<PAGE> 1
AMENDMENT NO. 1
TO
FORM T-3
APPLICATION FOR QUALIFICATION OF
INDENTURE UNDER THE
TRUST INDENTURE ACT OF 1939
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
THE HALLWOOD GROUP INCORPORATED
3710 Rawlins, Suite 1500
Dallas, Texas
(214) 528-5588
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLE OF CLASS AMOUNT
8.5% COLLATERALIZED SUBORDINATED DEBENTURES DUE $20,555,443
JULY 31, 2005
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS PROMPTLY AS POSSIBLE AFTER THE EFFECTIVE DATE OF THIS APPLICATION
FOR QUALIFICATION
NAME AND ADDRESS OF AGENT FOR SERVICE:
Melvin J. Melle
The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas
(214) 528-5588
Copies to:
W. Alan Kailer
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
THE APPLICANT HEREBY AMENDS THIS APPLICATION ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE APPLICANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS APPLICATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE TRUST INDENTURE ACT OF 1939,
AS AMENDED, OR UNTIL THIS APPLICATION SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS
AMENDED MAY DETERMINE.
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GENERAL
1. GENERAL INFORMATION.
(a) Form of organization. A corporation.
(b) State or other sovereign power under the laws of which organized.
Delaware.
2. SECURITIES ACT EXEMPTION APPLICABLE.
The Hallwood Group Incorporated, a Delaware corporation (the
"Applicant"), is relying upon the exemption provided by Section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"), in claiming that
registration of the 8.5% Debentures (as hereinafter defined) to be issued by the
Applicant in connection with the offer to exchange (the "Exchange Offer")
hereinafter described is not required under the Securities Act.
The Exchange Offer will be made pursuant to the terms and provisions of
a certain Exchange Offer Circular dated June __, 1998 (the "Exchange Offering
Circular") and the related Letter of Transmittal (the "Letter of Transmittal").
Pursuant to the Exchange Offering Circular and the Letter of Transmittal, the
Applicant is offering to exchange (the "Exchange") its 7% Collateralized Senior
Subordinated Debentures due July 31, 2000 (the "7% Debentures"), for its 8.5%
Collateralized Subordinated Debentures due July 31, 2005 (the "8.5% Debentures")
in the ratio of $100 principal amount of 7% Debentures for each $100 principal
amount of 8.5% Debentures. Consummation of the Exchange Offer is conditioned
upon the qualification of the Indenture (the "Indenture") for the 8.5%
Debentures, a copy of which is filed as an exhibit to this Form T-3, under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The Applicant has not sold, and will not sell any securities of the
same class as the 8.5% Debentures, and has not sold, by or through an
underwriter, any securities of the same class as the 8.5% Debentures at or about
the same time as the Exchange Offer.
The Applicant has appointed State Street Bank and Trust Company as the
exchange agent (the "Exchange Agent") in connection with the Exchange Offer. In
such capacity, the Exchange Agent will perform services for the Applicant in
connection with the exchange of 7% Debentures pursuant to the Exchange Offer.
The Applicant has agreed to pay the Exchange Agent reasonable and customary fees
for its services, and reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith.
As of March 31, 1998, $20,555,443 aggregate principal amount of the 7%
Debentures were outstanding. If 100% of the outstanding 7% Debentures are
accepted for exchange pursuant to the Exchange Offer, the Applicant will be
required to issue a total of $20,555,443 aggregate principal amount of 8.5%
Debentures.
AFFILIATION
3. AFFILIATES.
<TABLE>
<CAPTION>
AFFILIATE BASIS FOR CONTROL
- - --------------------------------- -----------------------------------
<S> <C>
Brock Suite Hotels, Inc. 100% ownership of voting securities
Brock Suite Greenville, Inc. 100% ownership of voting securities
Brock Suite Huntsville, Inc. 100% ownership of voting securities
Brock Suite Tulsa, Inc. 100% ownership of voting securities
Brookwood Companies Incorporated 100% ownership of voting securities
</TABLE>
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<TABLE>
<CAPTION>
AFFILIATE BASIS FOR CONTROL
- - --------------------------------------------- -----------------------------------
<S> <C>
Brookwood Laminating, Inc. 100% ownership of voting securities
Hallwood Commercial Real Estate, Inc. 100% ownership of voting securities
Hallwood G.P., Inc. 100% ownership of voting securities
Hallwood Hotels, Inc. 100% ownership of voting securities
Hallwood-Integra Holding Company Incorporated 100% ownership of voting securities
Hallwood Investment Company 100% ownership of voting securities
Hallwood Kenyon Holding Company 100% ownership of voting securities
Hallwood Realty Corporation 100% ownership of voting securities
HEPGP Ltd. 100% ownership of voting securities
HWG 95 Advisors, Inc. 100% ownership of voting securities
HWG 98 Advisors, Inc. 100% ownership of voting securities
Kenyon Industries, Inc. 100% ownership of voting securities
Condo Hotel and Resort Management, Inc. 100% ownership of voting securities
HWG Realty Investors, Inc. 100% ownership of voting securities
HSC Securities Corporation 100% ownership of voting securities
Integra Hotels, Inc. 100% ownership of voting securities
Integra Resort Management, Inc. 100% ownership of voting securities
</TABLE>
MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS.
<TABLE>
<CAPTION>
NAME ADDRESS OFFICE(S)
- - ---------------------- ------------------------ ----------------------------------
<S> <C>
Anthony J. Gumbiner 3710 Rawlins, Suite 1500 Chairman of the Board and
Dallas, Texas 75219 Chief Executive Officer
Brian M. Troup 3710 Rawlins, Suite 1500 President, Chief Operating Officer
Dallas, Texas 75219 and Director
William L. Guzzetti 3710 Rawlins, Suite 1500 Executive Vice President
Dallas, Texas 75219
Melvin J. Melle 3710 Rawlins, Suite 1500 Vice President, Chief Financial
Dallas, Texas 75219 Officer and Secretary
Charles A. Crocco, Jr. 3710 Rawlins, Suite 1500 Director
Dallas, Texas 75219
J. Thomas Talbot 3710 Rawlins, Suite 1500 Director
Dallas, Texas 75219
</TABLE>
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5. PRINCIPAL OWNERS OF VOTING SECURITIES.
As of March 31, 1998: Based on 1,254,827 shares outstanding
<TABLE>
<CAPTION>
COLUMN D
COLUMN B COLUMN C PERCENTAGE
COLUMN A TITLE OF CLASS AMOUNT OF VOTING
NAME AND COMPLETE MAILING ADDRESS OWNED OWNED (1) SECURITIES
- - ----------------------------------- -------------- ----------- ----------
<S> <C> <C> <C>
Alpha Trust Common 457,791(2) 36.5%
c/o Radcliffes Trustee Company SA Stock
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Epsilon Trust Common 305,196(3) 24.3%
c/o Radcliffes Trustee Company SA Stock
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Heartland Advisors, Inc. Common 87,500(4) 7.0%
790 North Milwaukee Street Stock
Milwaukee, WI 53202
Charles A. Crocco, Jr. Common 10,550(5) .8%
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
Anthony J. Gumbiner Common 55,800(6) 4.3%
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
William L. Guzzetti Common (7) --
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
Melvin J. Melle Common 6,000(8) .5%
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
J. Thomas Talbot Common 10,000(9) .8%
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
Brian M. Troup Common 37,200(10) 2.9%
3710 Rawlins, Suite 1500 Stock
Dallas, Texas 75219
</TABLE>
- - -----------------
(1) Assumes, for each person or group listed, the exercise of all stock
options held by such person or group that are exercisable within 60
days, in accordance with Rule 13d-3(d)(1)(i) of the Exchange Act, but
the exercise of none of the convertible securities owned by any other
holder of options.
(2) Mr. Gumbiner has the power to designate and replace the trustees of the
Alpha Trust. Mr. Gumbiner and his family are among the discretionary
beneficiaries of this Trust.
(3) Mr. Gumbiner has the power to designate and replace the trustees of the
Epsilon Trust. Mr. Troup and his family are among the discretionary
beneficiaries of this Trust.
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(4) Based on the Schedule 13G filed by Heartland Advisors, Inc.
("Heartland") on January 27, 1998, as amended by subsequent
correspondence with the Company. All of the shares are held in
investment advisory accounts of Heartland. As a result, various persons
have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the shares. No
individual investment advisory account holds in excess of 4.75% of the
Company's common stock.
(5) Includes currently exercisable options to purchase 10,000 shares of
common stock, par value $.10 per share (the "Common Stock").
(6) Includes currently exercisable options to purchase 55,800 shares of
Common Stock. Excludes 457,791 shares of Common Stock held by Alpha
Trust. In addition, Mr. Gumbiner holds currently exercisable options to
purchase 127,500 units of Hallwood Energy Partners, L.P. ("HEP"),
currently exercisable options to purchase 59,600 shares of Hallwood
Consolidated Resources Corporation (" HCRC"), and currently exercisable
options to purchase 25,800 units of HRP.
(7) In addition, Mr. Guzzetti owns 100 units of HEP and 400 units of HRP,
currently exercisable options to purchase 63,750 units of HEP,
currently exercisable options to purchase 31,800 shares of HCRC, and
currently exercisable options to purchase 15,000 units of HRP.
(8) Includes currently exercisable options to purchase 6,000 shares of
Common Stock.
(9) Includes currently exercisable options to purchase 10,000 shares of
Common Stock.
(10) Includes currently exercisable options to purchase 37,200 shares of
Common Stock. Excludes 305,196 shares of Common Stock held by Epsilon
Trust. In addition, Mr. Troup holds currently exercisable options to
purchase 85,000 units of HEP, currently exercisable options to purchase
42,400 shares of HCRC, and currently exercisable options to purchase
17,200 units of HRP.
UNDERWRITERS
6. UNDERWRITERS. Not applicable
The 8.5% Debentures will be issued for no additional consideration upon
exchange of the 7% Debentures. The Company has not retained any dealer-manager
or similar agent in connection with the Exchange Offer and will not make any
payments to any broker-dealer or other person soliciting the exchange of 7%
Debentures for 8.5% Debentures.
CAPITAL SECURITIES
7. (a) CAPITALIZATION. As of March 31, 1998:
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING
- - ---------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Common Stock, $.10 par value 10,000,000 shares 1,254,827 shares
Series B Preferred Stock, $.10 par value 500,000 shares 250,000 shares
7% Collateralized Senior Subordinated $45,647,600 principal amount $20,555,443 principal amount
Debentures
</TABLE>
(b) VOTING RIGHTS. Each share of Common Stock is entitled to one vote
for the election of directors and upon all other matters and participates
ratably with all other shares of Common Stock in all dividends and
distributions. The holders of shares of Series B Preferred Stock are not
entitled to vote on matters brought before the Company's Stockholders, except as
otherwise provided by law.
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INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS.
GENERAL
The 8.5% Debentures will be issued by the Company under the Indenture,
between the Company and Bank One, N.A. as trustee (the "Indenture Trustee"). The
8.5% Debentures will be issued in fully registered form in the original
aggregate principal amount of up to $20,555,443 in denominations of $100 or
integral multiples thereof. The 8.5% Debentures mature on July 31, 2005.
Interest on the 8.5% Debentures will accrue from the date of issuance at the
rate of 8.5% per annum, payable quarterly on January 31, April 30, July 31
and October 31 of each year, commencing on July 31, 1998.
The 8.5% Debentures may be redeemed at the election of the Company, at
any time and from time to time, as a whole or in part, at a redemption price
equal to 100% of the principal amount of 8.5% Debentures to be redeemed,
together with accrued interest to the redemption date.
The 8.5% Debentures constitute senior subordinated Indebtedness (as
defined in the Indenture), subordinated to Senior Indebtedness, which is defined
in the Indenture as all Indebtedness of the Company, which, by its terms, is
expressly senior in right of payment to the 8.5% Debentures.
The 8.5% Debentures will be secured by a first and senior lien on all
of the issued and outstanding capital stock of Brock Suite Hotels, Inc., ("Brock
Suites") an indirect wholly-owned subsidiary of the Company (the "Collateral")
that will be pledged to the Indenture Trustee. Brock Suites owns fee interests
in Residence Inn by Marriott hotels located in Tulsa, Oklahoma and Greenville,
South Carolina, and a leasehold interest in a Residence Inn by Marriott hotel in
Huntsville, Alabama. The Residence Inn in Tulsa was constructed in two phases,
in 1981 and 1983, as an upper tier, extended stay hotel. The property is
arranged in an apartment-like setting offering a residential environment for
extended stay guests. The hotel is comprised of 135 suites in seventeen,
two-story residential buildings. Each of the two buildings contains eight suites
each. The two-story Gatehouse serves as a registration and lobby area along with
a breakfast bar, central gathering area and an executive board room. The
Greenville, South Carolina hotel was constructed in 1984 as an extended stay
Residence Inn hotel. Similar to the Tulsa hotel, the Greenville hotel offers 96
suites in twelve, two-story residential buildings of eight suites each, along
with a central Gatehouse. The Huntsville, Alabama hotel was also constructed in
1984 as an extended stay Residence Inn hotel. As with the other Residence Inn
hotels, the property is arranged in an apartment-like setting offering a
residential environment for extended stay guests. The hotel provides 112 suites
in fourteen, two-story residential buildings of eight suites each, along with a
central Gatehouse.
The 8.5% Debentures will also be secured by a subordinate and junior
lien on a pool of assets (the "Security Pool") owned by the Company that is
pledged to the trustee (the "Old Indenture Trustee") under an existing indenture
(the "Old Indenture") for the benefit of the holders of the Company's 7%
Debentures.
The Security Pool consists of all of the issued and outstanding capital
stock of the Brookwood Companies Incorporated ("BCI"), Brookwood Laminating,
Inc. ("BLI"), Kenyon Industries, Inc. ("KII") and Hallwood Hotels, Inc. ("HHI"),
each a direct or indirect wholly-owned subsidiary of the Company (the stock of
each of BCI, BLI and KII collectively referred to as the "Brookwood
Collateral"). BCI is a complete textile service firm that develops and produces
innovative fabrics and related products through specialized finishing, treating
and coating processes. HHI owns leasehold interests in the Longboat Key Holiday
Inn hotel in Sarasota, Florida and the Airport Embassy Suites hotel in Oklahoma
City, Oklahoma. The Longboat Key Holiday Inn, originally constructed in 1973, is
situated on 750 feet of private beach on the Gulf of Mexico. The hotel has 121
rooms and 25 suites and, as part of the conversion to a Holiday Inn & Suites
hotel, was recently renovated at a cost of $3.5 million. The renovation was
substantially completed in March 1998. The Airport Embassy Suites hotel is the
only full-service, all-suite hotel in Oklahoma City and is located two miles
from the Will Rogers International Airport. The six-story, 236-room suite hotel
was originally constructed in 1981 and has been maintained through capital
investment in recent years.
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The security interests in the Collateral and the Security Pool will be
granted to the Indenture Trustee pursuant to a Pledge and Security Agreement
(the "Pledge Agreement") to be dated as of the date of the consummation of the
Exchange Offer.
The Brookwood Collateral is also pledged to The Bank of New York
pursuant to a first lien to secure the indebtedness of BCI (the "BCI Senior
Indebtedness"), which constitutes Senior Indebtedness under both the Old
Indenture and the New Indenture. The outstanding principal amount of the BCI
Senior Indebtedness was $13,600,000 as of March 31, 1998. The lien in favor of
the outstanding 7% Debentures that is secured by a lien on the Security Pool is
senior to the lien of the 8.5 % Debentures.
(A) EVENTS OF DEFAULT
"Event of Default" under the Indenture, means any one of the
following events (whatever the reason for such Event of Default and
whether it is voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(a) the Company defaults in (i) the payment of the principal of (or
premium, if any, on) the 8.5% Debentures at maturity (including upon
optional or mandatory redemption or otherwise); or (ii) the payment of
any interest on the 8.5% Debentures when such interest becomes due and
payable and such default continues for a period of 30 days; or (b) if,
upon release by the Indenture Trustee of an asset in the Security Pool
the Company fails to (A) redeem an aggregate principal amount of the
8.5% Debentures equal to the lesser of the Net Value (as defined in the
Indenture) of such asset on the date of issuance of the 8.5% Debentures
or the Net Proceeds (as defined in the Indenture) of the sale of such
asset, (B) repurchase 8.5% Debentures in the open market or private
transactions in an amount equal to the value of the released assets or
(C) deposit in a special account maintained by the Indenture Trustee,
the consideration received in exchange for any asset released from the
Lien of the Pledge Agreement (as defined in the Indenture) in order to
effect its sale; (ii) the Company grants or creates any security
interest on any of the assets in the Security Pool with respect to
other Indebtedness of the Company (but excluding Indebtedness incurred
in connection with the refinancing of any such Indebtedness existing on
the date of the Indenture to the extent that the holders of such
Indebtedness are entitled to the benefit of an existing Lien on any
assets in the Security Pool) unless (i) such security interest is
permitted by the Indenture covering the 7% Debentures (for so long as
it remains in effect), (ii) the aggregate Net Value of the assets in
the Security Pool immediately following the granting or creating of
such security interest is at least equal to the then aggregate
outstanding principal amount of the 7% Debentures that are then
outstanding, if any, and the 8.5% Debentures, and (iii) such additional
Indebtedness does not exceed $25 million in the aggregate at any time;
or (c) (i) the Company fails to maintain in the City of New York, New
York, an office or agency where 8.5% Debentures may be
presented for exchange and where notices and demands to or upon the
Company in respect of the 8.5% Debentures may be served, (ii) (A) if
the Company at any time acts as its own paying agent and fails, on or
before each due date (including upon acceleration, optional or
mandatory redemption or otherwise) of the principal of, or interest on,
any of the 8.5% Debentures, to segregate and hold in trust for the
benefit of the persons entitled to such principal, premium or interest,
and (unless such paying agent is the Indenture Trustee) the Company
fails promptly to notify the Indenture Trustee of such action or any
failure so to act; (B) the Company fails, on or before each due date
(including upon acceleration, optional as mandatory redemption or
otherwise) of the principal of (and premium, if any, on), or interest
on, any 8.5% Debentures, deposit with a paying agent a sum in same day
funds with respect to the payment of principal (and premium, if any,
on) or interest sufficient to pay the principal (and premium, if any,
on) or interest so becoming due, such sum to be held in trust for the
benefit of the persons entitled to such principal, premium or interest,
and (unless such paying agent is the Indenture Trustee) the Company
fails promptly to notify the Indenture Trustee of such action or any
failure so to act; (C) the Company fails to cause each paying agent
other than the Indenture Trustee to execute and deliver to the
Indenture Trustee an instrument in which such paying agent shall agree
with the Indenture Trustee that such paying agent will: (x) hold all
sums held by it for the payment of the principal of (and premium, if
any, on) or interest on 8.5% Debentures in trust for the benefit of the
persons entitled thereto until such sums shall be paid and delivered to
such persons or otherwise disposed of as herein provided; (y) the
Company fails to give the Indenture Trustee notice of any default by
the Company (or any other obligor upon the 8.5% Debentures) in the
making of any payment of principal (and premium, if any, on) or
interest (including principal or interest due by reason of
acceleration, optional or mandatory redemption or otherwise); and (z)
at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, the Company fails to pay to
the Indenture Trustee all sums so held in trust by such paying agent;
(iii) the Company creates, incurs, assumes or suffers to exist any
indebtedness having a stated maturity at the same time as or after
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the stated maturity of the 8.5% Debentures which, by its terms or the
terms of the instrument creating or evidencing it, in any ways
prohibits or restricts the payment at stated maturity of the principal
of the 8.5% Debentures in accordance with the terms of the 8.5%
Debentures and the Indenture; (iv) the Company fails to cause its
subsidiaries to preserve, renew and keep in full force and effect its
corporate existence, and take all reasonable action to maintain all
material rights (charter and statutory), privileges and franchises
necessary or desirable in the normal conduct of its business; (v) the
Company fails to deliver the compliance certificates required by the
Indenture; (vi) the Company fails to notify the Indenture Trustee in
the manner specified in the Indenture when an Event of Default occurs;
(vii) the Company at any time insists upon, or pleads, or in any manner
whatsoever claims or takes the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or
forgive the Company from paying all or any portion of the principal of,
premium, if any, or interest on the 8.5% Debentures; (viii) (A) the
Company or any of its subsidiaries commences any case, proceeding or
other action (x) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
it or its debts, or (y) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its assets, or the Company or any of its
subsidiaries shall make a general assignment for the benefit of its
creditors; (B) there shall be commenced against the Company or any of
its subsidiaries any case, proceeding or other action of a nature
referred to in clause (A) above which (x) results in the entry of an
order for relief or any such adjudication or appointment or (y) remains
undismissed, undischarged or unbounded for a period of 60 days; or (C)
the Company or any of its subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due. In addition, the New Indenture provides that the
occurrence of an Event of Default under the Old Indenture constitutes
an Event of Default under the Indenture.
