portion thereof so
assigned. The parties to each such assignment shall execute and deliver
to Administrative Agent, for its acceptance, an Assignment Agreement,
together with a processing fee of $1,000 (to be assessed only if the
assignee is not a Lender or an Affiliate or Affiliated Fund of a Lender
and otherwise at Administrative Agent's discretion) and such forms,
certificates or other evidence, if any, with respect to United States
federal income tax withholding matters as the assignee under such
Assignment Agreement may be required to deliver to Administrative Agent
pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery and
acceptance from and after the effective date specified in such
Assignment Agreement, (y) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement, shall have
the rights and obligations of a Lender hereunder and (z) the assigning
Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment
Agreement, relinquish its rights (other than any rights which survive
the termination of this Agreement under subsection 10.9B) and be
released from its obligations under this Agreement (and, in the case of
an Assignment Agreement covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto; provided that, anything
contained in any of the Loan Documents to the contrary notwithstanding,
if such Lender is the Issuing Lender with respect to any outstanding
Letters of Credit such Lender shall continue to have all rights and
obligations of an Issuing Lender with respect to such Letters of Credit
until the cancellation or expiration of such Letters of Credit and the
reimbursement of any amounts drawn thereunder). The Commitments
hereunder shall be modified to reflect the Commitment of such assignee
and any remaining Commitment of such assigning Lender and, if any such
assignment occurs after the issuance of the Notes hereunder, the
assigning Lender shall, upon the effectiveness of such assignment or as
promptly thereafter as practicable, surrender its applicable Notes to
Administrative Agent for cancellation, and thereupon new Notes shall be
issued to the assignee and to the assigning Lender, substantially in
the form of Exhibit IV-A, Exhibit IV-B or Exhibit IV-C annexed hereto,
as the case may be, with appropriate insertions, to reflect the new
Commitments and/or outstanding Term Loans, as the case may be, of the
assignee and the assigning Lender.
(ii) Acceptance by Administrative Agent. Upon its receipt of
an Assignment Agreement executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with any
processing fee required pursuant to subsection 10.1B(i) and any forms,
certificates or other evidence with respect to United States federal
income tax withholding matters that such assignee may be required to
deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a),
Administrative Agent shall, if Administrative Agent and Company have
consented to the assignment evidenced thereby (in each case to the
extent such consent is required pursuant to subsection 10.1B(i)), (a)
accept such Assignment Agreement by executing a counterpart thereof as
provided therein (which acceptance shall evidence any required consent
of Administrative Agent to such assignment) and (b) give prompt notice
thereof to Company. Administrative Agent shall maintain a copy of each
Assignment Agreement delivered to and accepted by it as provided in
this subsection 10.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate or Affiliated Fund of the Lender granting such participation, shall
not be entitled to require such Lender to take or omit to take any action
hereunder except action directly affecting (i) the extension of the scheduled
final maturity date of any Loan allocated to such participation or (ii) a
reduction of the principal amount of or the rate of interest payable on any Loan
allocated to such participation, and all amounts payable by Company hereunder
(including amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and
3.6) shall be determined as if such Lender had not sold such participation.
Company and each Lender hereby acknowledge and agree that, solely for purposes
of subsections 10.3, 10.4 and 10.5, (a) any participation will give rise to a
direct obligation of Company to the participant and (b) the participant shall be
considered to be a "Lender".
D. Assignments to Federal Reserve Banks; Pledge by Funds. In addition
to the assignments and participations permitted under the foregoing provisions
of this subsection 10.1, any Lender may assign and pledge all or any portion of
its Loans, the other Obligations owed to such Lender, and its Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve Bank; provided that (i) no Lender shall, as
between Company and such Lender, be relieved of any of its obligations hereunder
as a result of any such assignment and pledge and (ii) in no event shall such
Federal Reserve Bank be considered to be a "Lender" or be entitled to require
the assigning Lender to take or omit to take any action hereunder. Any Lender
which is an investment fund may pledge all or any portion of its Loans and Notes
to its trustee in support of such investment fund's fees, expenses and indemnity
obligations to such trustee; provided that no Lender shall, as between Company
and such Lender, be relieved of any of its obligations hereunder as a result of
any such pledge.
E. Information. Each Lender may furnish any information concerning any
Loan Party in the possession of that Lender from time to time to assignees and
participants (including prospective assignees and participants), subject to
subsection 10.19.
F. Representations of Lenders. Each Lender listed on the signature
pages hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and
without a view to distribution of such Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this subsection 10.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
10.2 Expenses
Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
costs and expenses of preparation of the Loan Documents and any consents,
amendments, waivers or other modifications thereto; (ii) all the costs of
furnishing all opinions by counsel for Company (including any opinions requested
by Administrative Agent or Lenders as to any legal matters arising hereunder)
and of Company's performance of and compliance with all agreements and
conditions on its part to be performed or complied with under this Agreement and
the other Loan Documents including with respect to confirming compliance with
environmental, insurance and solvency requirements; (iii) the reasonable fees,
expenses and disbursements of counsel to Arranger and Administrative Agent
(including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of the Loan Documents and
any consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by Company; (iv) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Administrative
Agent on behalf of Lenders pursuant to any Collateral Document, including filing
and recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums, and reasonable fees, expenses and disbursements of
counsel to Administrative Agent and of counsel providing any opinions that
Administrative Agent or Requisite Lenders may request in respect of the
Collateral Documents or the Liens created pursuant thereto; (v) all the actual
costs and reasonable expenses (including the reasonable fees, expenses and
disbursements of any auditors, accountants or appraisers and any environmental
or other consultants, advisors and agents employed or retained by Administrative
Agent or their respective counsel) of obtaining and reviewing any appraisals,
environmental audits or reports and any audits or reports provided for under
subsection 4.1I, 6.9B or 6.9C; (vi) the custody or preservation of any of the
Collateral; (vii) all other actual and reasonable costs and expenses incurred by
Arranger or Administrative Agent in connection with the syndication of the
Commitments and the negotiation, preparation and execution of the Loan Documents
and any consents, amendments, waivers or other modifications thereto and the
transactions contemplated thereby; and (viii) after the occurrence and during
the continuation of an Event of Default, all costs and expenses, including
reasonable attorneys' fees (including allocated costs of internal counsel) and
costs of settlement, incurred by Administrative Agent and Lenders in enforcing
any Obligations of or in collecting any payments due from any Loan Party
hereunder or under the other Loan Documents by reason of such Event of Default
(including in connection with the sale of, collection from, or other realization
upon any of the Collateral or the enforcement of the Guaranties or in connection
with any refinancing or restructuring of the credit arrangements provided under
this Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings).
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10.3 Indemnity
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to Indemnitees' selection of counsel),
indemnify, pay and hold harmless Arranger, Agents and Lenders, and the officers,
directors, trustees, employees, agents and affiliates of Arranger, Agents and
Lenders (collectively called the "Indemnitees"), from and against any and all
Indemnified Liabilities (as hereinafter defined); provided that Company shall
not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities arise solely
from the gross negligence or willful misconduct of that Indemnitee as determined
by a final judgment of a court of competent jurisdiction.
As used herein, "Indemnified Liabilities" means, collectively, any and
all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make the Loans hereunder or the use or intended use of the proceeds thereof or
the issuance of Letters of Credit hereunder or the use or intended use of any
thereof), or any enforcement of any of the Loan Documents (including any sale
of, collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranties), (ii) the statements contained in the commitment
letter delivered by any Lender to Company with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 10.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 Set-Off; Security Interest in Deposit Accounts
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence and during
the continuation of any Event of Default each Lender is hereby authorized by
Company at any time or from time to time, without notice to Company or to any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including
Indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other Indebtedness at any time held or
owing by that Lender to or for the credit or the account of Company against and
on account of the obligations and liabilities of Company to that Lender under
this Agreement, the Letters of Credit and participations therein and the other
Loan Documents, including all claims of any nature or description arising out of
or connected with this Agreement, the Letters of Credit and participations
therein or any other Loan Document, irrespective of whether or not (i) that
Lender shall have made any demand hereunder or (ii) the principal of or the
interest on the Loans or any amounts in respect of the Letters of Credit or any
other amounts due hereunder shall have become due and payable pursuant to
Section 8 and although said obligations and liabilities, or any of them, may be
contingent or unmatured. Company hereby further grants to each Agent and each
Lender a security interest in all deposits and accounts maintained with such
Agent or such Lender as security for the Obligations.