(B) AUTHENTICATION AND DELIVERY
The 8.5% Debentures shall be executed on behalf of the Company
by the Chairman of its Board of Directors, its President or any of its
Vice Presidents. The signature of any of these officers on the 8.5%
Debentures may be manual or by facsimile. 8.5% Debentures bearing the
manual or facsimile signatures of individuals who were at any time the
proper officers of the Company shall bind the Company, notwithstanding
that such individuals or any of them have ceased to hold such offices
prior to the authentication and delivery of such 8.5% Debentures or did
not hold such offices at the date of such 8.5% Debentures. At any time
and from time to time after the execution and delivery of the
Indenture, the Company may deliver 8.5% Debentures executed by the
Company to the Indenture Trustee for authentication, together with a
Company order for the authentication and delivery of such 8.5%
Debentures; and the Indenture Trustee in accordance with such Company
order shall authenticate and deliver such 8.5% Debentures as provided
in the Indenture and not otherwise. Each 8.5% Debenture shall be dated
the date of its authentication. No 8.5% Debenture shall be entitled to
any benefit under the Indenture or be valid or obligatory for any
purpose unless there appears on such 8.5% Debenture a certificate of
authentication, substantially in the form provided for in the
Indenture, duly executed by the Indenture Trustee or an authenticating
agent by manual signature of an authorized signatory, and such
certificate upon any 8.5% Debenture shall be conclusive evidence, and
the only evidence, that such 8.5% Debenture has been duly authenticated
and delivered pursuant to the Indenture.
(C) SECURITY INTEREST
The Indenture Trustee may not release assets that comprise
part of the Collateral or those assets from the Security Pool which
have been released from all prior liens in favor of Senior Indebtedness
and the 7% Debentures (the "Free Security Pool Assets") unless
immediately thereafter the Company consummates a mandatory redemption
or repurchase of 8.5% Debentures in the amount of the "Release Amount"
(as defined in both the Old and New Indentures), or deposits with the
Indenture Trustee the Release Amount. If an asset that is part of the
Collateral or the Free Security Pool Assets is released from the lien
granted to secure the 8.5% Debentures, in connection with a sale of
such asset, an amount at least equal to the lesser of (i) the Net Value
(as defined in the New Indenture) of such asset on the date of the
Exchange and (ii) the Net Proceeds (as defined in the New Indenture)
received by the Company from the sale or release of an asset that is
part of the Collateral or the Free Security Pool Assets must be used by
the Company (A) simultaneously therewith, to redeem 8.5% Debentures at
100% of the principal amount thereof, together with accrued interest to
the redemption date, or (B) substantially simultaneously therewith,
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to repurchase 8.5% Debentures in the open market or privately for an
aggregate amount at least equal to the net proceeds from the sale of
such asset, or (C) simultaneously therewith, for deposit in a special
account maintained by the Indenture Trustee for the benefit of the
holders of 8.5% Debentures. 8.5% Debentures will constitute secured
indebtedness of the Company and will rank on a parity with the 7%
Debentures.
(D) SATISFACTION AND DISCHARGE
The Company may terminate its obligations under the 8.5%
Debentures and the Indenture if all 8.5% Debentures previously
authenticated and delivered (other than (i) 8.5% Debentures which have
been destroyed, lost or stolen and which have been replaced or paid,
and (ii) 8.5% Debentures for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company, or discharged from such trust) have
been delivered to the Indenture Trustee for cancellation and the
Company has paid all sums payable by it hereunder. The Company may also
terminate its obligations under the 8.5% Debentures and the Indenture
if: (A) the Company has irrevocably deposited or caused to be deposited
with the Indenture Trustee or paying agent and conveyed all right,
title and interest for the benefit of the holders of 8.5% Debentures
("Holders"), under the terms of an irrevocable trust agreement in form
and substance reasonably satisfactory to the Indenture Trustee, as
trust funds in trust solely for the benefit of the Holders for that
purpose, money or direct non-callable obligations of the United States
of America for the payment of which obligations the full faith and
credit of the United States is pledged ("U.S. Government Obligations")
maturing as to principal and interest in such amounts and at such times
as are sufficient (in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Indenture Trustee), without consideration of
any reinvestment of such interest, to pay principal of, premium, if
any, and interest on the outstanding 8.5% Debentures, to redemption or
maturity, provided that the Indenture Trustee or paying agent shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of said principal,
premium, if any, and interest with respect to the 8.5% Debentures, and
provided, further, that from and after the time of deposit, the money
or U.S. Government Obligations deposited shall not be subject to the
rights of the holders of Senior Indebtedness; (B) no Event of Default
or Default with respect to the 8.5% Debentures shall have occurred and
be continuing on the date of such deposit; (C) the Company shall have
delivered to the Indenture Trustee an opinion of counsel to the effect
that the trust funds will not be subject to any rights of holders of
Senior Indebtedness; (D) the Company has paid or caused to be paid all
sums then payable by the Company under the 8.5% Debentures; and (E) the
Company has delivered to the Indenture Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for in the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with. After any
irrevocable deposit, the Indenture Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under
the 8.5% Debentures and the Indenture.
(E) EVIDENCE OF COMPLIANCE
Upon any application or request by the Company to the
Indenture Trustee to take any action under any provision of the
Indenture, the Company shall furnish to the Indenture Trustee an
Officers' Certificate stating that all conditions precedent, if any,
provided for in the Indenture (including any covenants compliance with
which constitutes a condition precedent) relating to the proposed
action have been complied with and an opinion of counsel stating that
in the opinion of such counsel all such conditions precedent, if any,
have been complied with, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of the Indenture relating to
such particular application or request, no additional certificate or
opinion need be furnished. Every certificate or opinion with respect to
compliance with a condition or covenant provided for in the Indenture
shall include (a) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions in the Indenture herein relating thereto; (b) a brief
statement as to the nature and scope of the examination or
investigation, if any, upon which the statements or opinions contained
in such certificate or opinion are based; (c) a statement that, in the
opinion of each such individual, 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 (d) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been complied
with. The Company shall deliver to the Indenture Trustee, within 90
days after the end of each fiscal quarter, an Officers' Certificate
stating whether or not the signers know of any Event of Default or
Default that occurred during such fiscal quarter. If they do know of
any Event of Default or Default the certificate shall describe such
Event of
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<PAGE> 10
Default or Default and its status. The first certificate to be
delivered pursuant to the Indenture shall be for the first fiscal
quarter beginning after the execution of the Indenture.
9. OTHER OBLIGORS. None.
CONTENTS OF APPLICATION FOR QUALIFICATION. This application for
qualification comprises:
(a) Pages numbered 1 to 10 consecutively.
(b) The statement of eligibility of each trustee under the
Indenture to be qualified.
(c) The following exhibits in addition to those filed as a part of
the statement of eligibility of each trustee.
T3A Second Restated Certificate of Incorporation of the Company
filed as Exhibit 4.2 to the Company's Form S-8 (File No.
33-63709), and incorporated herein by reference.
T3B Restated Bylaws of the Company filed as Exhibit 3.2 to the
Company's annual report on Form 10-K for the year ended
December 31, 1997 (File No. 1-8303) and incorporated herein by
reference.
T3C Form of Indenture and related Pledge and Security Agreement
between the Company and Bank One, N.A., Trustee.
T3E.1 Exchange Offering Circular
T3E.2 Letter of Transmittal
T3E.3 Letter to Brokers
T3E.4 Letter from Brokers to Clients
T3E.5 Notice of Guaranteed Delivery
T3E.6 Letter from The Hallwood Group Incorporated to Bondholders
T3E.7 Letter of Transmittal for Brokers, Banks and other Nominees
T3F Cross Reference Sheet
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Applicant, The Hallwood Group Incorporated, a corporation organized and existing
under the laws of Delaware, has duly caused this Amendment No. 1 to the
application to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Dallas, and State of Texas, on the 8th day of June, 1998.
(SEAL) THE HALLWOOD GROUP INCORPORATED
By: /s/ Melvin J. Melle
-----------------------------------
Name: Melvin J. Melle
Title: Vice President Chief
Financial Officer and Secretary
Attest: /s/ Mary Doyle By: /s/ Joseph T. Koenig
-------------------------------- -----------------------------------
Name: Joseph T. Koenig
Title: Treasurer and Assistant
Secretary
10
<PAGE> 11
EXHIBIT (b)
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
BANK ONE, N.A. f/k/a BANK ONE, COLUMBUS, N.A.
Not Applicable 31-4148768
(State of Incorporation (I.R.S. Employer
if not a national bank) Identification No.)
100 East Broad Street, Columbus, Ohio 43271-0181
(Address of trustee's principal (Zip Code) executive offices)
c/o Bank One Trust Company, NA
100 East Broad Street
Columbus, Ohio 43271-0181
(614) 248-6229
(Name, address and telephone number of agent for service)
The Hallwood Group Incorporated
(Exact name of obligor as specified in its charter)
Delaware 51-0261339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3710 Rawlins, Suite 1500, Dallas, TX 75219-4236
(Address of principal executive office) (Zip Code)
8 1/2% Collateralized Subordinated Debentures due July 31, 2005
(Title of the Indenture securities)
================================================================================
<PAGE> 12
GENERAL
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.
Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Cleveland, Cleveland, Ohio
Federal Deposit Insurance Corporation, Washington, D.C.
The Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. IF THE OBLIGOR IS AN
AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
The obligor is not an affiliate of the trustee.
16. LIST OF EXHIBITS
LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF
ELIGIBILITY AND QUALIFICATION. (EXHIBITS IDENTIFIED IN PARENTHESES, ON
FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS
EXHIBITS HERETO.)
Exhibit 1 - A copy of the Articles of Association of the trustee
as now in effect.
Exhibit 2 - A copy of the Certificate of Authority of the
trustee to commence business, see Exhibit 2 to Form
T-1, filed in connection with Form S-3 relating to
Wheeling-Pittsburgh Corporation 9 3/8% Senior Notes
due 2003, Securities and Exchange Commission File No.
33-50709.
Exhibit 3 - A copy of the Authorization of the trustee to
exercise corporate trust powers, see Exhibit 3 to
Form T-1, filed in connection with Form S-3 relating
to Wheeling-Pittsburgh Corporation 9 3/8% Senior
Notes due 2003, Securities and Exchange Commission
File No. 33-50709.
Exhibit 4 - A copy of the Bylaws of the trustee as now in effect.
Exhibit 5 - Not applicable.
Exhibit 6 - The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended.
Exhibit 7 - Report of Condition of the trustee as of the close of
business on March 31, 1998, published pursuant to the
requirements of the Comptroller of the Company, see
attached.
Exhibit 8 - Not applicable.
Exhibit 9 - Not applicable.
Items 3 through 15 are not answered pursuant to General Instruction B
which requires responses to Item 1, 2 and 16 only, if the obligor is
not in default.
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<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, Bank One, NA, a national banking association organized
under the National Banking Act, has duly caused this statement of eligibility
and qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in Columbus, Ohio, on June 1, 1998.
Bank One, NA
By: /s/ David B. Knox
------------------------------
Authorized Signer
2
<PAGE> 14
EXHIBIT 1
BANK ONE, COLUMBUS, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business
of banking under the laws of the United States, the following Articles of
Association are entered into:
FIRST.
The title of this Association shall be BANK ONE, COLUMBUS, NATIONAL
ASSOCIATION.
SECOND.
The main office of the Association shall be in Columbus, County of
Franklin, State of Ohio. The general business of the Association shall be
conducted at its main office and its branches.
THIRD.
The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five Directors, the exact number of Directors
within such minimum and maximum limits to be fixed and determined from
time-to-time by resolution of the shareholders at any annual or special meeting
thereof, provided, however, that the Board of Directors, by resolution of a
majority thereof, shall be authorized to increase the number of its members by
not more than two between regular meetings of the shareholders. Each Director,
during the full term of his directorship, shall own, as qualifying shares, the
minimum number of shares of either this Association or of its parent bank
holding company in accordance with the provisions of applicable law. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH.
The annual meeting of the shareholders for the election of Directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office of this Association or such other place
as the Board of Directors may designate, on the day of each year specified
therefor in the By-Laws, but if no election is held on that day, it may be held
on any subsequent business day according to the provisions of law; and all
elections shall be held according to such lawful regulations as may be
prescribed by the Board of Directors.
FIFTH.
The authorized amount of capital stock of this Association shall be
2,073,750 shares of common stock of the par value of Ten Dollars ($10) each; but
said capital stock may be increased or decreased from time-to-time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the
Association shall have the preemptive or preferential right of subscription to
any share of any class of stock of this Association, whether now or hereafter
authorized or to any obligations convertible into stock of this Association,
issued or sold, nor any right of subscription to any thereof other than such, if
any, as the Board of Directors, in its discretion, may from time-to-time
determine and at such price as the Board of Directors may from time-to-time fix.
This Association, at any time and from time-to-time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
3
<PAGE> 15
SIXTH.
The Board of Directors shall appoint one of its members President of
the Association, who shall be Chairman of the Board, unless the Board appoints
another director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents and to appoint a Secretary and such other
officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of this
Association shall be made; to manage and administer the business and affairs of
this Association; to make all By-Laws that it may be lawful for them to make;
and generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH.
The Board of Directors shall have the power to change the location of
the main office to any other place within the limits of the City of Columbus,
Ohio, without the approval of the shareholders but subject to the approval of
the Comptroller of the Currency; and shall have the power to establish or change
the location of any branch or branches of this Association to any other
location, without the approval of the shareholders but subject to the approval
of the Comptroller of the Currency.
EIGHTH.
The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH.
The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association.
TENTH.
Every person who is or was a Director, officer or employee of the
Association or of any other corporation which he served as a Director, officer
or employee at the request of the Association as part of his regularly assigned
duties may be indemnified by the Association in accordance with the provisions
of this paragraph against all liability (including, without limitation,
judgments, fines, penalties and settlements) and all reasonable expenses
(including, without limitation, attorneys' fees and investigative expenses) that
may be incurred or paid by him in connection with any claim, action, suit or
proceeding, whether civil, criminal or administrative (all referred to hereafter
in this paragraphs as "Claims") or in connection with any appeal relating
thereto in which he may become involved as a party or otherwise or with which he
may be threatened by reason of his being or having been a Director, officer or
employee of the Association or such other corporation, or by reason of any
action taken or omitted by him in his capacity as such Director, officer or
employee, whether or not he continues to be such at the time such liability or
expenses are incurred, provided that nothing contained in this paragraph shall
be construed to permit indemnification of any such person who is adjudged guilty
of, or liable for, willful misconduct, gross neglect of duty or criminal acts,
unless, at the time such indemnification is sought, such indemnification in such
instance is permissible under applicable law and regulations, including
published rulings of the Comptroller of the Currency or other appropriate
supervisory or regulatory authority, and provided further that there shall be no
indemnification of directors, officers, or employees against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by an appropriate regulatory agency which proceeding or action
results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Association. Every person who may be indemnified under the provisions of
this paragraph and who has been wholly successful on the merits with respect to
any Claim shall be entitled to indemnification as of right. Except as provided
in the preceding sentence, any indemnification under this paragraph shall be at
the sole discretion of the Board of Directors and shall be made only if the
4
<PAGE> 16
Board of Directors or the Executive Committee acting by a quorum consisting of
Directors who are not parties to such Claim shall find or if independent legal
counsel (who may be the regular counsel of the Association) selected by the
Board of Directors or Executive Committee whether or not a disinterested quorum
exists shall render their opinion that in view of all of the circumstances then
surrounding the Claim, such indemnification is equitable and in the best
interests of the Association. Among the circumstances to be taken into
consideration in arriving at such a finding or opinion is the existence or
non-existence of a contract of insurance or indemnity under which the
Association would be wholly or partially reimbursed for such indemnification,
but the existence or non-existence of such insurance is not the sole
circumstance to be considered nor shall it be wholly determinative of whether
such indemnification shall be made. In addition to such finding or opinion, no
indemnification under this paragraph shall be made unless the Board of Directors
or the Executive Committee acting by a quorum consisting of Directors who are
not parties to such Claim shall find or if independent legal counsel (who may be
the regular counsel of the Association) selected by the Board of Directors or
Executive Committee whether or not a disinterested quorum exists shall render
their opinion that the Director, officer or employee acted in good faith in what
he reasonably believed to be the best interests of the Association or such other
corporation and further in the case of any criminal action or proceeding, that
the Director, officer or employee reasonably believed his conduct to be lawful.
Determination of any Claim by judgment adverse to a Director, officer or
employee by settlement with or without Court approval or conviction upon a plea
of guilty or of nolo contendere or its equivalent shall not create a presumption
that a Director, officer or employee failed to meet the standards of conduct set
forth in this paragraph. Expenses incurred with respect to any Claim may be
advanced by the Association prior to the final disposition thereof upon receipt
of an undertaking satisfactory to the Association by or on behalf of the
recipient to repay such amount unless it is ultimately determined that he is
entitled to indemnification under this paragraph. The rights of indemnification
provided in this paragraph shall be in addition to any rights to which any
Director, officer or employee may otherwise be entitled by contract or as a
matter of law.
Every person who shall act as a Director, officer or employee of this
Association shall be conclusively presumed to be doing so in reliance upon the
right of indemnification provided for in this paragraph.
ELEVENTH.
These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount.
5
<PAGE> 17
EXHIBIT 4
BY-LAWS
OF
BANK ONE, COLUMBUS, NATIONAL ASSOCIATION
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETING. The regular annual meeting of the
Shareholders of the Bank for the election of Directors and for the transaction
of such business as may properly come before the meeting shall be held at its
main banking house, or other convenient place duly authorized by the Board of
Directors, on the third Monday of January of each year, or on the next
succeeding banking day, if the day fixed falls on a legal holiday. If from any
cause, an election of directors is not made on the day fixed for the regular
meeting of shareholders or, in the event of a legal holiday, on the next
succeeding banking day, the Board of Directors shall order the election to be
held on some subsequent day, as soon thereafter as practicable, according to the
provisions of law; and notice thereof shall be given in the manner herein
provided for the annual meeting. Notice of such annual meeting shall be given by
or under the direction of the Secretary or such other officer as may be
designated by the Chief Executive Officer by first-class mail, postage prepaid,
to all shareholders of record of the Bank at their respective addresses as shown
upon the books of the Bank mailed not less than ten days prior to the date fixed
for such meeting.
SECTION 1.02. SPECIAL MEETINGS. A special meeting of the shareholders
of this Bank may be called at any time by the Board of Directors or by any three
or more shareholders owning, in the aggregate, not less than ten percent of the
stock of this Bank. The notice of any special meeting of the shareholders called
by the Board of Directors, stating the time, place and purpose of the meeting,
shall be given by or under the direction of the Secretary, or such other officer
as is designated by the Chief Executive Officer, by first-class mail, postage
prepaid, to all shareholders of record of the Bank at their respective addresses
as shown upon the books of the Bank, mailed not less than ten days prior to the
date fixed for such meeting.
Any special meeting of shareholders shall be conducted and its
proceedings recorded in the manner prescribed in these By-Laws for annual
meetings of shareholders.
SECTION 1.03. SECRETARY OF SHAREHOLDERS' MEETING. The Board of
Directors may designate a person to be the Secretary of the meetings of
shareholders. In the absence of a presiding officer, as designated in these
By-Laws, the Board of Directors may designate a person to act as the presiding
officer. In the event the Board of Directors fails to designate a person to
preside at a meeting of shareholders and a Secretary of such meeting, the
shareholders present or represented shall elect a person to preside and a person
to serve as Secretary of the meeting.
The Secretary of the meetings of shareholders shall cause the returns
made by the judges and election and other proceedings to be recorded in the
minute book of the Bank. The presiding officer shall notify the directors-elect
of their election and to meet forthwith for the organization of the new board.
The minutes of the meeting shall be signed by the presiding officer and
the Secretary designated for the meeting.
SECTION 1.04. JUDGES OF ELECTION. The Board of Directors may appoint as
many as three shareholders to be judges of the election, who shall hold and
conduct the same, and who shall, after the election has been held, notify, in
writing over their signatures, the secretary of the shareholders' meeting of the
result thereof and the names of the Directors elected; provided, however, that
upon failure for any reason of any judge or judges of election, so appointed by
the directors, to serve, the presiding officer of the meeting shall appoint
other shareholders or their proxies to fill the vacancies. The judges of
election at the request of the chairman of the meeting, shall act as tellers of
any other vote by ballot taken at such meeting, and shall notify, in writing
over their signatures, the secretary of the Board of Directors of the result
thereof.
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<PAGE> 18
SECTION 1.05. PROXIES. In all elections of Directors, each shareholder
of record, who is qualified to vote under the provisions of Federal Law, shall
have the right to vote the number of shares of record in his name for as many
persons as there are Directors to be elected, or to cumulate such shares as
provided by Federal Law. In deciding all other questions at meetings of
shareholders, each shareholder shall be entitled to one vote on each share of
stock of record in his name. Shareholders may vote by proxy duly authorized in
writing. All proxies used at the annual meeting shall be secured for that
meeting only, or any adjournment thereof, and shall be dated, and if not dated
by the shareholder, shall be dated as of the date of receipt thereof. No officer
or employee of this Bank may act as proxy.
SECTION 1.06. QUORUM. Holders of record of a majority of the shares of
the capital stock of the Bank, eligible to be voted, present either in person or
by proxy, shall constitute a quorum for the transaction of business at any
meeting of shareholders, but shareholders present at any meeting and
constituting less than a quorum may, without further notice, adjourn the meeting
from time to time until a quorum is obtained. A majority of the votes cast shall
decide every question or matter submitted to the shareholders at any meeting,
unless otherwise provided by law or by the Articles of Association.
ARTICLE II
DIRECTORS
SECTION 2.01. MANAGEMENT OF THE BANK. The business of the Bank shall be
managed by the Board of Directors. Each director of the Bank shall be the
beneficial owner of a substantial number of shares of BANC ONE CORPORATION and
shall be employed either in the position of Chief Executive Officer or active
leadership within his or her business, professional or community interest which
shall be located within the geographic area in which the Bank operates, or as an
executive officer of the Bank. A director shall not be eligible for nomination
and re-election as a director of the Bank if such person's executive or
leadership position within his or her business, professional or community
interests which qualifies such person as a director of Bank terminates. The age
of 70 is the mandatory retirement age as a director of the Bank. When a person's
eligibility as director of the Bank terminates, whether because of change in
share ownership, position, residency or age, within 30 days after such
termination, such person shall submit his resignation as a director to be
effective at the pleasure of the Board provided, however, that in no event shall
such person be nominated or elected as a director. Provided, however, following
a person's retirement or resignation as a director because of the age
limitations herein set forth with respect to election or re-election as a
director, such person may, in special or unusual circumstances, and at the
discretion of the Board, be elected by the directors as a Director Emeritus of
the Bank for a limited period of time. A Director Emeritus shall have the right
to participate in board meetings but shall be without the power to vote and
shall be subject to re-election by the Board at its organizational meeting
following the Bank's annual meeting of shareholders.
SECTION 2.02. QUALIFICATIONS. Each director shall have the
qualification prescribed by law. No person elected a director may exercise any
of the powers of his office until he has taken the oath of such office.
SECTION 2.03. TERM OF OFFICE/VACANCIES. A director shall hold office
until the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to his prior
death, resignation, or removal from office. Whenever any vacancy shall occur
among the directors, the remaining directors shall constitute the directors of
the Bank until such vacancy is filled by the remaining directors, and any
director so appointed shall hold office for the unexpired term of his or her
successor. Notwithstanding the foregoing, each director shall hold office and
serve at the pleasure of the Board.
SECTION 2.04. ORGANIZATION MEETING. The directors elected by the share-
holders shall meet for organization of the new board at the time fixed by the
presiding officer of the annual meeting. If at the time fixed for such meeting
there is no quorum present, the Directors in attendance may adjourn from time to
time until a quorum is obtained. A majority of the number of Directors elected
by the shareholders shall constitute a quorum for the transaction of business.
SECTION 2.05. REGULAR MEETINGS. The regular meetings of the Board of
Directors shall be held on the third Monday of each calendar month excluding
March and July, which meeting will be held at 4:00 p.m. When any regular meeting
of the Board falls on a holiday, the meeting shall be held on such other day as
the Board may previously designate or should the Board fail to so designate, on
such day as the Chairman of the Board of President may fix. Whenever a quorum is
not present, the directors in attendance shall adjourn the meeting to a time not
later than the date fixed by the Bylaws for the next succeeding regular meeting
of the Board.
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<PAGE> 19
SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held at the call of the Chairman of the Board or President,
or at the request of two or more Directors. Any special meeting may be held at
such place in Franklin County, Ohio, and at such time as may be fixed in the
call. Written or oral notice shall be given to each Director not later than the
day next preceding the day on which special meeting is to be held, which notice
may be waived in writing.
The presence of a Director at any meeting of the Board shall be deemed
a waiver of notice thereof by him. Whenever a quorum is not present the
Directors in attendance shall adjourn the special meeting from day to day until
a quorum is obtained.
SECTION 2.07. QUORUM. A majority of the Directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a lesser
number may adjourn any meeting, from time-to-time, and the meeting may be held,
as adjourned, without further notice. When, however, less than a quorum as
herein defined, but at least one-third and not less than two of the authorized
number of Directors are present at a meeting of the Directors, business of the
Bank may be transacted and matters before the Board approved or disapproved by
the unanimous vote of the Directors present.
SECTION 2.08. COMPENSATION. Each member of the Board of Directors shall
receive such fees for, and transportation expenses incident to, attendance at
Board and Board Committee Meetings and such fees for service as a Director
irrespective of meeting attendance as from time to time are fixed by resolution
of the Board; provided, however, that payment hereunder shall not be made to a
Director for meetings attended and/or Board service which are not for the Bank's
sole benefit and which are concurrent and duplicative with meetings attended or
board service for an affiliate of the Bank for which the Director receives
payment; and provided further, that payment hereunder shall not be made in the
case of any Director in the regular employment of the Bank or of one of its
affiliates.
SECTION 2.09. EXECUTIVE COMMITTEE. There shall be a standing committee
of the Board of Directors known as the Executive Committee which shall possess
and exercise, when the Board is not in session, all powers of the Board that may
lawfully be delegated. The Executive Committee shall also exercise the powers of
the Board of Directors in accordance with the Provisions of the "Employees
Retirement Plan" and the "Agreement and Declaration of Trust" as the same now
exist or may be amended hereafter. The Executive Committee shall consist of not
fewer than four board members, including the Chairman of the Board and President
of the Bank, one of whom, as hereinafter required by these By-laws, shall be the
Chief Executive Officer. The other members of the Committee shall be appointed
by the Chairman of the Board or by the President, with the approval of the Board
and shall continue as members of the Executive Committee until their successors
are appointed, provided, however, that any member of the Executive Committee may
be removed by the Board upon a majority vote thereof at any regular or special
meeting of the Board. The Chairman or President shall fill any vacancy in the
Committee by the appointment of another Director, subject to the approval of the
Board of Directors. The regular meetings of the Executive Committee shall be
held on a regular basis as scheduled by the Board of Directors. Special meetings
of the Executive Committee shall be held at the call of the Chairman or
President or any two members thereof at such time or times as may be designated.
In the event of the absence of any member or members of the Committee, the
presiding member may appoint a member or members of the Board to fill the place
or places of such absent member or members to serve during such absence. Not
fewer than three members of the Committee must be present at any meeting of the
Executive Committee to constitute a quorum, provided, however that with regard
to any matters on which the Executive Committee shall vote, a majority of the
Committee members present at the meeting at which a vote is to be taken shall
not be officers of the Bank and, provided further, that if, at any meeting at
which the Chairman of the Board and President are both present, Committee
members who are not officers are not in the majority, then the Chairman of the
Board or President, which ever of such officers is not also the Chief Executive
Officer, shall not be eligible to vote at such meeting and shall not be
recognized for purposes of determining if a quorum is present at such meeting.
When neither the Chairman of the Board nor President are present, the Committee
shall appoint a presiding officer. The Executive Committee shall keep a record
of its proceedings and report its proceedings and the action taken by it to the
Board of Directors.
SECTION 2.10. COMMUNITY REINVESTMENT ACT AND COMPLIANCE POLICY
COMMITTEE. There shall be a standing committee of the Board of Directors known
as the Community Reinvestment Act and Compliance Policy Committee the duties of
which shall be, at least once in each calendar year, to review, develop and
recommend policies and programs related to the Bank's Community Reinvestment Act
Compliance and regulatory compliance with all existing statutes, rules and
regulations affecting the Bank under state and federal law. Such Committee shall
provide and promptly make a full report of such review of current Bank policies
with regard to Community Reinvestment Act and regulatory
8
<PAGE> 20
compliance in writing to the Board, with recommendations, if any, which may be
necessary to correct any unsatisfactory conditions. Such Committee may, in its
discretion, in fulfilling its duties, utilize the Community Reinvestment Act
officers of the Bank, Banc One Ohio Corporation and Banc One Corporation and may
engage outside Community Reinvestment Act experts, as approved by the Board, to
review, develop and recommend policies and programs as herein required. The
Community Reinvestment Act and regulatory compliance policies and procedures
established and the recommendations made shall be consistent with, and shall
supplement, the Community Reinvestment Act and regulatory compliance programs,
policies and procedures of Banc One Corporation and Banc One Ohio Corporation.
The Community Reinvestment Act and Compliance Policy Committee shall consist of
not fewer than four board members, one of whom shall be the Chief Executive
Officer and a majority of whom are not officers of the Bank. Not fewer than
three members of the Committee, a majority of whom are not officers of the Bank,
must be present to constitute a quorum. The Chairman of the Board or President
of the Bank, whichever is not the Chief Executive Officer, shall be an ex
officio member of the Community Reinvestment Act and Compliance Policy
Committee. The Community Reinvestment Act and Compliance Policy Committee, whose
chairman shall be appointed by the Board, shall keep a record of its proceedings
and report its proceedings and the action taken by it to the Board of Directors.
SECTION 2.11. TRUST COMMITTEES. There shall be two standing Committees
known as the Trust Management Committee and the Trust Examination Committee
appointed as hereinafter provided.
SECTION 2.12. OTHER COMMITTEES. The Board of Directors may appoint such
special committees from time to time as are in its judgment necessary in the
interest of the Bank.
ARTICLE III
OFFICERS, MANAGEMENT STAFF AND EMPLOYEES
SECTION 3.01. OFFICERS AND MANAGEMENT STAFF.
(a) The officers of the Bank shall include a President, Secretary and
Security Officer and may include a Chairman of the Board, one or more Vice
Chairmen, one or more Vice Presidents (which may include one or more Executive
Vice Presidents and/or Senior Vice Presidents) and one or more Assistant
Secretaries, all of whom shall be elected by the Board. All other officers may
be elected by the Board or appointed in writing by the Chief Executive Officer.
The salaries of all officers elected by the Board shall be fixed by the Board.
The Board from time-to-time shall designate the President or Chairman of the
Board to serve as the Bank's Chief Executive Officer.
(b) The Chairman of the Board, if any, and the President shall be
elected by the Board from their own number. The President and Chairman of the
Board shall be re-elected by the Board annually at the organizational meeting of
the Board of Directors following the Annual Meeting of Shareholders. Such
officers as the Board shall elect from their own number shall hold office from
the date of their election as officers until the organization meeting of the
Board of Directors following the next Annual Meeting of Shareholders, provided,
however, that such officers may be relieved of their duties at any time by
action of the Board in which event all the powers incident to their office shall
immediately terminate.
(c) Except as provided in the case of the elected officers who are
members of the Board, all officers, whether elected or appointed, shall hold
office at the pleasure of the Board. Except as otherwise limited by law or these
By-laws, the Board assigns to Chief Executive Officer and/or his designees the
authority to appoint and dismiss any elected or appointed officer or other
member of the Bank's management staff and other employees of the Bank, as the
person in charge of and responsible for any branch office, department, section,
operation, function, assignment or duty in the Bank.
(d) The management staff of the Bank shall include officers elected by
the Board, officers appointed by the Chief Executive Officer, and such other
persons in the employment of the Bank who, pursuant to written appointment and
authorization by a duly authorized officer of the Bank, perform management
functions and have management responsibilities. Any two or more offices may be
held by the same person except that no person shall hold the office of Chairman
of the Board and/or President and at the same time also hold the office of
Secretary.
(e) The Chief Executive Officer of the Bank and any other officer of
the Bank, to the extent that such officer is authorized in writing by the Chief
Executive Officer, may appoint persons other than officers who are in the
employment
9
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of the Bank to serve in management positions and in connection therewith, the
appointing officer may assign such title, salary, responsibilities and functions
as are deemed appropriate by him, provided, however, that nothing contained
herein shall be construed as placing any limitation on the authority of the
Chief Executive Officer as provided in this and other sections of these By-Laws.
SECTION 3.02. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Bank shall have general and active management of the business of the Bank
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. Except as otherwise prescribed or limited by these By-Laws,
the Chief Executive Officer shall have full right, authority and power to
control all personnel, including elected and appointed officers, of the Bank, to
employ or direct the employment of such personnel and officers as he may deem
necessary, including the fixing of salaries and the dismissal of them at
pleasure, and to define and prescribe the duties and responsibility of all
Officers of the Bank, subject to such further limitations and directions as he
may from time-to-time deem proper. The Chief Executive Officer shall perform all
duties incident to his office and such other and further duties, as may, from
time-to-time, be required of him by the Board of Directors or the shareholders.
The specification of authority in these By-Laws wherever and to whomever granted
shall not be construed to limit in any manner the general powers of delegation
granted to the Chief Executive Officer in conducting the business of the Bank.
The Chief Executive Officer or, in his absence, the Chairman of the Board or
President of the Bank, as designated by the Chief Executive Officer, shall
preside at all meetings of shareholders and meetings of the Board. In the
absence of the Chief Executive Officer, such officer as is designated by the
Chief Executive Officer shall be vested with all the powers and perform all the
duties of the Chief Executive Officer as defined by these By-Laws. When
designating an officer to serve in his absence, the Chief Executive Officer
shall select an officer who is a member of the Board of Directors whenever such
officer is available.
SECTION 3.03. POWERS OF OFFICERS AND MANAGEMENT STAFF. The Chief
Executive Officer, the Chairman of the Board, the President, and those officers
so designated and authorized by the Chief Executive Officer are authorized for
an on behalf of the Bank, and to the extent permitted by law, to make loans and
discounts; to purchase or acquire drafts, notes, stock, bonds, and other
securities for investment of funds held by the Bank; to execute and purchase
acceptances; to appoint, empower and direct all necessary agents and attorneys;
to sign and give any notice required to be given; to demand payment and/or to
declare due for any default any debt or obligation due or payable to the Bank
upon demand or authorized to be declared due; to foreclose any mortgages, to
exercise any option, privilege or election to forfeit, terminate, extend or
renew any lease; to authorize and direct any proceedings for the collection of
any money or for the enforcement of any right or obligation; to adjust, settle
and compromise all claims of every kind and description in favor of or against
the Bank, and to give receipts, releases and discharges therefor; to borrow
money and in connection therewith to make, execute and deliver notes, bonds or
other evidences of indebtedness; to pledge or hypothecate any securities or any
stocks, bonds, notes or any property real or personal held or owned by the Bank,
or to rediscount any notes or other obligations held or owned by the Bank, to
employ or direct the employment of all personnel, including elected and
appointed officers, and the dismissal of them at pleasure, and in furtherance of
and in addition to the powers hereinabove set forth to do all such acts and to
take all such proceedings as in his judgment are necessary and incidental to the
operation of the Bank.
Other persons in the employment of the Bank, including but not limited
to officers and other members of the management staff, may be authorized by the
Chief Executive Officer, or by an officer so designated and authorized by the
chief Executive Officer, to perform the powers set forth above, subject,
however, to such limitations and conditions as are set forth in the
authorization given to such persons.
SECTION 3.04. SECRETARY. The Secretary or such other officers as may be
designated by the Chief Executive Officer shall have supervision and control of
the records of the Bank and, subject to the direction of the Chief Executive
Officer, shall undertake other duties and functions usually performed by a
corporate secretary. Other officers may be designated by the Chief Executive
Officer or the Board of Directors as Assistant Secretary to perform the duties
of the Secretary.
SECTION 3.05. EXECUTION OF DOCUMENTS. The Chief Executive Officer,
Chairman of the Board, President, any officer being a member of the Bank's
management staff who is also a person in charge of and responsible for any
department within the Bank and any other officer to the extent such officer is
so designated and authorized by the Chief Executive Officer, the Chairman of the
Board, the President, or any other officer who is a member of the Bank's
management staff who is in charge of and responsible for any department within
the Bank, are hereby authorized on behalf of the Bank to sell, assign, lease,
mortgage, transfer, deliver and convey any real or personal property now or
hereafter owned by or
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standing in the name of the Bank or its nominee, or held by this Bank as
collateral security, and to execute and deliver such deeds, contracts, leases,
assignments, bills of sale, transfers or other papers or documents as may be
appropriate in the circumstances; to execute any loan agreement, security
agreement, commitment letters and financing statements and other documents on
behalf of the Bank as a lender; to execute purchase orders, documents and
agreements entered into by the Bank in the ordinary course of business, relating
to purchase, sale, exchange or lease of services, tangible personal property,
materials and equipment for the use of the Bank; to execute powers of attorney
to perform specific or general functions in the name of or on behalf of the
Bank; to execute promissory notes or other instruments evidencing debt of the
Bank; to execute instruments pledging or releasing securities for public funds,
documents submitting public fund bids on behalf of the Bank and public fund
contracts; to purchase and acquire any real or personal property including loan
portfolios and to execute and deliver such agreements, contracts or other papers
or documents as may be appropriate in the circumstances; to execute any
indemnity and fidelity bonds, proxies or other papers or documents of like or
different character necessary, desirable or incidental to the conduct of its
banking business; to execute and deliver settlement agreements or other papers
or documents as may be appropriate in connection with a dismissal authorized by
Section 3.01(c) of these By-laws; to execute agreements, instruments, documents,
contracts or other papers of like or difference character necessary, desirable
or incidental to the conduct of its banking business; and to execute and deliver
partial releases from and discharges or assignments of mortgages, financing
statements and assignments or surrender of insurance policies, now or hereafter
held by this Bank.
The Chief Executive Officer, Chairman of the Board, President, any
officer being a member of the Bank's management staff who is also a person in
charge of and responsible for any department within the Bank, and any other
officer of the Bank so designated and authorized by the Chief Executive Officer,
Chairman of the Board, President or any officer who is a member of the Bank's
management staff who is in charge of and responsible for any department within
the Bank are authorized for and on behalf of the Bank to sign and issue checks,
drafts, and certificates of deposit; to sign and endorse bills of exchange, to
sign and countersign foreign and domestic letters of credit, to receive and
receipt for payments of principal, interest, dividends, rents, fees and payments
of every kind and description paid to the Bank, to sign receipts for property
acquired by or entrusted to the Bank, to guarantee the genuineness of signatures
on assignments of stocks, bonds or other securities, to sign certifications of
checks, to endorse and deliver checks, drafts, warrants, bills, notes,
certificates of deposit and acceptances in all business transactions of the
Bank.
Other persons in the employment of the Bank and of its subsidiaries,
including but not limited to officers and other members of the management staff,
may be authorized by the Chief Executive Officer, Chairman of the Board,
President or by an officer so designated by the Chief Executive Officer,
Chairman of the Board, or President to perform the acts and to execute the
documents set forth above, subject, however, to such limitations and conditions
as are contained in the authorization given to such person.
SECTION 3.06. PERFORMANCE BOND. All officers and employees of the Bank
shall be bonded for the honest and faithful performance of their duties for such
amount as may be prescribed by the Board of Directors.
ARTICLE IV
TRUST DEPARTMENT
SECTION 4.01. TRUST DEPARTMENT. Pursuant to the fiduciary powers
granted to this Bank under the provisions of Federal Law and Regulations of the
Comptroller of the Currency, there shall be maintained a separate Trust
Department of the Bank, which shall be operated in the manner specified herein.