10.5 Ratable Sharing
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "Aggregate
Amounts Due" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other Lender,
then the Lender receiving such proportionately greater payment shall (i) notify
Administrative Agent and each other Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it shall
be deemed to have purchased from each seller of a participation simultaneously
upon the receipt by such seller of its portion of such payment) in the Aggregate
Amounts Due to the other Lenders so that all such recoveries of Aggregate
Amounts Due shall be shared by all Lenders in proportion to the Aggregate
Amounts Due to them; provided that if all or part of such proportionately
greater payment received by such purchasing Lender is thereafter recovered from
such Lender upon the bankruptcy or reorganization of Company or otherwise, those
purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to such purchasing Lender ratably to the extent
of such recovery, but without interest. Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Company to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
10.6 Amendments and Waivers
A. No amendment, modification, termination or waiver of any provision
of this Agreement or of the Notes, and no consent to any departure by Company
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; provided that any amendment, modification, termination,
waiver or consent which:
(a) extends the final scheduled maturity of any Loan or
Note, or extends the stated maturity of any Letter of Credit beyond the
Revolving Loan Commitment Termination Date, or reduces the rate or
extends the time of payment of interest or fees thereon (except in
connection with a waiver of applicability of any post-default increase
in interest rates), or reduces the principal amount thereof (except to
the extent repaid in cash), or increases the amount or extends the
expiration date of any Lender's Commitments; or
(b) releases all or substantially all of (x) the
Collateral (except as expressly provided in the Loan Documents) under
all the Collateral Documents (it being understood that an increase in
the amount of Indebtedness of the Company secured ratably by the
Collateral shall not be deemed a release of Collateral), or (y) the
Guarantors (except as expressly provided in the Loan Documents) from
their obligations under any of the Guaranties; or
(c) amends, modifies or waives any provision of this
subsection 10.6; or
(d) reduces the percentage specified in the definition
"Requisite Lenders" (it being understood that, with the consent of
Requisite Lenders, additional extensions of credit pursuant to this
Agreement may be included in the determination of Requisite Lenders on
substantially the same basis as the extensions of Term Loans and
Revolving Loan Commitments are included on the Closing Date); or
(e) consents to the assignment or transfer by Company of
any of its rights and obligations under this Agreement or any other
Loan Document;
shall be effective only if evidenced in a writing signed by or on behalf of all
Lenders (with Obligations being directly affected in the case of clause (a)
above).
In addition, (i) no amendment, modification, termination or waiver of
any provision of any Note held by a Lender or which increases the Commitments of
any Lender over the amount thereof then in effect shall be effective without the
written concurrence of such Lender, (ii) no amendment, modification, termination
or waiver of any provision of subsection 2.1A(iii) or any other provision of
this Agreement relating to the Swing Line Lender shall be effective without the
written concurrence of Swing Line Lender, and (iii) no amendment, modification,
termination or waiver of any provision of Section 9 or of any other provision of
this Agreement which, by its terms, expressly requires the approval or
concurrence of Administrative Agent shall be effective without the written
concurrence of Administrative Agent.
B. If, in connection with any proposed amendment, modification,
termination or waiver of any of the provisions of this Agreement or the Notes
which requires the consent of all Lenders, the consent of Requisite Lenders is
obtained but the consent of one or more of such other Lenders whose consent is
required is not obtained, then Company shall have the right, so long as all
non-consenting Lenders whose individual consent is required are treated as
described in either clause (i) or (ii) below, to either (i) replace each such
non-consenting Lender or Lenders with one or more Replacement Lenders pursuant
to subsection 2.8 so long as at the time of such replacement, each such
Replacement Lender consents to the proposed amendment, modification, termination
or waiver, or (ii) terminate such non-consenting Lender's Commitments and repay
in full its outstanding Loans in accordance with subsections 2.4B(i)(b) and
2.4B(ii)(b); provided that unless the Commitments that are terminated and the
Loans that are repaid pursuant to the preceding clause (ii) are immediately
replaced in full at such time through the addition of new Lenders or the
increase of the Commitments and/or outstanding Loans of existing Lenders (who in
each case must specifically consent thereto), then in the case of any action
pursuant to the preceding clause (ii), the Requisite Lenders (determined before
giving effect to the proposed action) shall specifically consent thereto;
provided further that Company shall not have the right to terminate such
non-consenting Lender's Commitment and repay in full its outstanding Loans
pursuant to clause (ii) of this subsection 10.6B if, immediately after the
termination of such Lender's Revolving Loan Commitment in accordance with
subsection 2.4B(ii)(b), the Revolving Loan Exposure of all Lenders would exceed
the Revolving Loan Commitments of all Lenders; provided still further that
Company shall not have the right to replace a Lender solely as a result of the
exercise of such Lender's rights (and the withholding of any required consent by
such Lender) pursuant to the second paragraph of subsection 10.6A.
C. Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on Company in any case shall entitle Company to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 10.6 shall be binding upon each Lender at the time outstanding, each
future Lender and, if signed by Company, on Company.
10.7 Independence of Covenants
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 Notices
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided that notices to Administrative Agent shall not
be effective until received. For the purposes hereof, the address of each party
hereto shall be as set forth under such party's name on the signature pages
hereof or (i) as to Company and Administrative Agent, such other address as
shall be designated by such Person in a written notice delivered to the other
parties hereto and (ii) as to each other party, such other address as shall be
designated by such party in a written notice delivered to Administrative Agent.
10.9 Survival of Representations, Warranties and Agreements
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative
No failure or delay on the part of any Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.11 Marshalling; Payments Set Aside
None of Agents or Lenders shall be under any obligation to marshal any
assets in favor of Company or any other party or against or in payment of any or
all of the Obligations. To the extent that Company makes a payment or payments
to Administrative Agent or Lenders (or to Administrative Agent for the benefit
of Lenders), or any of Agents or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
10.12 Severability
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.13 Obligations Several; Independent Nature of Lenders' Rights
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 Headings
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 Applicable Law
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
10.16 Successors and Assigns
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither Company's
rights or obligations hereunder nor any interest therein may be assigned or
delegated by Company without the prior written consent of all Lenders.
10.17 Consent to Jurisdiction and Service of Process
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST
COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1402 OR OTHERWISE.
10.18 Waiver of Jury Trial
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed in
any court and that relate to the subject matter of this transaction, including
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each party hereto acknowledges that this waiver is a material
inducement to enter into a business relationship, that each has already relied
on this waiver in entering into this Agreement, and that each will continue to
rely on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF
THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
10.19 Confidentiality
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
Company in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by Company that in any event a
Lender may make disclosures to Affiliates and professional advisors of such
Lender or disclosures reasonably required by (a) any bona fide assignee,
transferee or participant in connection with the contemplated assignment or
transfer by such Lender of any Loans or any participations therein or (b) by any
direct or indirect contractual counterparties in swap agreements or such
contractual counterparties' professional advisors provided that such contractual
counterparty or professional advisor to such contractual counterparty agrees to
keep such information confidential to the same extent required of the Lenders
hereunder, or disclosures required or requested by any governmental agency or
representative thereof or pursuant to legal process; provided that, unless
specifically prohibited by applicable law or court order, each Lender shall
notify Company of any request by any governmental agency or representative
thereof (other than any such request in connection with any examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information; and
provided further that in no event shall Administrative Agent or any Lender be
obligated or required to return any materials furnished by Company or any of its
Subsidiaries.