SECTION 4.02. TRUST MANAGEMENT COMMITTEE. There shall be a standing
Committee known as the Trust Management Committee, consisting of at least five
members, a majority of whom shall not be officers of the Bank. The Committee
shall consist of the Chairman of the Board who shall be Chairman of the
Committee, the President, and at least three other Directors appointed by the
Board of Directors and who shall continue as members of the Committee until
their successors are appointed. Any vacancy in the Trust Management Committee
may be filled by the Board at any regular or special meeting. In the event of
the absence of any member or members, such Committee may, in its discretion,
appoint members of the Board to fill the place of such absent members to serve
during such absence. Three members of the Committee shall constitute a quorum.
Any member of the Committee may be removed by the Board by a majority vote at
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any regular or special meeting of the Board. The Committee shall meet at such
times as it may determine or at the call of the Chairman, or President or any
two members thereof.
The Trust Management Committee, under the general direction of the
Board of Directors, shall supervise the policy of the Trust Department which
shall be formulated and executed in accordance with Law, Regulations of the
Comptroller of the Currency, and sound fiduciary principles.
SECTION 4.03. TRUST EXAMINATION COMMITTEE. There shall be a standing
Committee known as the Trust Examination Committee, consisting of three
directors appointed by the Board of Directors and who shall continue as members
of the committee until their successors are appointed. Such members shall not be
active officers of the Bank. Two members of the Committee shall constitute a
quorum. Any member of the Committee may be removed by the Board by a majority
vote at any regular or special meeting of the Board. The Committee shall meet at
such times as it may determine or at the call of two members thereof.
This Committee shall, at least once during each calendar year and
within fifteen months of the last such audit, or at such other time(s) as may be
required by Regulations of the Comptroller of the Currency, make suitable audits
of the Trust Department or cause suitable audits to be made by auditors
responsible only to the Board of Directors, and at such time shall ascertain
whether the Department has been administered in accordance with Law, Regulations
of the Comptroller of the Currency and sound fiduciary principles.
The Committee shall promptly make a full report of such audits in
writing to the Board of Directors of the Bank, together with a recommendation as
to what action, if any, may be necessary to correct any unsatisfactory
condition. A report of the audits together with the action taken thereon shall
be noted in the Minutes of the Board of Directors and such report shall be a
part of the records of this Bank.
SECTION 4.04. MANAGEMENT. The Trust Department shall be under the
management and supervision of an officer of the Bank or of the trust affiliate
of the Bank designated by and subject to the advice and direction of the Chief
Executive Officer. Such officer having supervisory responsibility over the Trust
Department shall do or cause to be done all things necessary or proper in
carrying on the business of the Trust Department in accordance with provisions
of law and applicable regulations.
SECTION 4.05. HOLDING OF PROPERTY. Property held by the Trust
Department may be carried in the name of the Bank in its fiduciary capacity, in
the name of Bank, or in the name of a nominee or nominees.
SECTION 4.06. TRUST INVESTMENTS. Funds held by the Bank in a fiduciary
capacity awaiting investment or distribution shall not be held uninvested or
undistributed any longer than is reasonable for the proper management of the
account and shall be invested in accordance with the instrument establishing a
fiduciary relationship and local law. Where such instrument does not specify the
character or class of investments to be made and does not vest in the Bank any
discretion in the matter, funds held pursuant to such instrument shall be
invested in any investment which corporate fiduciaries may invest under local
law.
The investments of each account in the Trust Department shall be kept
separate from the assets of the Bank, and shall be placed in the joint custody
or control of not less than two of the officers or employees of the Bank or of
the trust affiliate of the Bank designated for the purpose by the Trust
Management Committee.
SECTION 4.07. EXECUTION OF DOCUMENTS. The Chief Executive Officer,
Chairman of the Board, President, any officer of the Trust Department, and such
other officers of the trust affiliate of the Bank as are specifically designated
and authorized by the Chief Executive Officer, the President, or the officer in
charge of the Trust Department, are hereby authorized, on behalf of this Bank,
to sell, assign, lease, mortgage, transfer, deliver and convey any real property
or personal property and to purchase and acquire any real or personal property
and to execute and deliver such agreements, contracts, or other papers and
documents as may be appropriate in the circumstances for property now or
hereafter owned by or standing in the name of this Bank, or its nominee, in any
fiduciary capacity, or in the name of any principal for whom this Bank may now
or hereafter be acting under a power of attorney, or as agent and to execute and
deliver partial releases from any discharges or assignments or mortgages and
assignments or surrender of insurance policies, to execute and deliver deeds,
contracts, leases, assignments, bills of sale, transfers or such other papers or
documents as may be appropriate in the
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circumstances for property now or hereafter held by this Bank in any fiduciary
capacity or owned by any principal for whom this Bank may now or hereafter be
acting under a power of attorney or as agent; to execute and deliver settlement
agreements or other papers or documents as may be appropriate in connection with
a dismissal authorized by Section 3.01(c) of these By-laws; provided that the
signature of any such person shall be attested in each case by any officer of
the Trust Department or by any other person who is specifically authorized by
the Chief Executive Officer, the President or the officer in charge of the Trust
Department.
The Chief Executive Officer, Chairman of the Board, President, any
officer of the Trust Department and such other officers of the trust affiliate
of the Bank as are specifically designated and authorized by the Chief Executive
Officer, the President, or the officer in charge of the Trust Department, or any
other person or corporation as is specifically authorized by the Chief Executive
Officer, the President or the officer in charge of the Trust Department, are
hereby authorized on behalf of this Bank, to sign any and all pleadings and
papers in probate and other court proceedings, to execute any indemnity and
fidelity bonds, trust agreements, proxies or other papers or documents of like
or different character necessary, desirable or incidental to the appointment of
the Bank in any fiduciary capacity and the conduct of its business in any
fiduciary capacity; also to foreclose any mortgage, to execute and deliver
receipts for payments of principal, interest, dividends, rents, fees and
payments of every kind and description paid to the Bank; to sign receipts for
property acquired or entrusted to the Bank; also to sign stock or bond
certificates on behalf of this Bank in any fiduciary capacity and on behalf of
this Bank as transfer agent or registrar; to guarantee the genuineness of
signatures on assignments of stocks, bonds or other securities, and to
authenticate bonds, debentures, land or lease trust certificates or other forms
of security issued pursuant to any indenture under which this Bank now or
hereafter is acting as Trustee. Any such person, as well as such other persons
as are specifically authorized by the Chief Executive Officer or the officer in
charge of the Trust Department, may sign checks, drafts and orders for the
payment of money executed by the Trust Department in the course of its business.
SECTION 4.08. VOTING OF STOCK. The Chairman of the Board, President,
any officer of the Trust Department, any officer of the trust affiliate of the
Bank and such other persons as may be specifically authorized by Resolution of
the Trust Management Committee or the Board of Directors, may vote shares of
stock of a corporation of record on the books of the issuing company in the name
of the Bank or in the name of the Bank as fiduciary, or may grant proxies for
the voting of such stock of the granting if same is permitted by the instrument
under which the Bank is acting in a fiduciary capacity, or by the law applicable
to such fiduciary account. In the case of shares of stock which are held by a
nominee of the Bank, such shares may be voted by such person(s) authorized by
such nominee.
ARTICLE V
STOCKS AND STOCK CERTIFICATES
SECTION 5.01. STOCK CERTIFICATES. The shares of stock of the Bank shall
be evidenced by certificates which shall bear the signature of the Chairman of
the Board, the President, or a Vice President (which signature may be engraved,
printed or impressed), and shall be signed manually by the Secretary, or any
other officer appointed by the Chief Executive Officer for that purpose.
In case any such officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such before such
certificate is issued, it may be issued by the Bank with the same effect as if
such officer had not ceased to be such at the time of its issue. Each such
certificate shall bear the corporate seal of the Bank, shall recite on its fact
that the stock represented thereby is transferable only upon the books of the
Bank properly endorsed and shall recite such other information as is required by
law and deemed appropriate by the Board. The corporate seal may be facsimile
engraved or printed.
SECTION 5.02. STOCK ISSUE AND TRANSFER. The shares of stock of the Bank
shall be transferable only upon the stock transfer books of the Bank and except
as hereinafter provided, no transfer shall be made or new certificates issued
except upon the surrender for cancellation of the certificate or certificates
previously issued therefor. In the case of the loss, theft, or destruction of
any certificate, a new certificate may be issued in place of such certificate
upon the furnishing of any affidavit setting forth the circumstances of such
loss, theft, or destruction and indemnity satisfactory to the Chairman of the
Board, the President, or a Vice President. The Board of Directors, or the Chief
Executive Officer, may authorize the issuance of a new certificate therefor
without the furnishing of indemnity. Stock Transfer Books, in which all
transfers of stock shall be recorded, shall be provided.
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The stock transfer books may be closed for a reasonable period and
under such conditions as the Board of Directors may at any time determine for
any meeting of shareholders, the payment of dividends or any other lawful
purpose. In lieu of closing the transfer books, the Board may, in its
discretion, fix a record date and hour constituting a reasonable period prior to
the day designated for the holding of any meeting of the shareholders or the day
appointed for the payment of any dividend or for any other purpose at the time
as of which shareholders entitled to notice of and to vote at any such meeting
or to receive such dividend or to be treated as shareholders for such other
purpose shall be determined, and only shareholders of record at such time shall
be entitled to notice of or to vote at such meeting or to receive such dividends
or to be treated as shareholders for such other purpose.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. SEAL. The impression made below is an impression of the
seal adopted by the Board of Directors of BANK ONE, NA f/k/a Bank One, Columbus,
NA. The Seal may be affixed by any officer of the Bank to any document executed
by an authorized officer on behalf of the Bank, and any officer may certify any
act, proceedings, record, instrument or authority of the Bank.
SECTION 6.02. BANKING HOURS. Subject to ratification by the Executive
Committee, the Bank and each of its Branches shall be open for business on such
days and during such hours as the Chief Executive Officer of the Bank shall,
from time to time, prescribe.
SECTION 6.03. MINUTE BOOK. The organization papers of this Bank, the
Articles of Association, the returns of the judges of elections, the By-Laws and
any amendments thereto, the proceedings of all regular and special meetings of
the shareholders and of the Board of Directors, and reports of the committees of
the Board of Directors shall be recorded in the minute book of the Bank. The
minutes of each such meeting shall be signed by the presiding Officer and
attested by the secretary of the meetings.
SECTION 6.04. AMENDMENT OF BY-LAWS. These By-Laws may be amended by
vote of a majority of the Directors.
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EXHIBIT 6
Securities and Exchange Commission
Washington, D.C. 20549
CONSENT
The undersigned, designated to act as Trustee under the Indenture for
WHX Corporation described in the attached Statement of Eligibility and
Qualification, does hereby consent that reports of examinations by Federal,
State, Territorial, or District Authorities may be furnished by such authorities
to the Commission upon the request of the Commission.
This Consent is given pursuant to the provision of Section 321(b) of
the Trust Indenture Act of 1939, as amended.
Bank One, N.A.
Dated: June 1, 1998
---------------------------
By: /s/ David B. Knox
---------------------------------
Authorized Signer
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<TABLE>
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<S> <C>
EXHIBIT 7
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Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
Please refer to page 1,
Table of Contents, for [1]
the required disclosure
of estimated burden.
- - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031
- - ------------------------------------------------------------------------------------------------------------------------------------
(980331)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1998 (RCR) 9999)
This report is required by law: 12 U.S.C. ss.324, (State member This report form is to be filed by banks with branches and
banks; 12 U.S.C. ss.1817 (State nonmember banks); 12 U.S.C. consolidated subsidiaries in U.S. territories and possessions,
ss.161 (National banks). Edge or Agreement subsidiaries, foreign branches,
consolidated foreign subsidiaries, or International Banking
Facilities.
- - ------------------------------------------------------------------------------------------------------------------------------------
NOTE: The reports of Condition and Income must be signed by The Reports of Condition and Income are to be prepared in
an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for State
nonmember banks and three directors for State member and We, the undersigned directors (trustees), attest to the
national banks. correctness of the Report of Condition (including the has
supporting schedules) for this report date and declare that it
I, C. William Willen, Vice President been examined by us and to the best of our knowledge
Name and Title of Officer Authorized to Sign Report and belief has been prepared in conformance with the
of the named bank do hereby declare that the Reports of
instructions issued by the appropriate Federal regulatory
Condition and Income (including the supporting schedules)
for authority and is true and correct. this report date have
been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and are true to the /S/ Frederick L. Cullen
best of my knowledge and belief. -------------------------------------------------------------
Director (Trustee)
/S/ C. William Willen /S/ David P. Lauer
- - ------------------------------------------------------------- -------------------------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
April 30, 1998 /S/ William M. Bennett
- - ------------------------------------------------------------- -------------------------------------------------------------
Date of Signature Director (Trustee)
- - ------------------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS
(b) in hard-copy (paper) form and arrange for another
Each bank must prepare its Reports of Condition and Income party to convert the paper report to electronic
either: form. That party (if other than EDS) must transmit the
bank's computer data file to EDS.
(a) in electronic form and the file the computer data file To fulfill the signature and attestation requirement for the
directly with the banking agencies' collection agent, Reports of Condition and Income for this report date, attach
Electronic Data Systems Corporation (EDS), by modem this signature page to the hard-copy record of the completed
or on computer diskette; or report that the bank places in its files.
- - ------------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number ----------------
(RCR 9050) CALL NO. 203 31 03-31-98
STBK: 39-1580 00088 STCERT: 39-06559
BANK ONE, NATIONAL ASSOCIATION
100 EAST BROAD STREET, OH1-0121
COLUMBUS, OH 43271
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BANK ONE, NA Call Date: 03/31/98 State #: FFIEC 031
100 EAST BROAD STREET, OH 1-1066 Vendor ID: D Cert #: 06558 RC-1
COLUMBUS, OH 43271 Transit #: 04400037 11
----------
Transmitted to EDS as 0101467 on 04/30/98 at 09:05:4 CST
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
C400(-
Dollar Amounts in Thousands
- - ------------------------------------------------------------------------ -----------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
a. Noninterest-bearing balances and currency and coin (1) 0081 1,108,408 1.a
--------------
b. Interest-bearing balances (2) 0071 1,100 1.b
--------------
2. Securities
--------------
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 153,124 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 2,285,146 2.b
3. Federal funds sold and securities purchased under agreements to resell 1350 0 3
--------------
4. Loans and lease financing receivables: RCFD
a. Loans and leases, net of unearned income (from Schedule RC-C) 2122 18,887,996 4.a
b. LESS: Allowance for loan and lease losses 3123 422,079 4.b
c. LESS: Allocated transfer risk reserve 3128 0 4.c
-------------
d. Loans and leases, net of unearned income, RCFD
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 18,466,917 4.d
5. Trading assets (from Schedule RC-D) 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 194,830 6.
7. Other real estate owned (from Schedule RC-M) 2150 9,427 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 39,238 8.
9. Customers' liability to this bank on acceptances outstanding 2155 3,827 9.
10. Intangible assets (from Schedule RC-M) 2143 140,696 10.
11. Other assets (from Schedule RC-F) 2160 2,107,317 11.
12. Total assets (sum of items 1 through 11) 2170 24,509,030 12.
--------------
</TABLE>
- - ----------------
(1) includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BANK ONE, NA Call Date: 03/31/98 State #: FFIEC 031
100 EAST BROAD STREET, OH 1-1066 Vendor ID: D Cert #: 06558 RC-1
COLUMBUS, OH 43271 Transit #: 04400037 11
-----------
Transmitted to EDS as 0101467 on 04/30/98 at 09:05:4 CST
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- - ------------------------------------------------------------------------ -----------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, RCON
----
part I) RCON 2200 15,013,853 13.a
---- ------------
(1) Noninterest-bearing (1) 6631 3,550,812 13.a.1
-------------
(2) Interest-bearing 6636 11,463,041 13.a.2
-------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RCFN
----
RC-E, part II) 2200 1,251,180 13.b
RCFN ------------
----
(1) Noninterest-bearing 6631 0 13.b.1
-------------
(2) Interest-bearing 6636 1,251,180 RCFD 13.b.2
------------- ----
14. Federal funds purchased and securities sold under agreements to repurchase 2800 1,932,651 14
------------
RCON
----
15. a. Demand notes issued to the U.S. Treasury 2840 48,512 15.a
------------
RCFD
b. Trading liabilities (from Schedule RC-D) 3548 0 15.b
------------
16. Other borrowed money (includes mortgage indebtedness an obligations under
capitalized leases):
a. With a remaining maturity of one year or less 2332 1,415,753 16.a
b. With a remaining maturity of more than one year through three years A547 470,997 16.b
c. With a remaining maturity of more than three years A548 639,840 16.c
------------
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 2920 3,827 18
19. Subordinated notes and debentures (2) 3200 729,193 19
20 Other liabilities (from Schedule RC-G) 2930 1,038,774 20
21. Total liabilities (sum of items 13 through 20) 2848 22,544,580 21
------------
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 3838 0 23
24. Common stock 3230 127,043 24
25. Surplus (exclude all surplus related to preferred stock) 3839 738,352 25
26. a. Undivided profits and capital reserves 3632 1,082,183 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 16,872 26.b
27. Cumulative foreign currency translation adjustments 3284 0 27
28. Total equity capital (sum of items 23 through 27) 3210 1,964,450 28
29. Total liabilities and equity capital (sum of items 21 and 28) 3300 24,509,030 29
------------
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION
1. Indicate in the box at the right the number of the statement below that best
describes
the most comprehensive level of auditing work performed for the bank by RCFD Number
independent external auditors as of any date during 1997 6725 N/A M.1
------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately)
7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public 8 = No external audit work
accounting firm (may be required by state chartering authority)
</TABLE>
- - --------------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
T3A Second Restated Certificate of Incorporation of the Company
filed as Exhibit 4.2 to the Company's Form S-8 (File No.
33-63709), and incorporated herein by reference.
T3B Restated Bylaws of the Company filed as Exhibit 3.2 to the
Company's annual report on Form 10-K for the year ended
December 31, 1997 (File No. 1-8303) and incorporated herein by
reference.
T3C Form of Indenture and related Pledge and Security Agreement
between the Company and Bank One, N.A., Trustee.
T3E.1 Exchange Offering Circular
T3E.2 Letter of Transmittal
T3E.3 Letter to Brokers
T3E.4 Letter from Brokers to Clients
T3E.5 Notice of Guaranteed Delivery
T3E.6 Letter from The Hallwood Group Incorporated to Bondholders
T3E.7 Letter of Transmittal for Brokers, Banks and other Nominees
T3F Cross Reference Sheet
</TABLE>
<PAGE> 1
EXHIBIT 99.T3C
================================================================================
THE HALLWOOD GROUP INCORPORATED
TO
BANK ONE, N. A.
TRUSTEE
-------------------
INDENTURE
DATED AS OF ___________, 1998
-------------------
8.5% COLLATERALIZED SUBORDINATED DEBENTURES
DUE JULY 31, 2005
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION............................. 1
Section 101 Definitions....................................................... 1
Section 102 Compliance Certificates and Opinions.............................. 6
Section 103 Form of Documents Delivered to Trustee............................ 6
Section 104 Acts of Holders................................................... 7
Section 105 Notices, etc., to Trustee and the Company........................ 7
Section 106 Notice to Holders: Waiver........................................ 8
Section 107 Conflict with Trust Indenture Act................................ 8
Section 108 Effect of Headings and Table of Contents......................... 8
Section 109 Successors and Assigns........................................... 8
Section 110 Separability Clause.............................................. 8
Section 111 Benefits of Indenture............................................ 8
Section 112 Governing Laws................................................... 8
Section 113 Legal Holidays................................................... 8
ARTICLE II - SECURITY FORMS.................................................................... 9
Section 201 Forms Generally.................................................. 9
Section 202 Form of Face of Security......................................... 9
Section 203 Form of Reverse of Security...................................... 10
Section 204 Form of Trustee's Certificate of Authentication.................. 12
ARTICLE III - THE SECURITIES................................................................... 12
Section 301 Title and Terms.................................................. 12
Section 302 Denominations.................................................... 13
Section 303 Execution, Authentication, Delivery and Dating................... 13
Section 304 Temporary Securities............................................. 14
Section 305 Registration, Registration of Transfer and Exchange.............. 14
Section 306 Mutilated, Destroyed, Lost and Stolen Securities................. 14
Section 307 Payment of Interest: Interest Rights Preserved................... 15
Section 308 Persons Deemed Owners............................................ 15
Section 309 Cancellation..................................................... 16
Section 310 Computation of Interest.......................................... 16
Section 311 Payments Net of Withholding Taxes................................ 16
ARTICLE IV - DISCHARGE OF INDENTURE............................................................ 16
Section 401 Termination of Company's Obligations............................. 16
Section 402 Application of Trust Money....................................... 17
Section 403 Repayment to Company............................................. 17
Section 404 Reinstatement.................................................... 17
ARTICLE V - REMEDIES........................................................................... 18
Section 501 Events of Default................................................ 18
Section 502 Acceleration of Maturity: Rescission and Annulment............... 18
Section 503 Collection of Indebtedness and Suits for Enforcement,
by Trustee....................................................... 19
Section 504 Trustee May File Proofs of Claim................................. 19
Section 505 Trustee May Enforce Claims Without Possession of Securities...... 20
Section 506 Application of Money Collected................................... 20
Section 507 Limitation on Suits.............................................. 20
Section 508 Unconditional Right of Holders to Receive Principal,
Premium and Interest............................................. 21
Section 509 Restoration of Rights and Remedies............................... 21
Section 510 Rights and Remedies Cumulative................................... 21
Section 511 Delay or Omission Not Waiver..................................... 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 512 Control by Holders................................................ 22
Section 513 Waiver of Past Defaults........................................... 22
Section 514 Undertaking for Costs............................................. 22
ARTICLE VI - THE TRUSTEE........................................................................ 22
Section 601 Certain Duties and Responsibilities............................... 22
Section 602 Notice of Defaults................................................ 23
Section 603 Certain Rights of Trustee......................................... 23
Section 604 Not Responsible for Recitals or Issuance of Securities............ 24
Section 605 May Hold Securities............................................... 24
Section 606 Money Held in Trust............................................... 24
Section 607 Compensation and Reimbursement.................................... 25
Section 608 Disqualification; Conflicting Interest............................ 25
Section 609 Corporate Trustee Required Eligibility............................ 29
Section 610 Resignation and Removal; Appointment of Successor................. 29
Section 611 Acceptance of Appointment by Successor............................ 30
Section 612 Merger, Conversion, Consolidation or Succession to Business....... 30
Section 613 Preferential Collection of Claims Against Company................. 30
Section 614 Authenticating Agent.............................................. 33
ARTICLE VII - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY................................. 34
Section 701 Company to Furnish Trustee Names and Addresses of Holders......... 34
Section 702 Preservation of Information; Communications to Holders............ 34
Section 703 Reports by Trustee................................................ 35
Section 704 Reports by Company................................................ 36
ARTICLE VIII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE............................. 37
Section 801 Company Consolidate, etc., Only on Certain Terms.................. 37
Section 802 Successor Substituted............................................. 37
ARTICLE IX - SUPPLEMENTAL INDENTURES............................................................ 37
Section 901 Supplemental Indentures without Consent of Holders................ 37
Section 902 Supplemental Indentures with Consent of Holders................... 38
Section 903 Execution of Supplemental Indentures.............................. 38
Section 904 Effect of Supplemental Indentures................................. 38
Section 905 Conformity with Trust Indenture Act............................... 38
Section 906 Reference in Securities to Supplemental Indentures................ 39
Section 907 Effect on Senior Indebtedness..................................... 39
ARTICLE X - SECURITY............................................................................ 39
Section 1001 Pledge Agreement.................................................. 39
Section 1002 Recording, Opinions and Certificates.............................. 39
Section 1003 Authorization of Actions to Be Taken By the Trustee
Under the Pledge Agreement........................................ 40
Section 1004 Authorization of Receipt of Funds by the Trustee
Under the Pledge Agreement........................................ 40
Section 1005 Release of Assets from Security Pool.............................. 40
Section 1006 Certain Covenants of the Company with respect to the Security
Pool.......................................................... 41
ARTICLE XI - COVENANTS.......................................................................... 42
Section 1101 Payment of Principal, Premium and Interest........................ 42
Section 1102 Maintenance of Office or Agency................................... 42
Section 1103 Money for Security Payments to be Held in Trust................... 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 1104 No Restriction on Payment at Stated Maturity........................ 43
Section 1105 Corporate Existence; Conduct of Business............................ 43
Section 1106 Compliance Certificates............................................. 43
Section 1107 Statement by Officers as to Default................................. 43
Section 1108 Waiver of Stay, Extension or Usury Laws............................. 44
Section 1109 Security Pool....................................................... 44
ARTICLE XII - REDEMPTION OR REPURCHASE OF SECURITIES............................................... 44
Section 1201 Right of Redemption................................................. 44
Section 1202 Applicability of Article............................................ 44
Section 1203 Notice to Trustee................................................... 44
Section 1204 Selection by Trustee of Securities to Be Redeemed................... 44
Section 1205 Notice of Redemption................................................ 45
Section 1206 Deposit of Redemption Price......................................... 45
Section 1207 Funding for Redemption or Repurchase................................ 45
Section 1208 Securities Payable on Redemption Date............................... 46
Section 1209 Securities Redeemed in Part......................................... 46
ARTICLE XIII - SUBORDINATION OF SECURITIES......................................................... 46
Section 1301 Securities Subordinate to Senior Indebtedness....................... 46
Section 1302 Payment Over of Proceeds Upon Dissolution, etc...................... 46
Section 1303 No Payment When Senior Indebtedness in Default...................... 47
Section 1304 Payment Permitted if No Default..................................... 48
Section 1305 Subrogation to Rights of Holders of Senior Indebtedness............. 48
Section 1306 Provisions Solely to Define Relative Rights......................... 48
Section 1307 Trustee to Effectuate Subordination................................. 49
Section 1308 No Waiver of Subordination Provisions............................... 49
Section 1309 Notice to Trustee................................................... 49
Section 1310 Reliance on Judicial Order or Certificate of Liquidating Agent...... 50
Section 1311 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.................................... 50
Section 1312 Article Applicable to Paying Agents................................. 50
Section 1313 Reliance............................................................ 50
</TABLE>
iii
<PAGE> 5
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of March 2, 1993
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- - --------------------------- -----------------
<S> <C> <C>
Section 310 (a) (1).......................................................... 609
(a) (2).......................................................... 609
(a) (3).......................................................... Not Applicable
(a) (4).......................................................... Not Applicable
(b) ............................................................ 608, 610
Section 311 (a) ............................................................ 613 (a)
(b) ............................................................ 613 (b)
(b) (2).......................................................... 703 (a) (2), 703 (b)
Section 312 (a) ............................................................ 701, 702 (a)
(b) ............................................................ 702 (b)
(c) ............................................................ 702 (c)
Section 313 (a) ............................................................ 703 (a)
(b) ............................................................ 703 (b)
(c) ............................................................ 703 (a), 703 (b)
(d) ............................................................ 703 (c)
Section 314 (a) ............................................................ 704
(b) ............................................................ 1002
(c) (1).......................................................... 102
(c) (2).......................................................... 102
(c) (3).......................................................... Not Applicable
(d) ............................................................ 1001, 1002, 1005
(e) ............................................................ 102
Section 315 (a) ............................................................ 601 (a)
(b) ............................................................ 602, 703 (a) (6)
(c) ............................................................ 601 (b)
(d) ............................................................ 601
(d) (1).......................................................... 601 (a)
(d) (2).......................................................... 601 (c) (2)
(d) (3).......................................................... 601 (c) (3)
(e) ............................................................ 514
Section 316 (a) ............................................................ 101
(a) (1) (A)...................................................... 502, 512
(a) (1) (B)...................................................... 513
(a) (2).......................................................... Not Applicable
(b) ............................................................ 508
Section 317 (a) (1).......................................................... 503
(a) (2).......................................................... 504
(b) ............................................................ 1103
Section 318 (a) ............................................................ 107
</TABLE>
- - ------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
iv
<PAGE> 6
INDENTURE, dated as of _______________, 1998, between THE HALLWOOD
GROUP INCORPORATED, a Delaware corporation (hereinafter called the "Company"),
and BANC ONE TEXAS N.A., a national banking association, as trustee (hereinafter
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 8.5%
Collateralized Senior Subordinated Debentures due July 31, 2005 (hereinafter
called the "Securities") of substantially the tenor and amount hereinafter set
forth, to be issued to the holders of the Company's outstanding 7%
Collateralized Senior Subordinated Debentures due July 31, 2000 (the "Original
Series Debentures") who have validly tendered Original Series Debentures to the
Company pursuant to an exchange offer made by the Company pursuant to the
Exchange Offer Circular dated June __, 1998, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Articles Six and Ten, are defined in
those Articles.
"Act" when used with respect to any Holder has the meaning specified in
Section 104(a).
"Affiliate" means, with respect to any Person, (a) any Person who,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person, or (b) any Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii)of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote 10 percent or more
of the securities having ordinary voting power for the election of directors of
such Person, or (y) to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities, by
contract or otherwise.
"Authenticating Agent" means, initially, State Street Bank and Trust
Company, or any other Person authorized by the Trustee to act on behalf of the
Company to authenticate Securities.
<PAGE> 7
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Columbus, Ohio or DALLAS, TEXAS are authorized or
required by law to close.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock.
"Collateral" means the assets of the Company which are pledged pursuant
to the Pledge Agreement to secure the Securities, including assets in the
Security Pool and the Senior Collateral.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company (a)by the Chairman of its Board of Directors,
its President or any Vice President, and (b) by its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Consent of the Holders" means the requisite principal amount of the
Outstanding Securities with respect to any consent of the Holders pursuant to
this Indenture which, except as otherwise specifically stated in any provision
of this Indenture, shall be at least a majority of the principal amount of the
Outstanding Securities.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at Bank One Trust Company, N.A., 100 E. Broad Street, 8th Floor, Columbus, Ohio
43215.
"Default" means an event or condition that, with notice or lapse of
time, or both, would become an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Article Five.
"Exchange Closing" means the date of consummation of the exchange offer
made by the Company to the registered holders of Original Series Debentures
pursuant to the Exchange Offer Circular dated June __, 1998.
"Fair Value" means, in the case of Traded Securities, the Net Value of
such Traded Securities and, in the case of any assets other than Traded
Securities, the price which could be negotiated in an arm's length market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure to complete the transaction, as
determined in good faith by the Company's Board of Directors or, to the extent
required under Section 1005, an independent engineer, appraiser or other expert.
"Funded Indebtedness" means indebtedness for borrowed money which by
its terms matures more than one year from the date of determination thereof, or
which is extendible or renewable at the option of the obligor to a time more
than one year from the date of determination thereof.
2
<PAGE> 8
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Guarantee" of a Person means any guarantee or other contingent
liability (other than any endorsement for collection or deposit in the ordinary
course of business), direct or indirect, of such Person with respect to any
obligation of another Person, through an agreement or otherwise, including,
without limitation, (a) any other endorsement or discount with recourse or
undertaking substantially equivalent to or having economic effect similar to a
guarantee in respect of any such obligation and (b) any agreement (i) to
purchase, or to advance or supply funds for the payment or purchase of, any such
obligation, (ii) to purchase, sell or lease property, products, materials,
supplies, transportation or services, to enable such other Person to pay any
such obligation or to assure the owner thereof against loss regardless of the
delivery or nondelivery of the property, products, materials, supplies,
transportation or services, or (iii) to make any loan, advance or capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other Person to enable such Person to satisfy any obligation (including any
liability for a dividend, stock liquidation payment or expense) or to assure a
minimum equity, working capital or other balance sheet condition in respect of
any such obligation. The amount of the Guarantee shall be equal to the
outstanding amount of the obligation directly or indirectly guaranteed.
"Holder" means a Person on whose name a Security is registered in the
Security Register.
"Indebtedness" of a Person means (a) all indebtedness of such Person
for borrowed money, (b) all indebtedness of such Person for the deferred
purchase price of property or services (excluding trade payables incurred in the
ordinary course of business), (c) all obligations of such Person under leases
which have been or, in accordance with GAAP, should be, recorded as capital
leases, (d) all indebtedness of such Person arising under acceptance facilities,
(e) the face amount of all letters of credit issued for the account of such
Person, (f) all liabilities (other than rental commitments under operating
leases, net of rental commitments under subleases thereof) secured by any Lien
on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, (g) obligations of such Person under any
interest rate swap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect against fluctuations in interest
rates, and (h) any Guarantee of such Person with respect to Indebtedness of
another Person.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Intercreditor Agreement" means any agreement between the Trustee, on
behalf of the Holders of Securities, and any other Person that has a Lien on the
Collateral.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Investment Grade Securities" means marketable direct obligations
issued by any Person which (i) mature within one year, (ii) are rated in one of
the three highest generic rating categories by either Standard & Poor's
Corporation or Moody's Investors Service, Inc. and (iii) are not listed (except
with positive implications) in Credit Watch or any successor publication
published by Standard & Poor's Corporation.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever under the Uniform Commercial Code
or comparable law of any jurisdiction in respect of any of the foregoing.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption (optional or mandatory) or otherwise.
"Net Proceeds" means the excess, if any, of (i) the cash (or Fair Value
of other assets) received in connection with the disposition of an asset by the
Company over (ii) the sum of (A) the principal amount of any Indebtedness which
is secured by such asset and which is required to be repaid in connection with
the disposition thereof, plus (B) the reasonable
3
<PAGE> 9
out-of-pocket expenses incurred by the Company in connection with such
disposition, plus (C) provision for taxes, including federal, state and local
income taxes, attributable to the disposition of such asset.
"Net Value" means (a) with respect to assets in the Security Pool that
are securities traded or quoted on a national securities exchange, or, if traded
or quoted in the over-the-counter market, for which closing bid and asked prices
are reported by the National Association of Securities Dealers Inc. Automated
Quotation System ("NASDAQ") or the National Quotation Bureau, Inc. ("NQB")
("Traded Securities"), on the trading day prior to the date of determination of
Net Value, (i) the last reported sales price, regular way, on such day on the
principal securities exchange on which such security is then listed or admitted
to unlisted trading privileges, (ii) if no sale takes place on such day on any
such exchange, the average of the last reported closing bid and asked prices,
regular way, on such day as officially quoted on any such exchange, or (iii) if
the security is not then listed or admitted to unlisted trading privileges on
any securities exchange, the average of the last reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by NASDAQ or
NQB, less, in each case, the principal amount of any Indebtedness which is
secured by such Traded Securities, and, (b) with respect to securities that are
not Traded Securities, the consolidated net book value, determined in accordance
with GAAP, of an asset in the Security Pool.
"Officers' Certificate" means a certificate signed (a) by the Chairman
of the Board of Directors of the Company, the President or one of its Vice
Presidents, and (b) by its Secretary or one of its Assistant Secretaries.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Original Series Debentures" means the Company's 7% Collateralized
Senior Subordinated Debentures due July 31, 2000 referred to in the first
Recital of this Indenture.
"Original Series Debentures Indenture" means the Indenture dated as of
March 2, 1993 between the Original Series Debenture Trustee and the Company with
respect to the Original Series Debentures, as such agreement may be amended and
in effect from time to time.
"Original Series Debentures Pledge Agreement" means the Pledge and
Security Agreement dated as of March 2, 1993, by the Company in favor of the
Trustee, as such agreement may be amended and in effect from time to time.
"Original Series Debentures Trustee" means Norwest Bank Minnesota,
National Association, as trustee under the Indenture dated as of March 2, 1993
with respect to the Original Series Debentures, or any duly appointed and acting
successor thereof.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Securities, provided
that notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made; and
(c) Securities in exchange for, or in lieu of, which other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there
shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and
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<PAGE> 10
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities which the Trustee knows to
be so owned shall be so disregarded. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means, initially, State Street Bank and Trust Company,
which maintains an office in Boston, Massachusetts, and whose address is P.O.
Box 778, Boston Massachusetts 02102, or any other Person authorized by the
Company to pay the principal of (and premium, if any, on) or interest on any
Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pledge Agreement" means the Pledge and Security Agreement dated as of
_____________, 1998 by the Company in favor of the Trustee, in substantially the
form attached hereto as Exhibit A, as such agreement may be amended and in
effect from time to time.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Redemption Date" when used with respect to any Securities 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 at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the fifteenth day (whether or not a Business Day) of the month in
which such Interest Payment Date shall occur.
"Requisite Amount" means with respect to any request, demand or other
action of the Holders pursuant to this Indenture a majority of the principal
amount of the Outstanding Securities.
"Responsible Officer" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller,
any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Securities" means the Securities referred to in the first Recital of
this Indenture.
"Security Pool" means the pool of assets in which a subordinate Lien
has been granted by the Company as security for the Securities pursuant to the
Pledge Agreement.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Collateral" means those assets in which a senior Lien has been
granted by the Company as security for the Securities pursuant to the Pledge
Agreement.
"Senior Indebtedness" means all Indebtedness of the Company existing at
any time and from time to time which, by its terms, is expressly senior in right
of payment to the Securities.
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<PAGE> 11
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to any Security, or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means, of any Person, any corporation with respect to
which more than 50 percent of the outstanding shares of stock of each class
having ordinary voting power (other than stock or other ownership interests
having such power only by reason of the happening of a contingency) is at the
time owned by such Person or by one or more Subsidiaries of such Person or by
such Person and one or more Subsidiaries of such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed, except as provided in
Section 905; provided, however, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Wholly-Owned Domestic Subsidiary" means any Subsidiary organized under
the laws of any State of the United States or the District of Columbia, all the
outstanding shares of which (other than directors' qualifying shares) are at the
time owned by the Company and/or one or more Wholly-Owned Domestic Subsidiaries.
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenants compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include;
(a.) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b.) a brief statement as to the nature and scope of the
examination or investigation, if any, upon which the statements or
opinions contained in such certificate or opinion are based;
(c.) a statement that, in the opinion of each such
individual, 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
(d.) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one
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such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders.
(a.) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in
person or by an agent duly appointed in writing; and, except as herein
or therein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section
601) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b.) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which
the Trustee deems sufficient in its sole discretion.
(c.) The ownership of Securities shall be proved by the
Security Register.
(d.) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Security shall
bind every future Holder of the same Security or Holder of every
Security issued upon the transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, suffered or omitted to be
done by the Trustee, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such
Security.
Section 105. Notices, etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a.) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed, in writing or by telecopier and followed by a writing, mailed
first-class postage prepaid, to or with the Trustee at its Corporate
Trust Office, Attention: Corporate Trust (with a copy thereof to the
Company at the address specified in Section 105(b)), or at any other
address previously furnished in writing to the Company and each Holder
by the Trustee; or
(b.) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if in writing and mailed or sent
by telecopier and followed by a writing mailed, first-class postage
prepaid, to the Company addressed to it at 3710 Rawlins, Suite 1500,
Dallas, Texas 75219, Attention: Chief Financial Officer, or at any
other address previously furnished in writing to the Trustee by the
Company.
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Section 106. Notice to Holders: Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice when mailed to a Holder in the aforesaid
manner shall be conclusively deemed to have been received by such Holder whether
or not actually received by such Holder. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory of the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
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.
Section 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent, the Holders and the holders of Senior Indebtedness)
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 112. Governing Laws.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date or Redemption Date, or at the Stated Maturity;
provided, however, that interest shall accrue with respect to any such principal
payment (at the rate applicable to the Securities during
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<PAGE> 14
the period of such extension as herein provided) for the period from and after
such Redemption Date or Stated Maturity, as the case may be, to the next
succeeding Business Day, and shall be payable on such next succeeding Business
Day.
ARTICLE II
SECURITY FORMS
Section 201. Forms Generally.
The Securities and the Trustee's Certificate of Authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks or
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of such Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Section 202. Form of Face of Security.
THE HALLWOOD GROUP INCORPORATED
8.5% Collateralized Subordinated Debenture
due July 31, 2005
No. E- $________________
THE HALLWOOD GROUP INCORPORATED, a Delaware corporation (herein called
the "Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_______________________________ or registered assigns, the principal sum of
________________________ Dollars (or such larger amount as may be payable in
accordance with the terms of this Security and the Indenture) on July 31, 2005,
at the office or agency of the Company referred to below, and to pay interest
thereon from the later of the date hereof or the most recent date through which
interest has been paid hereon at the rate of 8.5% per annum, which interest
shall accrue and be payable (in cash) quarterly on January 31, April 30, July
31, and October 31 and each year, commencing on July 31, 1998, until the
principal hereof is paid or duly provided for. The interest payable and
punctually paid on any Interest Payment Date shall, as provided in such
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the fifteenth day (whether or not
a Business Day) of the month in which such Interest Payment Date shall occur.