10.20 Counterparts; Effectiveness
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Company and
Administrative Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
COMPANY: FALCON PRODUCTS, INC.
By:
------------------------------------
Name:
Title:
Notice Address:
9387 Dielman Industrial Drive
St. Louis, MO 63132
Attention: Michael Dreller
Tel.: 314-991-9204
Fax: 314-991-9295
LENDERS:
DLJ CAPITAL FUNDING, INC.,
individually and as
Administrative Agent
By:
-----------------------------------
Name:
Title:
Notice Address:
277 Park Avenue
New York, NY 10172
Attention: Diane Albanese
Tel.: 212-892-2903
Fax: 212-892-6031
FIRST UNION NATIONAL BANK,
individually and as Syndication Agent
By:
-----------------------------------
Name:
Title:
Notice Address:
301 South College Street
One First Union Center NC 0737
Charlotte, NC 28288-0737
Attention: David J.C. Silander
Tel.: 704-383-5124
Fax: 704-374-4793
NATIONSBANK, N.A., individually and
as Documentation Agent
By:
-----------------------------------
Name:
Title:
Notice Address:
800 Market Street
St. Louis, MO 63101
Attention: Dwight Erdbruegger
Tel.: 314-466-7053
Fax: 314-466-6744
<PAGE>
THE BANK OF NOVA SCOTIA,
By:
-----------------------------------
Name:
Title:
Notice Address:
600 Peachtree Street N.E.
Suite 600
Atlanta, Georgia 30308
Attention: Vicki Gibson
Tel.: 404-888-8557
Fax: 404-888-8998
COMERICA BANK,
By:
----------------------------------
Name:
Title:
Notice Address:
One Detroit Center
500 Woodward Avenue-Mail Code 3289
Detroit, MI 48226
Attention: Jeff Peck
Tel.: 313-222-3070
Fax: 313-222-9516
THE FIRST NATIONAL BANK OF CHICAGO,
By:
-----------------------------------
Name:
Title:
Notice Address:
1 First National Plaza
14th Floor
Chicago, IL 60670-0321
Attention: Christopher Cavaiani
Tel.: 312-732-6664
Fax: 312-732-1117
HARRIS TRUST & SAVINGS BANK,
By:
-----------------------------------
Name:
Title:
Notice Address:
111 West Monroe Street
Chicago, IL 60690
Attention: Don Buse
Tel.: 312-461-5862
Fax: 312-293-5041
HELLER FINANCIAL, INC.,
By:
----------------------------------
Name:
Title:
Notice Address:
500 West Monroe Street
Chicago, IL 60661
Attention: Craig Gallehugh
Tel.: 312-441-7630
Fax: 312-441-7341
<PAGE>
MERCANTILE BANK,
By:
----------------------------------
Name:
Title:
Notice Address:
One Mercantile Center
721 Locust-tram 12-3
St. Louis, MO 63101
Attention: David Higbee
Tel.: 314-418-1967
Fax: 314-418-2203
NATIONAL CITY BANK,
By:
----------------------------------
Name:
Title:
Notice Address:
1900 East 9th St.
Cleveland, OH 44144-3484
Attention: Joseph Robinson
Tel.: 216-575-9254
Fax: 216-575-9396
THE NORTHERN TRUST COMPANY,
By:
----------------------------------
Name:
Title:
Notice Address:
50 South LaSalle Street
Chicago, IL 60675
Attention: Fred McClendon
Tel.: 312-557-1893
Fax: 312-
PROVIDENT BANK,
By:
----------------------------------
Name:
Title:
Notice Address:
One East Fourth Street
Corporate Finance Group-M.S.
216A
Cincinnati, OH 45202
Attention: Nick Jevic
Tel.: 513-579-2337
Fax: 513-579-2858
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
Notice Address:
55 Monroe Street
47th Floor-Suite 4700
Chicago, IL 60603
Attention: Philip Salter
Tel.: 312-917-7417
Fax: 312-372-9329
THE FUJI BANK, LIMITED
By:
----------------------------------
Name:
Title:
Notice Address:
225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: Peter Chinnici
Tel.: 312-621-0515
Fax: 312-621-0539
Falcon Products, Inc.
Computation of Ratio of Earnings to Fixed Charges
Historical Financial Data
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal year ended Twenty-six Weeks
----------------------------------------------------------- --------------------
October 29, October 28, November 2, November 1, October 31, May 2, May 1,
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before
minority interests $ 8,430 $ 9,913 $ 11,203 $ 7,898 $ 9,987 $ 5,853 $ 6,145
Add:
Portions of rents
representative
of the interest factor 29 32 48 73 81 20 20
Interest on indebtedness -- -- -- -- 619 596
Amortization of debt expense -- -- -- -- 45 5 3
--------------------------------------------------------------------------------
Income as adjusted 8,459 9,945 11,251 7,971 10,732 5,878 6,764
Fixed charges
Portions of rents
representative
of the interest factor 29 32 48 73 81 20 20
Interest on indebtedness -- -- -- -- 619 -- 596
Amortization of debt expense -- -- -- -- 45 5 3
--------------------------------------------------------------------------------
Fixed charges 29 32 48 73 745 25 619
--------------------------------------------------------------------------------
Ratio of earnings to fixed charges 287.2 310.3 236.1 109.0 14.4 232.6 10.9
=================================================================================
<PAGE>
Shelby Williams Industry, Inc.
Computation of Ratio of Earnings to Fixed Charges
Historical Financial Data
(Dollars in Thousands)
Three months ended
Fiscal year ended December 31, March 31,
----------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- ------- --------- --------
Earnings (loss) from continuing
operations before
minority interests $ (1,195) $ 8,527 $ 11,476 $ 14,743 $ 16,805 $ 3,298 $ 3,538
Add:
Portions of rents
representative
of the interest factor 100 100 96 98 95 24 24
Interest on indebtedness 1,207 1,257 969 622 391 125 46
Amortization of debt expense -- -- -- -- -- -- --
----------------------------------------------------------------------
Income as adjusted 112 9,884 12,541 15,463 17,291 3,447 3,608
Fixed charges
Portions of rents
representative
of the interest factor 100 100 96 98 95 24 24
Interest on indebtedness 1,207 1,257 969 622 391 125 46
Amortization of debt expense -- -- -- -- -- -- --
----------------------------------------------------------------------
Fixed charges 1,307 1,357 1,065 720 486 149 70
----------------------------------------------------------------------
Ratio of earnings to fixed charges 0.1 7.3 11.8 21.5 35.6 23.2 51.5
======================================================================
<PAGE>
Falcon Products, Inc.
Computation of Ratio of Earnings to Fixed Charges
Pro Forma Combined Financial Data
(Dollars in Thousands)
Fiscal year Twenty-six Last twelve
ended weeks ended months ended
October 31, 1998 May 1, 1999 May 1, 1999
---------------- ----------- ------------
Earnings from continuing
operations before
minority interests $ 7,790 $ 5,156 $ 9,097
Add:
Portions of rents
representative
of the interest factor 176 68 156
Interest on indebtedness 16,625 8,313 16,625
Amortization of debt expense 817 408 817
------------------------------------------------------
Income as adjusted 25,408 13,945 26,695
Fixed charges
Portions of rents
representative
of the interest factor 176 68 156
Interest on indebtedness 16,625 8,313 16,625
Amortization of debt expense 817 408 817
---------------------------------------------------
Fixed charges 17,618 8,789 17,598
---------------------------------------------------
Ratio of earnings to fixed charges 1.4 1.6 1.5
===================================================
</TABLE>
Subsidiaries of Falcon Products, Inc.