Any such interest not so punctually paid shall forthwith cease to be payable to
the Holder on such Regular Record Date, and may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture. Payment of the principal of (and premium, if any,
on) and interest on this Security shall be made, subject to the provisions of
Section 301 of the Indenture, at the office or agency of the Company maintained
for that purpose in Boston, Massachusetts, with cash interest to be paid in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made, subject to said Section 301 of the Indenture,
at the option of the Company by mailing of a check to the address of the Person
entitled thereto as such address shall appear on the Security Register.
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<PAGE> 15
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee (or the Authenticating Agent, if one has been appointed by the
Trustee) referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed.
THE HALLWOOD GROUP INCORPORATED
[Corporate Seal]
By:
---------------------------------
Title:
------------------------------
Section 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 8.5% Collateralized Subordinated Debentures due July
31, 2005 (herein called the "Securities"), limited in aggregate original
principal amount to $2,055,443, which may be issued under an indenture (herein
called the "Indenture") dated as of ______________, 1998 between the Company and
Bank One, N.A., a national banking association, as trustee (herein called the
"Trustee", which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The indebtedness evidenced by the Securities will constitute
subordinated Indebtedness of the Company that is on a parity with the
Indebtedness evidenced by the 7% Collateralized Senior Subordinated Debentures;
provided, however, to the extent and in the manner provided in the Indenture, is
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness, and the Lien on certain of the assets which secures
repayment of the indebtedness evidenced by the Securities is subordinate to the
Lien which secure other indebtedness of the Company, including the 7%
Collateralized Senior Subordinated Debentures, and this Security is subject to
such provisions. Each Holder of this Security, by accepting the same (a) agrees
to and shall be bound by such provisions, (b) authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture, and (c) appoints the
Trustee his attorney-in-fact for such purpose.
The Securities are secured by a pledge to the Trustee of shares of
capital stock of certain wholly-owned subsidiaries of the Company.
The Securities are subject to redemption at the election of the
Company, as a whole or in part, at any time and from time to time, upon not less
than 30 nor more than 60 days, notice by first-class mail, at a redemption price
equal to 100 percent of the principal amount of the Securities to be redeemed,
together in each case with accrued interest to the Redemption Date, as provided
in Section 1201 of the Indenture. Any redemption of Securities shall first be
made in respect of Securities outstanding in denominations of less than $100.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities of record
at the close of business on the Regular Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the date fixed for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall (subject to
Section 301 of the Indenture) be issued in the name of the Holder hereof upon
the cancellation hereof.
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If an Event of Default shall occur and be continuing, the principal of
all the Securities (together with any accrued interest thereon) may be declared,
or may become, due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the Holders under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of the Requisite Amount of Outstanding Securities; provided, however,
that certain amendments and modifications are not permitted without the consent
of the Holder of each Outstanding Security affected thereby, and certain other
amendments and modifications are permitted without the consent of any Holders.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by or on behalf of the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin
currency or instrument, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable on the Security Register
of the Company, upon surrender of this Security for registration of transfer at
the office of the Paying Agent, or any other office or agency of the Company
maintained for such purpose in Boston, Massachusetts, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons
only in denominations of $100 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, the
Securities are exchangeable for a like aggregate principal amount of Securities
in the same denomination as the denomination in which the Securities are then
outstanding, in a larger denomination or in a smaller denomination as requested
by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to and at the time of due presentment of this Security for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security is registered as
the owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
Customary abbreviations may be used in the name of a Holder 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).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture, which has in it the text of this Security in
larger type. Requests may be made to: The Hallwood Group Incorporated, 3710
Rawlins, Suite 1500, Dallas, Texas 75219, Attention:
Corporate Secretary.
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I/we assign and transfer this Security to
Insert assignee's Social Security or tax ID No ..........
___________________________________________________
______________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
______________________________, as agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated:_____________________________ Signed:__________________________________
_______________________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
Section d. Form of Trustee's Certificate of Authentication.
Dated:______________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned
Indenture.
BANK TEXAS, N.A. STATE STREET BANK AND TRUST COMPANY,
as Trustee, as Authenticating Agent,
By:_________________________________ or By:________________________________
Authorized Signature Authorized Signature
ARTICLE III
THE SECURITIES
Section 301. Title and Terms.
The aggregate original principal amount of Securities which may be
authenticated and delivered under this indenture is limited to $20,555,443,
excluding Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1208.
The Securities shall be known and designated as the "8.5%
Collateralized Senior Subordinated Debentures due July 31, 2005" of the Company.
Their Stated Maturity shall be July 31, 2005, and they shall bear interest prior
to default from the later of their date, which shall be the date of original
issuance of the Securities as provided herein, or the most recent date through
which interest has been paid thereon at the rate of 8.5% per annum, which
interest shall accrue and be payable in cash quarterly on January 31, April 30,
July 31 and October 31 of each year, commencing on July 31, 1998, until the
principal of such Securities is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable, subject to the following provisos, at the office or
agency of the Company maintained for such purpose in Boston, Massachusetts;
provided, however,
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that, at the option of the Company, interest may be paid by mailing of a check
for such interest to the addresses of the Persons entitled thereto as such
addresses shall appear on the Security Register.
The Securities shall be redeemable as provided in Article Twelve.
The lien on certain assets securing the Securities shall be
subordinated to the lien in such assets securing other indebtedness of the
Company, including the Original Series Debentures, and the Securities shall be
subordinated in right of payment to Senior Indebtedness as provided in Article
Thirteen.
Section 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $100 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by the
Chairman of its Board of Directors, its President or any of its Vice Presidents.
The signature of any of these officers on the Securities shall be printed or
facsimile signatures.
Securities bearing the printed or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee (or the Authenticating Agent if one has been appointed by the
Trustee) for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee (or the
Authenticating Agent if one has been appointed by the Trustee) in accordance
with such Company Order shall authenticate and deliver such Securities as
provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication, substantially in the form provided for herein,
duly executed by the Trustee (or the Authenticating Agent if one has been
appointed by the Trustee) by manual signature of an authorized signatory, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary securities at the office
or agency of the Company designated for such purpose pursuant to Section 1102,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
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Section 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1102 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Paying Agent is hereby
initially appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any security at the
office or agency of the Company designated pursuant to Section 1102, the Company
shall execute, and the Trustee or the Authenticating Agent shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of any authorized denomination or denominations, of a like
aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee or the Authenticating Agent shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer,
or for exchange or redemption, shall (if so required by the Company or the
Trustee) be duly endorsed, or be accompanied by a written instrument of transfer
in form satisfactory to the Company and the Security Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906 or 1208 not involving any transfer.
The Company, the Trustee or the Security Registrar, as the case may be,
shall not be required (a) to issue, authenticate, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the mailing of a notice of redemption of the Securities selected for
redemption under Section 1204 and ending at the close of business on the day of
such mailing, or (b) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
Securities being redeemed in part.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or the
Security Registrar or (b) the Company, the Trustee and the Security Registrar
receive evidence to their satisfaction of the destruction, loss or theft of any
Security, and there is delivered to the Company, the Trustee and the Security
Registrar such security or indemnity as may be required by them to save all of
them harmless, then, in the absence of notice to the Company or the Trustee that
such Security has been acquired by a bona fide purchaser, the Company shall
execute, and upon Company Order the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Securities under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Security
Registrar) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest: Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
Regular Record Date; and such Defaulted Interest may, unless the Trustee shall
have made demand therefor as provided in the Securities and Section 503 hereof
(whereupon such Defaulted Interest shall become due and payable as provided in
said Section 503) be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a.) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee and any Paying Agent in writing of the amount
of Defaulted Interest proposed to be paid on each Security and the date
of the proposed payment (which date shall be not less than 60 days
following delivery of such notice), and at the same time the Company
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Subsection provided. Thereupon
the Trustee shall, not less than 10 days after the receipt by the
Trustee of notice of the proposed payment, fix a Special Record Date
for the payment of such Defaulted Interest which Special Record Date
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment. The Trustee shall promptly notify the
Company and any Paying Agent of such Special Record Date. In the name
and at the expense of the Company, the Trustee shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each Holder
at its address as it appears in the Security Register, not less than 10
days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having
been so mailed, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered on such Special Record Date and shall no longer be
payable pursuant to the following Subsection (b).
(b.) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Subsection, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall be dated, and carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Section 308. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Sections 307 and 311) interest
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on such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
Section 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee
or the Authenticating Agent, be delivered to the Trustee or the Authenticating
Agent and shall be promptly cancelled by it. The Company may at any time deliver
to the Trustee or the Authenticating Agent for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee or the Authenticating Agent . No Securities
shall be authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture. All
cancelled Securities held by the Trustee may be destroyed or disposed of in
accordance with the Trustee's or the Authenticating Agent's normal practice.
Section 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 311. Payments Net of Withholding Taxes.
All payments shall be made net of any applicable withholding or similar
taxes, charges or imposts imposed in connection with such payment.
ARTICLE IV
DISCHARGE OF INDENTURE
Section 401. Termination of Company's Obligations.
(a.) The Company may terminate its obligations under the
Securities and this Indenture if all Securities previously
authenticated and delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Sect on 306, and (ii) Securities for whose payment money
has theretofore been deposited in trust or segregated and held in trust
by the Company and thereafter repaid to the Company, or discharged from
such trust, as provided in Section 1103) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by
it hereunder.
(b.) Except as otherwise provided in this Section 401(b), the
Company may also terminate its obligations under the Securities and
this Indenture if:
(1) the Company has irrevocably deposited or caused
to be deposited with the Trustee or Paying Agent and
conveyed all right, title and interest for the
benefit of the Holders, under the terms of an
irrevocable trust agreement in form and substance
reasonably satisfactory to the Trustee, as trust
funds in trust solely for the benefit of the Holders
for that purpose, money or direct non-callable
obligations of the United States of America for the
payment of which obligations the full faith and
credit of the United States is pledge ("U.S.
Government Obligations") maturing as to principal
and interest in such amounts and at such times as
are sufficient (in the opinion of a nationally
recognized firm of independent public accountants
expressed in a written certification thereof
delivered to the Trustee), without consideration of
any reinvestment of such interest, to pay principal
of, premium, if any, and interest on the Outstanding
Securities, to redemption or maturity, provided that
the Trustee or Paying Agent shall have been
irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the
payment of said principal, premium, if any, and
interest with respect to the Securities, and
provided, further, that from and after the time of
deposit, the money or U.S. Government Obligations
deposited shall not be subject to
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the rights of the holders of Senior Indebtedness
pursuant to the provisions of Article Thirteen;
(2) no Event of Default or Default with respect to
the Securities shall have occurred and be
continuing on the date of such deposit;
(3) the Company shall have delivered to the Trustee
an opinion of Counsel to the effect that the
trust funds will not be subject to any rights of
holders of Senior Indebtedness, including,
without limitation, those arising under Article
Thirteen of this Indenture;
(4) the Company has paid or caused to be paid all
sums then payable by the Company hereunder and
under the Securities; and
(5) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent
provided for herein relating to the satisfaction
and discharge of this Indenture have been
complied with.
Notwithstanding the foregoing provisions of this Section 401(b), (x) the
Company's obligations in Article Three, Sections 402-404, Articles Six, Seven,
Nine, Sections 1101, 1102, 1103 and 1108 shall survive until the Securities are
no longer Outstanding, and (y) notwithstanding that the Securities are no longer
outstanding, the Company's obligations in Sections 402, 403, 404 and 607 shall
thereafter continue to survive.
(c.) After any irrevocable deposit pursuant to Section
401(a) or 401(b), the Trustee upon request shall acknowledge in writing
the discharge of the Company's obligations under the Securities and
this Indenture except for the surviving obligations specified above.
Section 402. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 401, and shall
apply the deposited money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of principal of, premium, if any,
and interest on the Securities.
Section 403. Repayment to Company.
Subject to Section 401 hereof, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money 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 of, premium, if any, 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
Boston, Massachusetts, 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 after 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, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
Section 404. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 401 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 Section 401,
provided that if the Company has made any payment of principal of, premium, if
any, or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE V
REMEDIES
Section 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a.) the Company shall default in (i) the payment of the
principal of (or premium, if any, on) any Security at its Maturity
(including upon optional or mandatory redemption or otherwise); or (ii)
the payment of any interest on any Security when such interest becomes
due and payable and such default continues for a period of 30 days; or
(b.) the Company shall default in the observance or
performance of, or breach, any of the covenants set forth in (i)
Section 1005 (to the extent relating to actions required to be taken by
the Company in connection with the release of assets from the Security
Pool); (ii) Section 1109; or (iii) the mandatory redemption or
repurchase requirements set forth in Section 1201; or
(c.) the Company shall default in the observance or
performance of, or breach, any covenant or other agreement contained in
this Indenture, or the Pledge Agreement other than to the extent
constituting an Event of Default described in clause (b) of this
Section 501, and such default shall continue unremedied for a period of
30 days; or
(d.) an "Event of Default" (as defined in the Original Series
Debenture Indenture) shall have been declared and be continuing with
respect to the Original Series Debentures;
(e.) (i) the Company or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or the Company or any of its
Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Company or any
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i). above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbounded for a period of 60 days; or
(iii) the Company or any of its Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due.
Section 502. Acceleration of Maturity: Rescission and Annulment.
If an Event of Default specified in clause (i) or (ii) of Section
501(e) occurs and is continuing, then the principal of the Securities, together
with any accrued interest on the principal amount of such Securities, shall
automatically become immediately due and payable, without any declaration or
other act on the part of the Trustee or any Holder. If an Event of Default
(other than an Event of Default specified in clause (i) or (ii) of Section
501(e)) occurs and is continuing, then and in every such case the Trustee or the
Holders of the Requisite Amount of the Securities Outstanding may, and the
Trustee upon the request of the Holders of the Requisite Amount of the
Securities outstanding shall, by written notice to the Company (and to the
Trustee if given by Holders) declare the principal of the Securities to be, and
the same shall become, due and payable five days following the giving of such
notice, together with any accrued interest on the principal amount of such
Securities which shall be deemed matured.
At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of the
Requisite Amount of the Securities Outstanding, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
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(a.) the Company has paid or deposited with the Trustee a sum
of money in an amount sufficient to pay
(1) all overdue interest on all Securities,
(2) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by
such declaration of acceleration and interest
thereon,
(3) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate
stipulated by Section 503, and
(4) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel; and
(b.) all Events of Default, other than the nonpayment of
principal of Securities (which has become due solely by such
declaration of acceleration), have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement,
by Trustee.
If
(a.) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b.) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any, on) and, to the extent that
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts upon such demand, the Trustee,
in its own name and as trustee of an express trust, may institute a judicial
proceeding for the collection of the sums so due and unpaid and not delivered
and may prosecute such proceeding to judgment or final decree, and may enforce
the same against the Company or any other obligor upon the Securities and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall in its
discretion deem most effectual to protect and enforce any such rights, whether
for the specific enforcement of any covenant or agreement in this Indenture or
in aid of the exercise of any power granted herein, or to enforce any other
proper remedy.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
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(a.) to file and prove a claim for the whole amount of
principal (and premium, if any, on) and interest owing and unpaid in
respect of the Securities (including following the Maturity of any such
Securities occurring due to optional or mandatory redemption thereof)
and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(b.) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607, which fees and expenses shall
constitute administrative expenses in a bankruptcy proceeding of the Company.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. Application of Money Collected.
Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any, on) or interest, subject to Section
301, upon presentation of the Securities and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
FIRST: To the Trustee for all amounts due under Section 607;
SECOND: To the holders of Senior Indebtedness to the extent
required by Article Thirteen;
THIRD: To Holders of the Securities for amounts then due and
unpaid on the Securities for principal (and premium, if any, on) and
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any, on) and interest, respectively; and
FOURTH: The balance, if any, to the Company, its successors or
assigns or to whosoever may be lawfully entitled to receive the same or
as a court of competent jurisdiction may direct.
Section 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a.) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
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(b.) the Holders of not less than the Requisite Amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c.) such Holder or Holders have offered to the Trustee (in
its individual capacity and as Trustee) reasonable indemnity against
the costs, expenses and liabilities to be incurred in compliance with
such request;
(d.) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(e.) no direction inconsistent with such written request has
been given to the Trustee during such 60 day period by the Holders of
the Requisite Amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture (other than
Section 311), the Holder of any Security shall have the right on the terms
stated herein, which is absolute and unconditional, to receive payment of the
principal of (and premium, if any, on) and interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holder shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding has been instituted.
Section 510. Rights and Remedies Cumulative.
Except as provided in Section 306, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. The Company acknowledges and agrees that no
adequate remedy at law exists for breach of its obligations under Article Ten.
In the event that the Company fails to comply with the terms of the provisions
set forth in said Article, the Holder or Holders of the Requisite Amount of the
Securities at the time Outstanding shall have the right to obtain specific
performance of the Company's obligations pursuant to said Article.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
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Section 512. Control by Holders.
The Holders of the Requisite Amount of the Outstanding Securities shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, provided that
(a.) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(b.) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of the Requisite Amount of the Outstanding Securities may
on behalf of the Holders of all the Securities waive any past default hereunder
and its consequences, except a default
(a.) in the payment of the principal of (or premium, if any,
on) or interest on any Security (including following the Maturity of
any such Securities due to the optional or mandatory redemption
thereof), or
(b.) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys, fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee; to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10 percent in principal amount of the Outstanding
Securities; or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any, on), or interest on any
Security on or after the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on or after any Redemption Date).
ARTICLE VI
THE TRUSTEE
Section 601. Certain Duties and Responsibilities.
The Trustee, for itself and its successors, hereby accepts the trusts
created by this Indenture upon the terms and conditions set forth herein,
including the terms and conditions set forth in this Section 601.
(a.) Except during the continuance of any Event of Default,
(1) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in
this Indenture, and no implied covenants or
obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions
expressed therein, upon
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certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture;
provided, that 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 same
to determine whether or not they conform to the
requirements of this Indenture.
(b.) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs. The Trustee
shall not be required to take any action specifically requested by the
Holders of the Requisite Amount of Outstanding Securities unless such
Holders have offered to the Trustee (in its individual capacity and as
Trustee) reasonable indemnity against the costs, expense and
liabilities to be incurred in compliance with such request.
(c.) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that
(1) this Subsection (c) shall not be construed to limit
the effect of Subsection (a) 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 shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good
faith in accordance with the direction of the
Holders of the Requisite Amount of the Outstanding
Securities relating to the time, method and place
of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or
otherwise incur any financial liability in the
performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity
against such risk or liability is not reasonably
assured to it.
(d.) The Trustee shall not be required to take notice or to
be deemed to have notice of any Default, including a Default pursuant
to Section 501(d), except the Defaults of which the Trustee is
specifically notified in writing by the Company or the Holders of the
Requisite Amount of the Outstanding Securities.
(e.) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
Section 602. Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Security Register, notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of default in the payment of the principal of (or
premium, if any, on) or interest on the Securities, the Trustee shall be
protected in withholding such notice if and so long as the Board of Directors,
the executive committee, or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders of the Securities.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a.) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties or, in the case of cables,
telecopies and telexes, to have been sent by the proper party or
parties;
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(b.) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c.) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d.) the Trustee may consult with counsel, accountants or
other experts in connection with the fulfillment of its duties
hereunder, and the Trustee shall be entitled to rely on the written
opinion of such counsel, accountants or other experts in connection
with any action taken, omitted to be taken or suffered by the Trustee
in fulfilling its duties hereunder. The Trustee shall have the right at
any time to seek instructions concerning the administration of this
Indenture from any court of competent jurisdiction;
(e.) the Trustee shall be under no obligation to take any
action or omit to take any action 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 the Trustee shall
have been provided adequate security and indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance
with such request or direction, including such reasonable advances as
may be requested by the Trustee;
(f.) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, 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-in-fact; and
(g.) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys-in-fact, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney-in-fact appointed with due care by it hereunder.
Section 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication in the form set forth in Section 204 of
this Indenture, shall be taken as the statements of the Company, and the Trustee
shall not be responsible in any manner whatsoever for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of any Securities or the proceeds thereof.
Section 605. May Hold Securities.
The Trustee, any Paying Agent, Security Registrar or any other agent of
the Company, in its individual or any other capacity may become the owner or
pledgee of Securities, and, subject to Sections 608 and 613, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Security Registrar or such other agent.
Section 606. Money Held in Trust.
Except as provided in Article Four or otherwise expressly provided
herein, money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it thereunder.
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Section 607. Compensation and Reimbursement.
The Company agrees
(a.) to pay to the Trustee from time to time such
compensation as shall be agreed upon in writing for all services
rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an
express trust);
(b.) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture or the Pledge
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents, attorneys-in-fact and counsel), except
any such expense, disbursement or advance as may be attributable to
its negligence or willful misconduct; and
(c.) to indemnify the Trustee (in its individual capacity
and as Trustee) and each of its officers, directors, attorneys-in-fact
and agents for, and to hold each of such Persons harmless against, any
loss, liability or expense incurred without negligence or willful
misconduct on such Persons's part, arising out of or in connection with
the acceptance or administration of this Indenture, including the costs
and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of the Trustee's
powers or duties hereunder.
Section 608. Disqualification; Conflicting Interest.
(a.) If the Trustee has or shall acquire any conflicting
interest, as defined in this Section, within 90 days after ascertaining
that it has such conflicting interest and if the Event of Default to
which such conflicting interest relates has not been cured or duly
waived or otherwise eliminated before the end of such 90 day period,
the Trustee shall either eliminate such conflicting interest or resign
in the manner and with the effect hereinafter specified in this
Article.
(b.) In the event that the Trustee shall fail to comply with
the provisions of Subsection (a) of this Section, the Trustee shall,
within 10 days after the expiration of such 90-day period, transmit by
mail to all Holders, as their names and addresses appear in the
Security Register, notice of such failure.
(c.) For the purposes of this Section, the Trustee shall be
deemed to have a conflicting interest if an Event of Default shall have
occurred and be continuing and if
(1) the Trustee is trustee under another indenture
under which any other securities, or certificates
of interest or participation in any other
securities, of the Company are outstanding,
unless such other indenture is a collateral trust
indenture under which the only collateral
consists of Securities issued under this
Indenture, provided that there shall be excluded
from the operation of this paragraph any
indenture or indentures under which other
securities, or certificates of interest or
participation in other securities, of the Company
are outstanding, if
(i) this Indenture and such other indentures are
wholly unsecured and such other indenture or
indentures are hereafter qualified under the
Trust Indenture Act, unless the Commission
shall have found and declared by order
pursuant to Section 305(b) or Section 307(c)
of the Trust Indenture Act that differences
exist between the provisions of this
Indenture and the provisions of such other
indenture or indentures which are so likely
to involve a material conflict of interest
as to make it necessary in the public
interest or for the protection of investors
to disqualify the Trustee from acting as
such under this Indenture or such other
indenture or indentures, or
(ii) the Company shall have sustained the burden
of proving, on application to the Commission
and after opportunity for hearing thereon,
that trusteeship
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under this Indenture and such other
indenture or indentures is not so likely to
involve a material conflict of interest as
to make it necessary in the public interest
or for the protection of investors to
disqualify the Trustee from acting as such
under one of such indentures;
(2) the Trustee or any of its directors or executive
officers is an obligor upon the Securities or an
underwriter for the Company;
(3) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under
direct or indirect common control with the
Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive
officers is a director, officer, partner,
employee, appointee or representative of the
Company, or of an underwriter (other than the
Trustee itself) for the Company who is currently
engaged in the business of underwriting, except
that (i) one individual may be a director or an
executive officer, or both, of the Trustee and a
director or an executive officer, or both, of the
Company but may not be at the same time an
executive officer of both the Trustee and the
Company; (ii) if and so long as the number of
directors of the Trustee in office is more than
nine, one additional individual may be a director
or an executive officer, or both, of the Trustee
and a director of the Company; and (iii) the
Trustee may be designated by the Company or by
any underwriter for the Company to act in the
capacity of transfer agent, registrar, custodian,
paying agent, fiscal agent, escrow agent or
depositary, or in any other similar capacity, or,
subject to the provisions of paragraph (1) of
this Subsection, to act as trustee, whether under
an indenture or otherwise;
(5) 10 percent or more of the voting securities of
the Trustee is beneficially owned either by the
Company or by any director, partner or executive
officer thereof, or 20 percent or more of such
voting securities is beneficially owned,
collectively, by any two or more of such persons;
or 10 percent or more of the voting securities of
the Trustee is beneficially owned either by an
underwriter for the Company or by any director,
partner or executive officer thereof, or is
beneficially owned, collectively, by any two or
more such persons;
(6) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is
in default (as hereinafter in this Subsection
defined), (i) 5 percent or more of the voting
securities, or lot or more of any other class of
security, of the Company not including the
Securities issued under this Indenture and
securities issued under any other indenture under
which the Trustee is also trustee, or (ii) 10
percent or more of any class of security of an
underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is
in default (as hereinafter in this Subsection
defined), 5 percent or more of the voting
securities of any person who, to the knowledge of
the Trustee, owns 10!k or more of the voting
securities of, or controls directly or indirectly
or is under direct or indirect common control
with, the Company;
(8) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is
in default (as hereinafter in this Subsection
defined), lot or more of any class of security of
any person who, to the knowledge of the Trustee,
owns 50 percent or more of the voting securities
of the Company; or
(9) the Trustee owns, on May 15 in any calendar year,
in the capacity of executor, administrator,
testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar
capacity, an aggregate of 25 percent or more of
the voting
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securities, or of any class of security, of any
person, the beneficial ownership of a specified
percentage of which would have constituted a
conflicting interest under paragraph (6), (7) or
(8) of this Subsection. As to any such securities
of which the Trustee acquired ownership through
becoming executor, administrator or testamentary
trustee of an estate which included them, the
provisions of the preceding sentence shall not
apply, for a period of two years from the date of
such acquisition, to the extent that such
securities included in such estate do not exceed
25 percent of such voting securities of 25
percent or any such class of security. Promptly
after May 15 in each calendar year, the Trustee
shall make a check of its holdings of such
securities in any of the abovementioned
capacities as of such May 15. If the Company
fails to make payment in full of the principal
of, or the premium, if any, or interest on, any
of the Securities when and as the same becomes
due and payable, and such failure continues for
30 days thereafter, the Trustee shall make a
prompt check of its holdings of such securities
in any of the above-mentioned capacities as of
the date of the expiration of such 30-day period,
and after such date, notwithstanding the
foregoing provisions of this paragraph, all such
securities so held by the Trustee, with sole or
joint control over such securities vested in it,
shall, but only so long as such failure shall
continue, be considered as though beneficially
owned by the Trustee for the purposes of
paragraphs (6), (7) and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive,
of this Subsection shall not be construed as indicating that the ownership of
such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraph (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of indebtedness; (ii) an obligation shall be deemed to be "in default"
when a default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (iii) the Trustee shall not be deemed to be
the owner or holder of (A) any security which it holds as collateral security,
as trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent, or
depositary, or in any similar representative capacity.
(d.) For the purpose of this Section:
(1) The term "underwriter" when used with reference
to the Company means every person who, within
three years prior to the time as of which the
determination is made, has purchased from the
Company with a view to, or has offered or sold
for the Company in connection with, the
distribution of any security of the Company
outstanding at such time, or has participated or
has had a direct or indirect participation in any
such undertaking, or has participated, or has had
a participation in the direct or indirect
underwriting of any such undertaking, but such
term shall not include a person whose interest
was limited to a commission from an underwriter
or dealer not in excess of the usual and
customary distributors' or sellers, commission.
(2) The term "director" means any director of a
corporation, or any individual performing similar
functions with resect to any organization whether
incorporated or unincorporated.
(3) The term "Person" means an individual, a
corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated
organization, or a government or political
subdivision thereof. As used in this paragraph,
the term "trust" shall include
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<PAGE> 33
only a trust where the interest or interests of
the beneficiary or beneficiaries are evidenced by
a security.
(4) The term "voting security" means any security
presently entitling the owner or holder thereof
to vote in the direction or management of the
affairs of a person, or any security issued under
or pursuant to any trust, agreement or
arrangement whereby a trustee or trustees or
agent or agents for the owner or holder of such
security are presently entitled to vote in the
direction or management of the affairs of a
person.
(5) The term "Company" means any obligor upon the
Securities.
(6) The term "executive officer" means the president,
every vice president, every trust officer, the
cashier, the secretary and the treasurer of a
corporation, and any individual customarily
performing similar functions with respect to any
organization, whether incorporation or
unincorporated, but shall not include the
chairman of the board of directors.
(e.) The percentages of voting securities and other
securities specified in this Section shall be calculated in accordance
with the following provisions:
(1) A specified percentage of the voting securities
of the Trustee, the Company or any other person
referred to it this Section (each of whom is
referred to as a "person" in this paragraph)
means such amount of the outstanding voting
securities of such person as entitles the holder
or holders thereof to cast such specified
percentage of the aggregate votes which the
holders of all the outstanding voting securities
of such person are entitled to cast in the
direction or management of the affairs of such
person.
(2) A specified percentage of a class of securities
of a person means such percentage of the
aggregate amount of securities of the class
outstanding.
(3) The term "amount", when used in regard to
securities, means the principal amount if
relating to evidences of indebtedness, the number
of shares if relating to capital shares, and the
number of units if relating to any other kind of
security.
(4) The term "outstanding" means issued and not held
by or for the account of the issuer. The
following securities shall not be deemed
outstanding within the meaning of this
definition:
(i) securities of an issuer held in a sinking
fund relating to securities of the issuer
of the same class;
(ii) securities of an issuer held in a sinking
fund relating to another class of
securities of the issuer, if the
obligation evidenced by such other class
of securities is not in default as to the
principal or interest or otherwise;
(iii) securities pledged by the issuer thereof
as security for an obligation of the
issuer not in default as to principal or
interest or otherwise; and
(iv) securities held in escrow if placed in
escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(5) A security shall be deemed to be of the same
class as another security if both securities
confer upon the holder or holders thereof
substantially the same rights and
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privileges; provided, however, that, in the case
of secured evidences of indebtedness, all of
which are issued under a single indenture,
differences in the interest rates or maturity
dates of various series thereof shall not be
deemed sufficient to constitute such series
different classes, and provided, further that, in
the case of unsecured evidences of indebtedness,
differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to
constitute them securities of different classes,
whether or not they are issued under a single
indenture.
Section 609. Corporate Trustee Required Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $25,000,000, subject
to supervision or examination by Federal or State authority. 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.
If at any time the Trustee 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 610. Resignation and Removal; Appointment of Successor.
(a.) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee under Section 611.
(b.) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c.) The Trustee may be removed at any time by an Act of the
Holders of the Requisite Amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d.) If at any time:
(1) the Trustee shall fail to comply with Section
608(a) after written request therefor by the
Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after
written request therefor by the Company or by any
such Holder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall
be appointed or any public officer shall taken
charge or control of the Trustee or of its
property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board
Resolution may remove the Trustee, or (ii)
subject to Section 514, the Holder of any
Security who has been a bona fide Holder of a
Security for at least six months may, on behalf
of himself and all others similarly situated,
petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of
a successor Trustee.
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<PAGE> 35
(v.) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders
of the Requisite Amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the
Company or the Holders of the Securities and accepted appointment in
the manner hereinafter provided, the Holder of any Security who has
been a bona fide Holder for at least six months may, subject to Section
514, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor
Trustee.
(vi.) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee
by mailing written notice of such event by first-class mail, postage
prepaid, to the Holders of Securities as their names and addresses
appear in the Security Register. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 612. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such successor
corporation shall give written notice to the Company, in the manner provided for
in Section 105(b), that it is the successor by merger, conversion or
consolidation, as the case may be, to the Trustee, such notice to specify the
new name and address, if applicable, of such successor corporation. In case any
Securities shall have been authenticated, but not delivered, by the Trustee then
in the office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
Section 613. Preferential Collection of Claims Against Company.
(a.) Subject to Subsection (b) of this Section, if the
Trustee shall be or shall become a creditor, directly or indirectly,
secured or unsecured, of the Company within four months prior to a
default, as defined in Subsection (c) of this Section, or subsequent to
such a default, then, unless and until such default shall be cured, the
Trustee shall set apart and hold in a special account for the benefit
of the Trustee individually, the Holders of the Securities and the
holders of other indenture securities (as defined in Subsection (c) of
this Section):
(1) an amount equal to any and all reductions in the
amount due and owing upon any claim as such
creditor in respect of principal or interest,
effected after the beginning of such
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four-month period and valid as against the
Company and its other creditors, except any such
reduction resulting from the receipt or
disposition of any property described in
paragraph (2) of this Subsection, or from the
exercise of any right of set-off which the
Trustee could have exercised if a petition in
bankruptcy had been filed by or against the
Company upon the date of such default; and
(2) all property received by the Trustee in respect
of any claim as such creditor, either as security
therefor, or in satisfaction or composition
thereof, or otherwise, after the beginning of
such four-month period, or an amount equal to the
proceeds of any such property, if disposed of,
subject, however, to the rights, if any, of the
Company and its other creditors in such property
or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made
on account of any such claim by any Person (other than the
Company) who is liable thereon, (ii) the proceeds of the bona
fide sale of any such claim by the Trustee to a third Person,
and (iii) distributions made in cash, securities or other
property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Code or
applicable State law;
(B) realize, for its own account upon any property
held by it as security for any such claim, if such property
was so held prior to the beginning of such four-month period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any property
held by it as security for any such claim, if such claim was
created after the beginning of such four-month period and such
property was received as security therefor simultaneously with
the creation thereof, and if the Trustee shall sustain the
burden of proving that at the time such property was so
received the Trustee had no reasonable cause to believe that a
default as defined in Subsection (c) of this Section would
occur within four months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any property held
as security for such claims provided in paragraph (B) or (C),
as the case may be, to the extent of the fair value of such
property.
For the purposes of paragraphs (B), (C), and (D), property substituted after the
beginning of such four-month period for property held as security at the time of
such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, and Holders and the holders of other indenture securities
in such manner that the Trustee, the Holders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Holders of the Securities and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to the Federal Bankruptcy Code or
applicable State law, but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all sources other than
from such dividends and from the fun and property so held in such special
account. As used in this paragraph, with respect to any claim, the term
"dividends" shall include any distribution with respect to such claim, in
bankruptcy or receivership or proceedings for reorganization pursuant to the
Federal Bankruptcy Code or applicable State law, whether such distribution is
made in cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceedings for reorganization
is pending shall
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have jurisdiction (i) to apportion between the Trustee and the Holders and the
holders of other indenture securities in accordance with the provisions of this
paragraph, the funds and property held in such special account and proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee and the Holders and the holders
of other indenture securities, with respect to their respective claims, in which
event it shall not be necessary to liquidate or to appraise the value of any
securities or other property held in such special account or as security for any
such claim, or to make a specific allocation of such distributions as between
the secured and unsecured portions of such claims, or otherwise to apply the
provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of
such four-month period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has resigned
or been removed prior to the beginning of such four-month Period, it shall be
subject to the provisions of this Subsection if and only if the following
conditions exist:
(i) the receipt of property or of reduction of claim, which
would have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such four-month
period; and
(ii) such receipt of property or reduction of claim occurred
within four months after such resignation or removal.
(b.) There shall be excluded from the operation of Subsection
(a) of this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued
under any indenture, or any security or
securities having a maturity of one year or more
at the time of acquisition of the Trustee;
(2) advances authorized by a receivership or
bankruptcy court of competent jurisdiction or by
this Indenture, for the purpose of preserving any
property which shall at any time be subject to
the Lien of this Indenture or of discharging tax
liens or other prior Liens or encumbrances
thereon, if notice of such advances and of the
circumstances surrounding the making thereof is
given to the Holders at the time and in the
manner provided in this Indenture;
(3) disbursements made in the ordinary course of
business in the capacity of trustee under an
indenture, transfer agent, registrar, custodian,
paying agent, fiscal agent or depositary, or
other similar capacity;
(4) an indebtedness created as a result of services
rendered or premises rented, or an indebtedness
created as a result of goods or securities sold
in a cash transaction as defined in Subsection
(c) of this Section;
(5) the ownership of stock or of other securities of
a corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act, as
amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or
negotiation of any drafts, bills of exchange,
acceptances or obligations which fall within the
classification of self-liquidating paper as
defined in Subsection (c) of this Section.
(c.) For the purposes of this Section only:
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(1) the term "default" means any failure to make
payment in full of the principal of or interest
on any of the Securities or upon the other
indenture securities when and as such principal
or interest becomes due and payable;
(2) the term "other indenture securities" means
securities upon which the Company is an obligor
outstanding under any other indenture (i) under
which the Trustee is also trustee, (ii) which
contains provisions substantially similar to the
provisions of this Section, and (iii) under which
a default exists at the time of the apportionment
of the funds and property held in such special
account;
(3) the term "cash transaction" means any transaction
in which full payment for goods or securities
sold is made within seven days after delivery of
the goods or securities in currency or in checks
or other orders drawn upon banks and payable upon
demand;
(4) the term "self-liquidating paper" means any
draft, bill of exchange, acceptance or obligation
which is made, drawn, negotiated or incurred by
the Company for the purpose of financing the
purchase, processing, manufacturing, shipment,
storage or sale of goods, wares or merchandise
and which is secured by documents evidencing
title to, possession of, or a Lien upon, the
goods, wares or merchandise or the receivables or
proceeds arising from the sale of the goods,
wares or merchandise previously constituting the
security, provided the -------- security is
received by the Trustee simultaneously with the
creation of the creditor relationship with the
Company arising from the making, drawing,
negotiating or incurring of the draft, bill of
exchange, acceptance or obligation;
(5) the term "Company" means any obligor upon the
Securities; and
(6) the term "Federal Bankruptcy Code" means the
Federal Bankruptcy Code or Title 11 of the United
States Code.
Section 614. Authenticating Agent.
The Trustee may appoint an Authenticating Agent which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, or partial
redemption or pursuant to Article 12, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by
an Authenticating Agent and a certificate of authentication executed on behalf
of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States, any State thereof the
District of Columbia, having a combined capital and surplus of at least
$25,000,000, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually pursuant
to law or the requirements of such supervising or examining authority, then for
the purposes of this Section the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent.
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent shall continue to be an Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the Trustee, such Authenticating Agent or such successor corporation.
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Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section, the Trustee
may appoint a successor Authenticating Agent acceptable to the Company, and
thereupon shall give written notice of such appointment to the Company and shall
mail notice of such appointment to all Holders of Securities as the names and
addresses of such Holders appear on the Security Register.
The Trustee agrees to pay to the Authenticating Agent from time to time
reasonable compensation for its services under this Indenture, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a.) on August 10 and February 10 of each year until the
Stated Maturity of the Securities, a list, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders as of
the July 31 and January 31, respectively, immediately preceding such
date, and
(b.) at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished; provided, however,
that if and so long as the Trustee shall be the Security Registrar, no
such list need be furnished.
Section 702. Preservation of Information; Communications to Holders.
(a.) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in
the most recent list furnished to the Trustee as provided in Section
701 and the names and addresses of Holders received by the Trustee in
its capacity as Security Registrar. The Trustee may destroy any list
furnished to it as provided in Section 701 upon receipt of a new list
so furnished.
(b.) If three or more Holders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Security
for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders with respect to their rights under this
Indenture or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days after the
receipt of such application, at its election, either
(1) afford such applicants access to the information
preserved at the time by the Trustee in
accordance with Section 702(a), or
(2) inform such applicants as to the approximate
number of Holders whose names and addresses
appear in the information preserved at the time
by the Trustee in accordance with Section 702(a),
and as to the approximate cost of mailing to such
Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a), a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender, the Trustee shall mail to
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such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender, otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c.) Every Holder of Securities, by receiving and holding
the same agrees with the Company and the Trustee that neither the
Company nor the Trustee shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 702(b), regardless of the source
from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a
request made under Section 702(b).
Section 703. Reports by Trustee.
(a.) Within 60 days after each May 15 beginning with the
May 15 following the date of this Indenture, and for so long as
Securities remain outstanding the Trustee shall mail to the Holders,
a brief report dated as of such reporting date that complies with
section 313(a) of the Trust Indenture Act (but if no event described
in such section has occurred within the 12 months preceding the
reporting date, no report need be transmitted).
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The Trustee shall also comply with section 313(b)(2) of the
Trust Indenture Act and shall also transmit by mail all reports as
required by section 313(c) of the Trust Indenture Act.
(b) a copy of each report required by section 703(a) above
at the time of its mailing shall be mailed to the Company and filed
with the Commission and each stock exchange on which the Securities
are listed, in accordance with Section 313(d) of the Trust Indenture
Act. The Company shall promptly notify the Trustee when the Securities
are listed on any stock exchange.
Section 704. Reports by Company.