Subsidiary State/Country of Organization
---------- -----------------------------
Howe Furniture Corporation New York
Johnson Industries, Inc. Illinois
Howe Europe a/s Denmark
Falcon Products China Limited China
Falcon Holdings, Inc. Missouri
Falcon Mimon a/s Czech Republic
Falcon De Juarez, S.A. de C.V. Mexico
Falcon De Baja California, S.A. de C.V. Mexico
Fundiciones Tecnicas, S.A. Mexico
Shelby Williams Industries, Inc. Delaware
Sellers & Josephson, Inc. New Jersey
Shelby FSC Corp. U.S. Virgin Islands
Madison Furniture Industries, Inc. Mississippi
Thonet International (UK) Limited England
Industrial Mueblera Shelby Williams, Mexico
S.A. DE C.V.
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated December 15, 1998
included in Falcon Products, Inc.'s Form 10-K for the year ended October 31,
1998 and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
July 16, 1998
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 29, 1999, with respect to the consolidated
financial statements of Shelby Williams Industries, Inc. included in the
Registration Statement (Form S-4, No. 333-________) and related Prospectus of
Falcon Products, Inc. for the registration of $100,000,000 of its 11 3/8% Senior
Subordinated Notes due 2009, Series B.
/s/ Ernst & Young LLP
Atlanta, Georgia
July 14, 1999
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
---------------------
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------
FALCON PRODUCTS, INC.
(Exact name of obligor as specified in its charter)
Delaware 43-0730877
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
(Address of principal executive offices) (Zip code)
-------------------
11-3/8% Senior Subordinated Notes due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 12th day of July, 1999.
THE BANK OF NEW YORK
By: /s/ ILIANA A. ARCIPRETE
---------------------------------
Name: ILIANA A. ARCIPRETE
Title: ASSISTANT TREASURER
<PAGE>
EXHIBIT 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS In Thousands
- ------ --------------
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin. $4,508,742
Interest-bearing balances.......................... 4,425,071
Securities:
Held-to-maturity securities........................ 836,304
Available-for-sale securities...................... 4,047,851
Federal funds sold and Securities purchased under 1,743,269
agreements to resell...............................
Loans and lease financing receivables:
Loans and leases, net of unearned
income.................................39,349,679
LESS: Allowance for loan and
lease losses..............................603,025
LESS: Allocated transfer risk
reserve....................................15,906
Loans and leases, net of unearned income, 38,730,748
allowance, and reserve...........................
Trading Assets........................................ 1,571,372
Premises and fixed assets (including capitalized 685,674
leases)............................................
Other real estate owned............................... 10,331
Investments in unconsolidated subsidiaries and 182,449
associated companies...............................
Customers' liability to this bank on acceptances 1,184,822
outstanding........................................
Intangible assets..................................... 1,129,636
Other assets.......................................... 2,632,309
-----------
Total assets.......................................... $61,688,578
===========
LIABILITIES
Deposits:
In domestic offices................................ $25,731,036
Noninterest-bearing......................10,252,589
Interest-bearing.........................15,478,447
In foreign offices, Edge and Agreement 18,756,302
subsidiaries, and IBFs...........................
Noninterest-bearing.........................111,386
Interest-bearing.........................18,644,916
Federal funds purchased and Securities sold under 3,276,362
agreements to repurchase...........................
Demand notes issued to the U.S.Treasury............... 230,671
Trading liabilities................................... 1,554,493
Other borrowed money:
With remaining maturity of one year or less........ 1,154,502
With remaining maturity of more than one year 465
through three years..............................
With remaining maturity of more than three years... 31,080
Bank's liability on acceptances executed and 1,185,364
outstanding........................................
Subordinated notes and debentures..................... 1,308,000
Other liabilities..................................... 2,743,590
-----------
Total liabilities..................................... 55,971,865
-----------
EQUITY CAPITAL
Common stock.......................................... 1,135,284
Surplus............................................... 764,443
Undivided profits and capital reserves................ 3,807,697
Net unrealized holding gains (losses) on 44,106
available-for-sale securities......................
Cumulative foreign currency translation adjustments...
( 34,817)
-----------
Total equity capital.................................. 5,716,713
-----------
Total liabilities and equity capital.................. $61,688,578
===========
- --------------------------------------------------------------------------------
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
================================================================================
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
A. Reyni
Alan R. Griffith
Gerald L. Hassell
- --------------------------------------------------------------------------------
LETTER OF TRANSMITTAL
FALCON PRODUCTS, INC.
OFFER TO EXCHANGE ITS
11 3/8% SENIOR SUBORDINATED NOTES DUE 2009,
SERIES B (THE "NEW NOTES") FOR ALL OF ITS OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES DUE 2009,
SERIES A (THE "ORIGINAL NOTES")
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
_____, 1999, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
Delivery To: IBJ Whitehall Bank & Trust Company, Exchange Agent
By Mail: Facsimile By Hand, Courier,
Transmission: or Certified Or
IBJ Whitehall Bank (212) 858-2611 Express Mail:
& Trust Company
P.O. Box 84 (for eligible IBJ Whitehall Bank
Bowling Green Station institutions only) & Trust Company
New York, New York 10274-0084 Confirmation of One State Street
Attn: Reorganization Receipt of Facsimile New York, New York 10004
Operations by Telephone: Attn: Securities
(212) 858-2103 Processing Window,
Subcellar One, (SC-1)
For Information or Assistance:
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York, 10004
Attn: Reorganization Operations
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its sole discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify the holders of the Original Notes of
any extension by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Original
Notes either if certificates are to be forwarded herewith or if a tender of
certificates for Original Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedures set
forth in the Prospectus under the caption "The Exchange Offer-Book-Entry
Transfer." Holders of Original Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Original Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Original Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
<PAGE>
List below the Original Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
principal amount of Original Notes should be listed on a separate signed
schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES 1 2 3
- --------------------------------------------------------------------------------
Name(s) and Address(es) of Aggregate Principal
Registered Holder (s) Certificate Principal Amount
(Please fill in, if blank) Number (s) * Amount of Tendered **
Original
Note (s)
- ---------------------------------------------- ------------ --------------
------------- ------------ --------------
------------- ------------ --------------
------------- ------------ --------------
------------- ------------ --------------
------------- ------------ --------------
Total
- ---------------------------------------------- ------------ --------------
* Need not be completed if Original Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered all of the Original Notes represented by the Original Notes
indicated in column 2. See Instruction 2. Original Notes tendered hereby
must be in denominations of principal amount of $1,000 and any integral
multiple thereof. See Instruction 1.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
Account Number: Transaction Code Number:
----------------- ------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
----------------------------------------
Window Ticket Number (if any):
----------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
---------------------
Name of Institution which guaranteed delivery:
-------------------------
If delivered by book-entry transfer, complete the following:
Account Number: Transaction Code Number:
------------------ ------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE COPIES OF THE
PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO AND
COMPLETE THE FOLLOWING:
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Falcon Products, Inc. (the
"Company"), the aggregate principal amount of Original Notes indicated in this
Letter of Transmittal, upon the terms and subject to the conditions set forth in
the Company's Prospectus dated _______________, 1999 (the "Prospectus"), receipt
of which is hereby acknowledged, and in this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 11 3/8% Senior Subordinated Notes Due 2009,
Series B (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for each $1,000 principal amount of
its issued and outstanding 11 3/8% Senior Subordinated Notes Due 2009, Series A,
of which $100,000,000 aggregate principal amount was issued on June 17, 1999 and
outstanding on the date of the Prospectus (the "Original Notes" and, together
with the New Notes, the "Notes"). Capitalized terms which are not defined herein
are used herein as defined in the Prospectus.
Subject to, and effective upon, the acceptance for exchange of the
Original Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Original Notes as are being tendered hereby and hereby irrevocably
constitutes and appoints the Exchange Agent the attorney-in-fact of the
undersigned with respect to such Original Notes, with full power of substitution
(such power of attorney being an irrevocable power coupled with an interest),
to:
(a) deliver such Original Notes in registered certificated form, or
transfer ownership of such Original Notes through book-entry
transfer at the Book-Entry Transfer Facility, to or upon the order
of the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the same aggregate principal amount of New
Notes; and
(b) receive, for the account of the Company, all benefits and
otherwise exercise, for the account of the Company, all rights of
beneficial ownership of the Original Notes tendered hereby in
accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all security interests, liens,
restrictions, charges, encumbrances, conditional sale agreements or other
obligations relating to their sale or transfer, and not subject to any adverse
claim when the same are accepted by the Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "Exchange Offer-Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company) as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Original Notes tendered
hereby and, in such event, the Original Notes not exchanged will be returned to
the undersigned.
By tendering, each holder of the Original Notes who wishes to exchange
Original Notes for New Notes in the Exchange Offer represents and acknowledges,
for the holder and for each beneficial owner of such Original Notes, whether or
not the beneficial owner is the holder, that: (i) the New Notes to be acquired
by the holder and each beneficial owner, if any, are being acquired in the
ordinary course of business; (ii) neither the holder nor any beneficial owner is
an affiliate, as defined in Rule 405 of the Securities Act of the Company or any
of the Company's subsidiaries; (iii) any person participating in the Exchange
Offer with the intention or purpose of distributing New Notes received in
exchange for Original Notes, including a broker-dealer that acquired Original
Notes directly from the Company, but not as a result of market-making activities
or other trading activities, will comply with the registration and prospectus
delivery requirements of the Securities Act, in connection with a secondary
resale of the New Notes acquired by such person; (iv) if the holder is not a
broker-dealer, the holder and each beneficial owner, if any, are not
participating, do not intend to participate and have no arrangement or
understanding with any person to participate in any distribution of the New
Notes received in exchange for Original Notes; and (v) if the holder is a
broker-dealer that will receive New Notes for the holder's own account in
exchange for Original Notes, the Original Notes to be so exchanged were acquired
by the holder as a result of market-making or other trading activities and the
holder will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes received in the Exchange Offer.
However, by so representing and acknowledging and by delivering a prospectus,
the holder will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. The undersigned has read and agrees to all of the
terms of the Exchange Offer.
The Company has agreed that, subject to the provisions of the
Registration Rights Agreement, the Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer (as
defined below) in connection with resales of New Notes received in exchange for
Original Notes, where such Original Notes were acquired by such Participating
Broker-Dealer for its own account as a result of market-making activities or
other trading activities, for a period ending 270 days after the consummation of
the exchange offer or such shorter period as will terminate when all registrable
securities covered by the registration statement have been sold pursuant thereto
(the "Effective Date") (subject to extension under certain limited circumstances
described in the Prospectus). In that regard, each broker-dealer who acquired
Original Notes for its own account as a result of market-making or other trading
activities (a "Participating Broker-Dealer"), by tendering such Original Notes
and executing this Letter of Transmittal or effecting delivery of an Agent's
message in lieu thereof, agrees that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in the Prospectus untrue in any
material respect or which cause the Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
therein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other event specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of New Notes pursuant to the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to the Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 270-day period referred to above
during which Participating Broker-Dealer are entitled to use the Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the
supplemented or amended Prospectus necessary to permit resales of the New Notes
or to and including the date on which the Company has given notice that the
sales of New Notes may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of New Notes received in exchange for
Original Notes pursuant to the Exchange Offer must notify the Company, or cause
the Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
above or may be delivered to the Exchange Agent at the address set forth in the
Prospectus under "The Exchange Offer-Exchange Agent."
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Original Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter of Transmittal and
every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by, and
shall survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the Prospectus
under the caption "The Exchange Offer--Withdrawal of Tenders."
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Original Notes for any Original Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Original Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Original Notes
for any Original Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Original Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE ORIGINAL NOTES AS SET FORTH IN SUCH BOX ABOVE.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETION.
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates To be completed ONLY if certificates
for Original Notes not exchanged and/or for Original Notes not exchanged
New Notes are to be issued in the name of and/or New Notes are to be sent to
and sent to someone other than the person someone other than the person or
or persons whose signature(s) appear(s) persons whose signature(s) appear(s)
below on this Letter of Transmittal, or below on this Letter of Transmittal
if Original Notes delivered by book-entry or to such person or persons at an
transfer which are not accepted for address other than shown above in
exchange are to be returned by credit to the box entitled "Description of
an account maintained at the Book-Entry Original Notes" on this Letter of
Transfer Facility other than the account Transmittal.
indicated above.
Issue: New Notes and/or Original Notes Mail: New Notes and/or Original
to: Notes to:
Name (s): Name (s):
------------------------------- ---------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
- ---------------------------------------- ------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address: Address:
------------------------------- ---------------------------
- ---------------------------------------- ------------------------------------
(ZIP CODE) (ZIP CODE)
- ----------------------------------------
(Taxpayer Identification or
Social Security)
(See Substitute Form W-9)
[ ] Credit unexchanged Original Notes
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below:
---------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
<PAGE>
THIS PAGE MUST BE COMPLETED BY ALL TENDERING HOLDERS
(Complete Accompanying Substitute Form W-9 attached at the end of this
Letter of Transmittal)
-------------------------------------------------------
PLEASE SIGN HERE
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
SIGNATURE(S) OF OWNER(S) , 1999
-------------------------
Date
Area Code and Telephone Number:
------------------------------
If a holder is tendering any Original Notes, this Letter of Transmittal
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Original Notes or on a securities position listing or by
any person(s) authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
-------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
Dated: , 1999
------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES; GUARANTEED DELIVERY
PROCEDURES.
This Letter of Transmittal is to be completed by holders of Original
Notes either if certificates are to be forwarded herewith or if tenders are to
be made pursuant to the procedures for delivery by book-entry transfer set forth
in the Prospectus under the caption "The Exchange Offer--Book-Entry Transfer."
Certificates for all physically tendered Original Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile hereof) and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Original Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders of Original Notes whose certificates for Original Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Original Notes pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution (as defined below), (ii) prior to the Expiration
Date, the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form provided by the Company (by telegram, telex, facsimile transmission, mail
or hand delivery), setting forth the name and address of the holder of Original
Notes and the amount of Original 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 Original Notes, or a
Book-Entry Confirmation, together with a properly completed and duly executed
Letter of Transmittal and any other documents required by this Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Original Notes, in
proper form for transfer, or Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed Letter of Transmittal and
all other documents required by this Letter of Transmittal, are received by the
Exchange Agent within three NYSE trading days after the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE ORIGINAL
NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY
INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE
EXPIRATION DATE. DO NOT SEND THIS LETTER OF TRANSMITTAL OR ANY ORIGINAL NOTES TO
THE COMPANY.