The Company shall:
(a.) file with the Trustee, within 15 days after the Company
is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Securities Exchange Act of
1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations;
(b.) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this indenture as may be required from time to time by such rules
and regulations; and
(c.) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, with 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports
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required to be filed by the Company pursuant to Subsections (a) and (b)
of this Section, if such transmittal to such Holders of such summaries
is required by rules and regulations prescribed from time to time by
the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person,
or permit any other Person to merge into it, or convey, transfer or lease its
property and assets substantially as an entirety to any Person, unless:
(a.) the Company shall be the continuing corporation
following such merger or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or lease the properties and
assets of the Company substantially as an entirety shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of (and premium, if any, on) and interest on
all the Securities and the performance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(b.) immediately after giving effect to such transaction and
any Indebtedness incurred in connection therewith (and treating any
Indebtedness which becomes an obligation of the Company or a Subsidiary
in connection with or as a result of such transaction as having been
incurred at the time of such transaction) no Event of Default and no
Default shall have occurred and be continuing; and
(c.) the Company or such Person shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this Indenture
and that all conditions precedent herein provided for relating to such
transaction have been satisfied.
Section 802. Successor Substituted.
Upon any consolidation or merger, or any conveyance, transfer or lease
of the properties and assets of the Company substantially as an entirety in
accordance with Section 801, the Person formed by such consolidation or into
which the Company is merged or the Person to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this indenture with the same effect as if
such successor had been named as the Company herein; and thereafter, except in
the case of a lease, the Company shall be discharged from all obligations and
covenants under this Indenture and the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a.) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(b.) to add to the covenants of the Company for the benefit
of the Holders, or to surrender any right or power herein conferred
upon the Company; or
(c.) to secure the Securities; or
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(d.) to make any change that does not adversely affect the
rights of any Holders.
Section 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of the Requisite Amount of Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each outstanding Security
affected thereby:
(a.) change the Stated Maturity of the principal of, or of
any installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the mandatory redemption or
repurchase requirements set forth in Section 1201, or change the coin
or currency or instrument in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after any Redemption Date); or
(b.) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture; or
(c.) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that certain
or other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Security affected thereby; or
(d.) modify any of the provisions of this Indenture relating
to the subordination of the Securities in a manner adverse to the
Holders thereof; or
(e.) modify any of the provisions of Section 1204.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof and such Act shall
so state.
Section 903. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes. Every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
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Section 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article, may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
Section 907. Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the rights of any
holder of Senior Indebtedness under Article Thirteen without the consent of such
holder.
ARTICLE X
SECURITY
Section 1001. Pledge Agreement.
Pursuant to the Pledge Agreement, the Company will assign and grant to
the Trustee a first Lien upon the Senior Collateral and a subordinate and junior
Lien upon the assets in the Security Pool. Each Holder, by accepting a Security,
(i) agrees to all of the terms and provisions of the Pledge Agreement and the
Original Series Debenture Pledge Agreement (including those relating to the
addition of additional secured parties to the extent permitted under Section
1109 of the Original Series Debentures Indenture, and the release of assets
from, or addition of assets to, the Security Pool in accordance with Section
1005 or 1207 thereof) and the Intercreditor Agreement, as any of the foregoing
agreements may be in effect or may be amended from time to time in accordance
with their respective terms, (ii) acknowledges that the Lien of the Pledge
Agreement on assets in the Security Pool is subject and junior in priority to
(A) any Lien which currently exists on assets in the Security Pool (including
the Lien in favor of the Original Series Debentures), and (B) any Lien on assets
in the Security Pool which may hereafter be granted or created as permitted by
Section 1109 of the Original Series Debentures Indenture, to the extent the
terms of such Lien which is hereafter granted or created in accordance with
Section 1109 of the Original Series Debentures Indenture expressly provides that
such Lien ranks senior to the Lien of the Pledge Agreement, and (iii) authorizes
the Trustee to appoint as its collateral agent any other Person that has a Lien
on assets in the Security Pool, to the extent that such Lien is permitted under
this Indenture and the Pledge Agreement, and to deliver possession of any assets
in the Security Pool to any such Person to hold in accordance with the terms of
an Intercreditor Agreement reasonably satisfactory to the Trustee. The due and
punctual payment of the principal of, premium, if any, and interest on the
Securities when and as the same shall be due and payable, whether at the Stated
Maturity, by acceleration, call for redemption, purchase or otherwise, and
payment and performance of the Company of all other obligations to the Holders
or the Trustee under this Indenture and the Securities, according to the terms
hereunder or thereunder, shall be secured as provided in the Pledge Agreement.
The Company will make a subordinate assignment and pledge of its right, title
and interest in and to the assets comprising the Security Pool to the Trustee as
required by and in accordance with the Pledge Agreement. The Company will also
make a first and prior assignment and pledge of its right, title and interest in
and to the Senior Collateral to the Trustee as required by and in accordance
with the Pledge Agreement.
Section 1002. Recording, Opinions and Certificates.
To the extent required under Section 314(b) of the Trust Indenture Act:
(a.) the Company shall furnish to the Trustee promptly after
the execution and delivery of this Indenture an Opinion of Counsel
either (i) stating that in the opinion of such counsel all action has
been taken with respect to the recording, registering and filing of
this Indenture, the Pledge Agreement or any other instrument necessary
to make effective the Lien intended to be created by the Pledge
Agreement, and reciting, with respect to the security interests in the
assets comprising the Security Pool and the Senior Collateral, the
details of such action, or (ii) stating that, in the opinion of such
counsel, no such action is necessary to make such Lien effective; and
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(b.) the Company shall furnish to the Trustee within 60 days
after December 15 in each year beginning with December 15, 1998, an
Opinion of Counsel, dated as of such date, either (a) stating that, in
the opinion of such counsel, all action has been taken with respect to
the recording, registering, filing, re-recording, re-registering and
refiling of all supplemental indentures or other instruments of further
assurance as is necessary to maintain the Lien of the Pledge Agreement
and reciting, with respect to the security interests in the assets
comprising the Security Pool, the details of such action or referring
to prior opinions of Counsel in which such details are given, or (b)
stating that, in the opinion of such counsel, no such action is
necessary to maintain such Lien.
Section 1003. Authorization of Actions to Be Taken By the Trustee
Under the Pledge Agreement.
The Trustee may, in its sole discretion and without the Consent of the
Holders, but subject to Article Six hereof, take all actions it deems necessary
or appropriate in order to (a) enforce or effect the Pledge Agreement, and (b)
collect and receive any and all amounts payable in respect of the obligations of
the Company hereunder, in each case in accordance with and to the extent
provided in the Pledge Agreement. Subject to the provisions of the Pledge
Agreement, the Trustee shall have power to institute and to maintain such suits
and proceedings as it may deem expedient to prevent any impairment of its
interest in the assets comprising the Security Pool by any acts which may be
unlawful or in violation of the Pledge Agreement or this Indenture, and such
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interest and the interests of the Holders in the Collateral (including power
to institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
hereunder or be prejudicial to the interests of the Holders or of the Trustee).
Section 1004. Authorization of Receipt of Funds by the Trustee Under
the Pledge Agreement.
The Trustee is authorized to receive any funds for the benefit of
Holders distributed under the Pledge Agreement and to make further distributions
of such funds to the Holders according to the provisions of this Indenture.
Section 1005. Release of Assets from Security Pool.
The Trustee shall not release assets from the Lien of the Pledge
Agreement unless the Company complies with the provisions of Section 1207 and
the procedures set forth in the Pledge Agreement.
The Trustee and each of the Holders acknowledge that the release of any
assets comprising the Security Pool and the Senior Collateral from the terms
hereof and of the Pledge Agreement will not be deemed to impair the security
under this Indenture if and to the extent any such asset is released in
accordance with the terms of the Indenture and the Pledge Agreement.
To the extent required under Section 314(d) of the Trust Indenture Act,
the Company shall furnish to the Trustee a certificate or opinion of an
engineer, appraiser, or other expert as to the fair value:
(1) of any property or securities to be released from
the Lien of the Pledge Agreement, which
certificate or opinion shall state that in the
opinion of the person making the same the
proposed release will not impair the security
under such Pledge Agreement in contravention of
the provisions thereof and of the Indenture, and
requiring further that such certificate or
opinion shall be made by an independent engineer,
appraiser, or other expert, if the fair value of
such property or securities and of all other
property or securities released since the
commencement of the then current calendar year,
as set forth in the certificates or opinions
required by this paragraph, is 10 percent or more
of the aggregate principal amount of the
Securities at the time Outstanding; but such a
certificate or opinion of an independent
engineer, appraiser, or other expert shall not be
required in the case of any release of property
or securities, if the fair value thereof as set
forth in the certificate or opinion required by
this paragraph is less than $25,000 or less than
1 percent of the aggregate principal amount of
the Securities at the time outstanding;
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(2) to the Company of any securities (other than
Securities and securities secured by a Lien prior
to the Lien of the Pledge Agreement upon property
subject to the Lien of the Pledge Agreement), the
deposit of which with the Trustee is made the
basis for the authentication and delivery of
Securities, the withdrawal of cash constituting a
part of the trust estate or the release of
property or securities subject to the Lien of the
Pledge Agreement and requiring further that if
the fair value to the Company of such securities
and of all other such securities made the basis
of any such authentication and delivery,
withdrawal, or release since the commencement of
the then current calendar year, as set forth in
the certificates or opinions required by this
paragraph, is 10 percent or more of the aggregate
principal amount of the Securities at the time
Outstanding, such certificate or opinion shall be
made by an independent engineer, appraiser, or
other expert and, in the case of the
authentication and delivery of Securities, shall
cover the fair value to the Company of all other
such securities so deposited since the
commencement of the current calendar year as to
which a certificate or opinion of an independent
engineer, appraiser, or other expert has not
previously been furnished; but such a certificate
of an independent engineer, appraiser, or other
expert shall not be required with respect to any
securities so deposited, if the fair value
thereof to the Company as set forth in the
certificate or opinion required by this paragraph
is less than $25,000 or less than 1 percent of
the aggregate principal amount of the Securities
at the time Outstanding; and
(3) to the Company of any property the subjection of
which to the Lien of the Pledge Agreement is made
the basis for the authentication and delivery of
Securities, the withdrawal of cash constituting a
part of the trust estate, or the release of
property or securities subject to the Lien of the
Pledge Agreement.
Any certificate or opinion required pursuant to this Section may be
made by an officer or employee of the Company who is duly authorized to make
such certificate or opinion by the Company from time to time, except in cases in
which this Section requires that such certificate or opinion be made by an
independent Person. In such cases, such certificate or opinion shall be made by
an independent engineer, appraiser, or other expert selected or approve the
Trustee in the exercise of reasonable care.
Section 1006. Certain Covenants of the Company with respect to the
Security Pool.
If an asset in the Security Pool or which is part of the Senior
Collateral consists of less than all of the common stock (including any
securities exercisable or exchangeable for or convertible into such common stock
(collectively, "Derivative Securities")) of a wholly-owned Subsidiary of the
Company, (i) the Company shall not sell, transfer or otherwise dispose of any
such common stock (including any Derivative Securities) unless the Company
simultaneously sells, transfers or otherwise disposes of all of the common stock
(including any Derivative Securities) of such Subsidiary owned by the Company
for the same price per share (assuming the exercise, exchange or conversion of
any Derivative Securities) and (ii) in the event that the Trustee determines to
sell all of the common stock (including any Derivative Securities) of a
wholly-owned Subsidiary pledged to it under the Pledge Agreement, such sale to
be made pursuant to the provisions of the Pledge Agreement, the Trustee shall
have the right, subject to the provisions of any applicable Intercreditor
Agreement, to cause the Company simultaneously to sell all of the remaining
shares of common stock (including any Derivative Securities) of such Subsidiary
owned by the Company (the "Other Shares") for the same price per share (assuming
the exercise, exchange or conversion of any Derivative Securities) and, in
connection therewith, the Trustee shall have the rights set forth in Section 7
of the Pledge Agreement to deal with the Other Shares as if the same were
Collateral thereunder (other than in respect of the application of the proceeds
of the sale of the Other Shares). In the case of (a) a sale pursuant to clause
(i) above, the amount referred to in clause (i)(B) of Section 1207 shall be, and
(b) a sale pursuant to clause (ii) above, the amount of Net Proceeds which shall
be subject to the Lien of the Pledge Agreement shall be, the total amount of Net
Proceeds from the sale attributable to the common stock (including any
Derivative Securities) multiplied by a fraction, the numerator of which is equal
to the number of shares of common stock (assuming the exercise, exchange or
conversion of any Derivative Securities) of the relevant Subsidiary pledged to
the Trustee pursuant to the Pledge Agreement and the denominator of which is
equal
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to the total number of shares of issued and outstanding common stock of such
Subsidiary (assuming the exercise, exchange or conversion of any Derivative
Securities).
ARTICLE XI
COVENANTS
Section 1101. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium,
if any, on) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 1102. Maintenance of Office or Agency.
The Company will maintain in Boston, Massachusetts, an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities may be served.
The office of the Paying Agent shall be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may from time to time designate one or more other offices
or agencies (in or outside of Boston, Massachusetts) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in Boston, Massachusetts, for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and any change in the location of any such office or agency.
Section 1103. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date (including upon acceleration, optional or mandatory
redemption or otherwise) of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
such action or any failure so to act.
The Company will, on or before each due date (including upon
acceleration, optional as mandatory redemption or otherwise) of the principal of
(and premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent a sum in same day funds with respect to the payment of principal (and
premium, if any, on) or interest sufficient to pay the principal (and premium,
if any, on) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a.) hold all sums held by it for the payment of the
principal of (and premium, if any, on) or interest on Securities in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid and delivered to such Persons or otherwise disposed of as
herein provided;
(b.) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any payment
of principal (and premium, if any, on) or interest (including principal
or interest due by reason of acceleration, optional or mandatory
redemption or otherwise); and
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(c.) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay and
deliver, or by Company order direct any Paying Agent to pay and deliver, to the
Trustee all sums held in trust by the Company or such Paying Agent, such sums to
be held by the Trustee upon the same trusts as those upon which sums were held
by the Company or such Paying Agent; and, upon such payment and delivery by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any, on) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any, on) or interest has become due and payable
(including by reason of acceleration, optional or mandatory redemption or
otherwise) shall be paid or returned to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in Boston, Massachusetts, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid or returned to the Company.
Section 1104. No Restriction on Payment at Stated Maturity.
The Company will not create, incur, assume or suffer to exist any
Indebtedness having a stated maturity at the same time as or after the Stated
Maturity of the Securities which, by its terms or the terms of the instrument
creating or evidencing it, in any ways prohibits or restricts the payment at
Stated Maturity of the principal of the Securities in accordance with the terms
of the Securities and this Indenture.
Section 1105. Corporate Existence; Conduct of Business.
Subject to Article Eight, the Company will and will cause its
Subsidiaries to preserve, renew and keep in full force and effect its corporate
existence, and take all reasonable action to maintain all material rights
(charter and statutory), privileges and franchises necessary or desirable in the
normal conduct of its business; provided, however, that the Company shall not be
required to preserve any such rights, privileges or franchises, or the corporate
existence of any Subsidiary, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries taken as a whole and that the loss thereof is
not, and will not be, adverse in any material respect to the Holders of the
Securities.
Section 1106. Compliance Certificates.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal quarter, an Officers' Certificate stating whether or not the
signers know of any Event of Default or Default that occurred during such fiscal
quarter. If they do know of any Event of Default or Default the certificate
shall describe such Event of Default or Default and its status. The first
certificate to be delivered pursuant to this Section 1106 shall be for the first
fiscal quarter beginning after the execution of this Indenture.
Section 1107. Statement by Officers as to Default.
When any event has occurred and is continuing which is an Event of
Default or Default, or if the Trustee or any Holder or the trustee for or the
holder of any other evidence of Indebtedness of the Company or any Subsidiary
gives any notice or takes any other action with respect to a claimed default,
the Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an Officers' Certificate specifying
such event, notice or other action within five Business Days of its occurrence.
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Section 1108. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law, which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest 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 hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 1109. Security Pool and Senior Collateral.
The Company shall not grant or create any Lien on any of the assets in
the Security Pool with respect to other Indebtedness of the Company (but
excluding Indebtedness incurred in connection with the refinancing of any such
existing Indebtedness existing on the date hereof to the extent that the holders
of such Indebtedness are entitled to the benefit of an existing Lien on any
assets in the Security Pool) unless (i) such Lien is permitted by the Original
Series Debenture Indenture (for so long as it remains in effect), (ii) the
aggregate Net Value of the assets in the Security Pool immediately following the
granting or creating of such Lien is at least equal to the then aggregate
outstanding principal amount of the Original Series Debentures which are then
outstanding, if any, and the Securities, and (iii) such additional Indebtedness
does not exceed $25 million in the aggregate at any time. The Company may also
grant an additional Lien on the Senior Collateral to secure any additional
Indebtedness of the Company which is also secured by an additional Lien on the
assets in the Security Pool as provided in this Section 1109. To the extent the
Company is not prohibited from granting or creating a Lien with respect to other
Indebtedness under this Section, such Lien may rank senior to the Lien of the
Pledge Agreement, and the Company may require the Trustee to transfer possession
of assets in the Security Pool and the Senior Collateral to the holder of such
other Indebtedness in connection with such grant or creation of a Lien, provided
that such assets remain subject to the Lien of the Pledge Agreement pursuant to
an Intercreditor Agreement reasonably satisfactory to the Trustee.
ARTICLE XII
REDEMPTION OR REPURCHASE OF SECURITIES
Section 1201. Right of Redemption.
The Securities may be redeemed at the election of the Company, at any
time and from time to time, as a whole or in part, at a redemption price equal
to 100 percent of the principal amount of the Securities to be redeemed,
together in the case of any such redemption with accrued interest to the
Redemption Date. The election of the Company to redeem any Securities pursuant
to this Section 1201 shall be evidenced by a Board Resolution.
Section 1202. Applicability of Article.
Redemption of Securities, at the election of the Company as permitted
by, or as required pursuant to, any provision of this Indenture, shall be made
in accordance with such provision and this Article.
Section 1203. Notice to Trustee.
The Company shall, at least 60 days prior to the Redemption Date fixed
by the Company (unless a shorter notice period shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal amount
of Securities to be redeemed.
Section 1204. Selection by Trustee of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected, not more than
60 days prior to the Redemption Date, by the Trustee at random, from the
Outstanding Securities not previously called for redemption. Notwithstanding
anything to the contrary set forth herein, no Securities shall be
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redeemed in part unless the portion thereof which shall remain Outstanding
following such partial redemption shall be in a principal amount equal to $100
or an integral multiple of $100.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 1205. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(a.) the Redemption Date;
(b.) the Redemption Price;
(c.) if less than all Outstanding Securities are to be
redeemed or repurchased, the identification, including the CUSIP number
(and, in the case of a Security to be redeemed in part, the principal
amount) of the particular Securities to be redeemed;
(d.) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof, and
that interest thereon shall cease to accrue on and after said date; and
(e.) the place or places where (subject to Section 301) such
Securities are to be surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 1206. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1203) an amount of
money in same day funds sufficient to pay the Redemption Price of, and (except
if the Redemption Date shall be an Interest Payment Date) accrued interest on,
all the Securities or portions thereof which are to be redeemed on that date.
Section 1207. Funding for Redemption or Repurchase.
Subject to the provisions of Section 1005, simultaneously (or, in the
case of clause (ii) below, substantially simultaneously) with the release of an
asset from the Lien of the Pledge Agreement in order to effect its sale, the
Company shall, to the extent that proceeds are available from the sale of such
an asset after satisfaction of all prior Liens to which such asset is subject,
(i) redeem Securities having an aggregate principal amount at least equal to the
lesser of (A) the Net Value on the Exchange Closing (or such later date as such
asset was added to the Collateral) of such asset which is to be released, (B)
the Net Proceeds received by the Company from the sale of such asset, or (C) the
Net Proceeds remaining from the sale of such asset after satisfaction of all
prior Liens to which such asset is subject (the "Released Amount") at 100
percent of the principal amount thereof, together with accrued interest thereon
to the Redemption Date, (ii) repurchase Securities in the open market or in
private transactions for an aggregate amount at least equal to the Released
Amount or (iii) deposit in a special account maintained by the Trustee for the
benefit of Holders of Securities and designated as part of and added to the
Collateral, the consideration received in exchange for any asset released from
the Lien of the Pledge Agreement in order
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to effect its sale (less a portion of such consideration, the