See the section entitled "The Exchange Offer" of the Prospectus for more
information.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF ORIGINAL NOTES WHO
TENDER BY BOOK-ENTRY TRANSFER); WITHDRAWAL RIGHTS
Tenders of Original Notes will be accepted only in the principal amount
of $1,000 and integral multiples thereof. If less than all of the Original Notes
evidenced by a submitted certificate are to be tendered, the tendering holder(s)
should fill in the aggregate principal amount of Original Notes to be tendered
in the box above entitled "Description of Original Notes--Principal Amount
Tendered." A reissued certificate representing the balance of nontendered
Original Notes will be sent to such tendering holder, unless otherwise provided
in the appropriate box on this Letter of Transmittal, promptly after the
Expiration Date. ALL OF THE ORIGINAL NOTES DELIVERED TO THE EXCHANGE AGENT WILL
BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Notes to be withdrawn, the
aggregate principal amount of Original Notes to be withdrawn and (if
certificates for such Original Notes have been tendered) the name of the
registered holder of the Original Notes as set forth on the certificate for the
Original Notes, if different from that of the person who tendered such Original
Notes. If certificates for the Original Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
certificates for the Original Notes, the tendering holder must submit the serial
numbers shown on the particular certificates for the Original Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Original Notes tendered for the
account of an Eligible Institution. If Original Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in the Prospectus
under the caption "The Exchange Offer--Book-Entry Transfer," the notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawal of Original Notes, in which
case a notice of withdrawal will be effective if delivered to the Exchange Agent
by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders
of Original Notes may not be rescinded. Original Notes properly withdrawn will
not be deemed to have been validly tendered for purposes of the Exchange Offer,
and no New Notes will be issued with respect thereto unless the Original Notes
so withdrawn are validly retendered. Properly withdrawn Original Notes may be
retendered at any subsequent time on or prior to the Expiration Date by
following the procedures described in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any employees, agents, affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Original Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder as promptly as practicable after withdrawal.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES
If this Letter of Transmittal is signed by the registered holder of the
Original Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates or on a securities position
listing without any change whatsoever.
If any tendered Original Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different names on
several certificates or securities positions listings, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
different registrations.
When this Letter of Transmittal is signed by the registered holder or
holders of the Original Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If, however,
the New Notes are to be issued, or any untendered Original Notes are to be
reissued, to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required. Signatures
on such documents must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered holder or
holders appear(s) on the certificate(s), and the signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
ENDORSEMENTS ON CERTIFICATES FOR ORIGINAL NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (EACH AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, PROVIDED THE ORIGINAL NOTES ARE TENDERED: (i) BY A
REGISTERED HOLDER OF ORIGINAL NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE
OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE
NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDERS OF SUCH ORIGINAL
NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR
"SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER OR (ii) FOR THE ACCOUNT OF AN
ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Original Notes should indicate in the applicable
box the name and address to which New Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Original Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated. A holder of Original Notes tendering Original Notes by
book-entry transfer may request that Original Notes not exchanged be credited to
such account maintained at the Book-Entry Transfer Facility as such holder may
designate hereon. If no such instructions are given, such Original Notes not
exchanged will be returned to the name or address of the person signing this
Letter of Transmittal or credited to the account maintained by such person at
the Book-Entry Transfer Facility, as the case may be.
5. SUBSTITUTE FORM W-9.
The holder tendering Original Notes in exchange for New Notes is
required to provide the Exchange Agent with a correct Social Security Number or
Taxpayer Identification Number TIN on Substitute Form W-9, which is provided
below. FAILURE TO PROVIDE THE CORRECT INFORMATION ON THE FORM OR AN ADEQUATE
BASIS FOR AN EXEMPTION MAY SUBJECT THE HOLDER TO A $50 PENALTY IMPOSED BY THE
INTERNAL REVENUE SERVICE. IN ADDITION, BACKUP WITHHOLDING AT THE RATE OF 31% MAY
BE IMPOSED UPON ANY PAYMENTS OF PRINCIPAL, AND INTEREST ON, AND THE PROCEEDS OF
DISPOSITION OF, A NEW NOTE. IF WITHHOLDING RESULTS IN AN OVERPAYMENT OF TAXES, A
REFUND MAY BE OBTAINED. Write "Applied For" in the space for the TIN if the
holder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future. If the Exchange Agent is not provided
with a TIN within 60 days, the Exchange Agent, if appropriate, will withhold 31%
of any payments of principal, and interest on, and the proceeds of disposition
of, a New Note until a TIN is provided to the Exchange Agent.
Exempt holders are not subject to these backup withholding and
reporting requirements. To prevent possible erroneous backup withholding, an
exempt holder must enter its correct TIN in Part I of the Substitute Form W-9,
check Part II of such form, and sign and date the form. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (the "W-9 Guidelines") for additional instructions. In order for a
non-resident alien or foreign entity to qualify as an exempt recipient, such
person must submit a completed Form W-8, "Certificate of Foreign Status"
statement, signed under penalties of perjury, attesting to the individual's
exempt status. Such forms can be obtained from the Exchange Agent.
The holder is required to give the Exchange Agent the social security
number or employer identification number of the record owner of the Original
Notes. If the Original Notes are in more than one name or are not in the name of
the actual owner, consult the W-9 Guidelines for additional guidance on which
TIN to report.
If you do not have a TIN, consult the W-9 Guidelines for instructions
on applying for a TIN, write "Applied for" in the space for the TIN in Part I of
the Substitute Form W-9, and sign and date both signature lines on the form. If
you provide your TIN to the Exchange Agent within 60 days of the date the
Exchange Agent receives such form, amounts withheld during such 60 day period
will be refunded to you by the Exchange Agent. NOTE: WRITING "APPLIED FOR" ON
THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO
APPLY FOR ONE IN THE NEAR FUTURE.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Original Notes to it or its order pursuant to the Exchange Offer.
If, however, New Notes and/or substitute Original Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Original Notes tendered hereby, or if tendered
Original Notes are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Original Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE ORIGINAL NOTES SPECIFIED IN THIS LETTER
OF TRANSMITTAL.
7. DETERMINATION OF VALIDITY.
The Company will determine, in its sole discretion, all questions as to
the form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Original Notes, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance of which, or exchange for which, may, in the view of counsel to
the Company, be unlawful. The Company also reserves the absolute right, subject
to applicable law, to waive any of the conditions of the Exchange Offer set
forth in the Prospectus under the caption "The Exchange Offer" or any conditions
or irregularity in any tender of Original Notes of any particular holder whether
or not similar conditions or irregularities are waived in the case of other
holders.
The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Original Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. Although the Company intends to notify holders of defects
or irregularities with respect to tenders of Original Notes, neither the
Company, any employees, agents, affiliates or assigns of the Company, the
Exchange Agent, nor any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Original Notes, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Original Notes for exchange.
9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES.
Any holder whose Original Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
<PAGE>
Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9
Name. -- If you are an individual, you must generally enter the name
shown on your social security card. However, if you have changed your last name,
for instance, due to marriage, without informing the Social Security
Administration of the name change, enter your first name, the last name shown on
your social security card, and your new last name.
If the account is in joint names, list first and then circle the name
of the person or entity whose number you enter in Part I of the form.
Sole Proprietor. -- You must enter your individual name as shown on
your social security card. You may enter your business, trade, or "doing
business as" name on the business name line.
Other Entities. -- Enter the business name as shown on required Federal
tax documents. This name should match the name shown on the charter or other
legal document creating the entity. You may enter any business, trade, or "doing
business as" name on the business name line.
Part I -- Taxpayer Identification Number (TIN)
You must enter your TIN in the appropriate box. If you are a resident
alien and you do not have and are not eligible to get an SSN, your TIN is your
IRS individual taxpayer identification number (ITIN). Enter it in the social
security number box. If you do not have an ITIN, see How To Get a TIN below.
If you are a sole proprietor and you have an EIN, you may enter either
your SSN or EIN. However, using your EIN may result in unnecessary notice to the
Exchange Agent.
Note: See the chart below for further clarification of name and TIN
combinations.
How To Get a TIN. -- If you do not have a TIN, apply for one
immediately. To apply for an SSN, get Form SS-5 from your local Social Security
Administration office. Get Form W-7 to apply for an ITIN or Form SS-4 to apply
for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling
1-800-TAX-FORM (1-800-829-3676).
If you do not have a TIN, write "Applied For" in the space for the TIN,
sign and date the form, and give it to the Exchange Agent. For interest and
dividend payments, and certain payments made with respect to readily tradable
instruments, you will generally have 60 days to get a TIN and give it to the
Exchange Agent. Other payments are subject to backup withholding.
Note: Writing "Applied For" means that you have already applied for a
TIN or that you intend to apply for one soon.
<PAGE>
Part II -- For Payees Exempt From Backup Withholding
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends.
If you are exempt from backup withholding, you should still complete
this form to avoid possible erroneous backup withholding. Enter your correct TIN
in Part I, check Part II of this form, and sign and date the form.
If you are a nonresident alien or a foreign entity not subject to
backup withholding, give the Exchange Agent a completed Form W-8, Certificate of
Foreign Status.
Part III -- Certification
For a joint account, only the person whose TIN is shown in Part I
should sign. You must sign the certification or backup withholding will apply.
If you are subject to backup withholding and you are merely providing your
correct TIN to the requester, you must cross out item 2 in the certification
before signing the form.
What Name and Number To Give the Requester
- --------------------------------------------------------------------------------
For this type of account: Give Name and SSN of:
- --------------------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the account or, if
account) combined funds, the first individual on
the account1
3. Custodian account of a minor
(Uniform Gift to Minors Act) The minor2
4. a. The usual revocable savings The grantor-trustee
trust (grantor is also
trustee)
b. So-called trust account The actual owner1
that is not a legal or
valid trust under state law
5. Sole proprietorship The owner3
- --------------------------------------------------------------------------------
For this type of account: Give name and EIN of:
- --------------------------------------------------------------------------------
6. Sole proprietorship The owner3
7. A valid trust, estate, or Legal entity4
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
================================================================================
- --------
1 List first and circle the name of the person whose number you furnish.
If only one person on a joint account has an SSN, that person's number
must be furnished.
2 Circle the minor's name and furnish the minor's SSN.
3 You must show your individual name, but you may also enter your
business or "doing business as" name. You may use either your SSN or
EIN (if you have one).
4 List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
Note: If no name is circled when more than one name is listed, the number
will be considered to be that of the first name listed.
<PAGE>
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
- --------------------------------------------------------------------------------
PART I--PLEASE COMPLETE THIS FORM AND
CERTIFY BY SIGNING AND DATING BELOW.
- --------------------------------------------------------------------------------
Name Social Security Number
- --------------------------------------------------------------------------------
Address (number, street, suite no.) Employer Identification Number
(If awaiting TIN write, "Applied For")
- --------------------------------------------------------------------------------
City, State and ZIP Code
- --------------------------------------------------------------------------------
PART II -- For Payees Exempt from Backup Withholding
Check if applicable:
|_| Exempt from Backup Withholding
- --------------------------------------------------------------------------------
PART III -- CERTIFICATION
Under the penalties of perjury, I certify that:
(1) The number provided on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me),
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to
backup withholding, and
(3) Any other information provided on this form is true and correct.
You must strike out Item (2) above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that you
are no longer subject to backup withholding.
For instructions regarding completion of Substitute Form W-9 see Instruction 5
above.
- -------------------------------------------------------------------------, 1999
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE NEW
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
AWAITING TAXPAYER IDENTIFICATION NUMBER CERTIFICATE
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of any
payments of the principal, and interest on, and the proceeds of disposition of,
the New Notes made to me thereafter will be withheld until I provide a number.
- -------------------------------------------------------------------------, 1999
SIGNATURE DATE
NOTICE OF GUARANTEED DELIVERY FOR
TENDER OF 11 3/8% SENIOR SUBORDINATED NOTES
DUE 2009, SERIES A OF FALCON PRODUCTS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Falcon Products, Inc. (the "Company"), made pursuant to the
Prospectus, dated ______, 1999 (the "Prospectus"), if certificates for the
outstanding 11 3/8% Senior Subordinated Notes Due 2009, Series A of the Company
(the "Original Notes") are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach IBJ Whitehall Bank & Trust Company (the
"Exchange Agent") on or prior to 12:00 Midnight, New York City time, on the
Expiration Date of the Exchange Offer. This Notice of Guaranteed Delivery may be
delivered or transmitted by telegram, telex, facsimile transmission, mail or
hand delivery to the Exchange Agent as set forth below. See the sections
entitled "The Exchange Offer-Procedures for Tendering" and "The Exchange
Offer-Guaranteed Delivery Procedures" in the Prospectus. Capitalized terms used
herein but not defined herein have the respective meanings given to them in the
Prospectus.
Delivery To: IBJ Whitehall Bank & Trust Company, Exchange Agent
By Mail: Facsimile By Hand, Courier,
Transmission: or Certified Or
IBJ Whitehall Bank (212) 858-2611 Express Mail:
& Trust Company
P.O. Box 84 (for eligible IBJ Whitehall Bank
Bowling Green Station institutions only) & Trust Company
New York, New York 10274-0084 Confirmation of One State Street
Attn: Reorganization Receipt of Facsimile New York, New York 10004
Operations by Telephone: Attn: Securities
(212) 858-2103 Processing Window,
Subcellar One, (SC-1)
For Information or Assistance:
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York, 10004
Attn: Reorganization Operations
(212) 858-2103
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE OTHER THEN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
related Letter of Transmittal, the undersigned hereby tenders to the Company the
principal amount of Original Notes set forth below, pursuant to the guaranteed
delivery procedures described in the Prospectus under the caption "The Exchange
Offer-Guaranteed Delivery Procedures."
Principal Amount of Original Notes Tendered:*
$
-----------------------------------------
Certificate Nos. (if available)
- ------------------------------------------ If Original Notes will be delivered
by book-entry transfer to The
Depository Trust Company, provide
account number. Total Principal
Amount Represented by Original
Notes Certificate(s):
$ Account Number
-----------------------------------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof
ANY AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE
THE DEATH OR INCAPACITY OF THE UNDERSIGNED, AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
X
----------------------------------------- -------------------------------
X
----------------------------------------- -------------------------------
Signature(s) of Owner(s) or Authorized Date
Signatory
Area Code and Telephone Number:
---------------------------------------
Must be signed by the holder(s) of Original Notes as their name(s)
appear(s) on certificates for Original Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by endorsement of
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
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Capacity:
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Address(es):
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<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of a registered national securities exchange,
or a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Original Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Original Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in the Prospectus under the caption "The Exchange Offer-Guaranteed
Delivery Procedures," together with one or more properly completed and duly
executed Letter(s) of Transmittal (or a manually signed facsimile thereof) with
any required signature guarantee and any other documents required by the Letter
of Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the date
of execution hereof.
The undersigned acknowledges that it must deliver the Letter of
Transmittal (and any other required documents) and the Original Notes tendered
hereby to the Exchange Agent within the time set forth above and that failure to
do so could result in financial loss to the undersigned.
- ------------------------------------------ ---------------------------------
Name of Firm Authorized Signature
- ------------------------------------------ ---------------------------------
Address Title
- ------------------------------------------ ---------------------------------
Zip Code (Please Type or Print)
- ------------------------------------------ ---------------------------------
Area Code and Tel. No. Dated:
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. ACTUAL SURRENDER OF ORIGINAL NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
Tender for all Outstanding
11 3/8% Senior Subordinated Notes Due 2009, Series A
in Exchange for
11 3/8% Senior Subordinated Notes Due 2009, Series B
of
Falcon Products, Inc.
To Our Clients:
We are enclosing herewith a Prospectus, dated ______________, 1999, of
Falcon Products, Inc. a Delaware corporation (the "Company"), and a related
Letter of Transmittal (which together constitute the "Exchange Offer") relating
to the offer by the Company to exchange its 11 3/8% Senior Subordinated Notes
Due 2009, Series B (the "New Notes"), the offer and sale of which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 11 3/8% Senior
Subordinated Notes Due 2009, Series A (the "Original Notes") upon the terms and
subject to the conditions set forth in the Exchange Offer.
Please note that the Exchange Offer will expire at 12:00 midnight, New
York City time, on __________________, 1999 unless extended.
The Exchange Offer is not conditioned upon any minimum principal amount
of Original Notes being tendered.
We are the holder of record of Original Notes held by us for your
account. A tender of such Original Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Original
Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Original Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Original Notes
will represent to the Company that (i) the New Notes to be acquired by the
Holder and each beneficial owner, if any, are being acquired in the ordinary
course of business, (ii) neither the Holder nor any beneficial owner is an
affiliate, as defined in Rule 405 of the Securities Act of the Company or any of
the Company's subsidiaries, (iii) any person participating in the Exchange Offer
with the intention or purpose of distributing New Notes received in exchange for
Original Notes, including a broker-dealer that acquired Original Notes directly
from the Company, but not as a result of market-making activities or other
trading activities, will comply with the registration and prospectus delivery
requirements of the Securities Act, in connection with a secondary resale of the
New Notes acquired by such person, (iv) if the Holder is not a broker-dealer,
the Holder and each beneficial owner, if any, are not participating, do not
intend to participate and have no arrangement or understanding with any person
to participate in any distribution of the New Notes received in exchange for
Original Notes, and (v) if the Holder is a broker-dealer that will receive New
Notes for the Holder's own account in exchange for Original Notes, the Original
Notes to be so exchanged were acquired by the Holder as a result of
market-making or other trading activities and the Holder will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes received in the Exchange Offer. However, by so
representing and acknowledging and by delivering a prospectus, the Holder will
not be deemed to admit that it is an underwriter within the meaning of the
Securities Act.
Please complete the Instruction to Registered Holder From Beneficial
Holder letter attached hereto and return it to us as soon as possible.
Very truly yours,
Tender for all Outstanding
11 3/8% Senior Subordinated Notes Due 2009, Series A
in Exchange for
11 3/8% Senior Subordinated Notes Due 2009, Series B
of
Falcon Products, Inc.
To Registered Holders:
We are enclosing herewith the documents listed below relating to the
offer (the "Exchange Offer") by Falcon Products, Inc., a Delaware corporation
(the "Company"), to exchange its 11 3/8% Senior Subordinated Notes Due 2009,
Series B (the "New Notes"), the offer and sale of which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of the Company's issued and outstanding 11 3/8% Senior
Subordinated Notes Due 2009, Series A (the "Original Notes"), upon the terms and
subject to the conditions set forth in the Prospectus of the Company, dated
_____________, 1999 (the "Prospectus"), and the related Letter of Transmittal.
Enclosed herewith are copies of the following documents:
1. Prospectus dated ________________, 1999;
2. Letter of Transmittal, which includes a Substitute Form W-9 and
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9;
3. Notice of Guaranteed Delivery;
4. Letter that may be sent to your clients for whose account you hold
Original Notes in your name or in the name of your nominee, which
includes an instruction form for obtaining such client's instruction
with regard to the Exchange Offer; and
5. Return envelopes addressed to IBJ Whitehall Bank & Trust Company, the
Exchange Agent.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire at 12:00 midnight, New York City time, on
__________________, 1999, unless extended.
The Exchange Offer is not conditioned upon any minimum principal
amount of Original Notes being tendered.
<PAGE>
Pursuant to the Letter of Transmittal, each holder of Original Notes
will represent to the Company that: (i) the New Notes to be acquired by the
Holder and each beneficial owner, if any, are being acquired in the ordinary
course of business; (ii) neither the Holder nor any beneficial owner is an
affiliate, as defined in Rule 405 of the Securities Act of the Company or any of
the Company's subsidiaries; (iii) any person participating in the Exchange Offer
with the intention or purpose of distributing New Notes received in exchange for
Original Notes, including a broker-dealer that acquired Original Notes directly
from the Company, but not as a result of market-making activities or other
trading activities, will comply with the registration and prospectus delivery
requirements of the Securities Act, in connection with a secondary resale of the
New Notes acquired by such person; (iv) if the Holder is not a broker-dealer,
the Holder and each beneficial owner, if any, are not participating, do not
intend to participate and have no arrangement or understanding with any person
to participate in any distribution of the New Notes received in exchange for
Original Notes; and (v) if the Holder is a broker-dealer that will receive New
Notes for the Holder's own account in exchange for Original Notes, the Original
Notes to be so exchanged were acquired by the Holder as a result of
market-making or other trading activities and the Holder will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes received in the Exchange Offer. However, by so
representing and acknowledging and by delivering a prospectus, the Holder will
not be deemed to admit that it is an underwriter within the meaning of the
Securities Act.
The enclosed Instruction to Registered Holder from Beneficial Owner
contains an authorization by the beneficial owners of the Original Notes for you
to make the foregoing representations on their behalf.
The Company will not pay any fee or commission to any broker or
dealer or to any other persons (other than the Exchange Agent for the Exchange
Offer) in connection with the solicitation of tenders of Original Notes pursuant
to the Exchange Offer. The Company will pay or cause to be paid any transfer
taxes payable on the transfer of Original Notes to it, except as otherwise
provided in Instruction 4 of the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
IBJ WHITEHALL BANK & TRUST COMPANY
Exchange Agent
<PAGE>
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU AS
THE AGENT OF THE COMPANY OR IBJ WHITEHALL BANK & TRUST COMPANY OR AUTHORIZE YOU
TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
of
11 3/8% Senior Subordinated Notes Due 2009, Series A
of
Falcon Products, Inc.
To Registered Holder:
The undersigned hereby acknowledges receipt of the Prospectus dated
____________, 1999 (the "Prospectus"), of Falcon Products, Inc. a Delaware
corporation (the "Company"), and accompanying Letter of Transmittal (the "Letter
of Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of a new series of 11 3/8% Senior
Subordinated Notes Due 2009, Series B (the "New Notes") of the Company for each
$1,000 in principal amount of outstanding 11 3/8% Senior Subordinated Notes Due
2009, Series A (the "Original Notes") of the Company. Capitalized terms used but
not defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to
be taken by you relating to the Exchange Offer with respect to the Original
Notes held by you for the account of the undersigned.
The aggregate face amount of the Original Notes held by you for the
account of the undersigned is (fill in amount):
$________________ of 11 3/8% Senior Subordinated Notes Due
2009, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
|_| To TENDER the following Original Notes held by you for the
account of the undersigned (insert principal amount of
Original Notes to be tendered (if any)):
$________________ of 11 3/8% Senior Subordinated Notes Due
2009, Series A.
|_| NOT to TENDER any Original Notes held by you for the account
of the undersigned.
If the undersigned instructs you to tender Original Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that: (i)
the New Notes to be acquired by the Holder and each beneficial owner, if any,
are being acquired in the ordinary course of business; (ii) neither the Holder
nor any beneficial owner is an affiliate, as defined in Rule 405 of the
Securities Act of the Company or any of the Company's subsidiaries; (iii) any
person participating in the Exchange Offer with the intention or purpose of
distributing New Notes received in exchange for Original Notes, including a
broker-dealer that acquired Original Notes directly from the Company, but not as
a result of market-making activities or other trading activities, will comply
with the registration and prospectus delivery requirements of the Securities
Act, in connection with a secondary resale of the New Notes acquired by such
person; (iv) if the Holder is not a broker-dealer, the Holder and each
beneficial owner, if any, are not participating, do not intend to participate
and have no arrangement or understanding with any person to participate in any
distribution of the New Notes received in exchange for Original Notes; and (v)
if the Holder is a broker-dealer that will receive New Notes for the Holder's
own account in exchange for Original Notes, the Original Notes to be so
exchanged were acquired by the Holder as a result of market-making or other
trading activities and the Holder will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes received in the Exchange Offer. However, by so representing and
acknowledging and by delivering a prospectus, the Holder will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act.
The instructions contained herein shall survive the death or incapacity
of the undersigned and every obligation of the undersigned contained herein
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
SIGN HERE
Name of beneficial owner(s)
(please print):
---------------------------------------------------------------
Signature(s):
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Address:
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Telephone Number:
--------------------------------------------------------------
Taxpayer identification or Social Security Number:
-----------------------------
- --------------------------------------------------------------------------------
Date:
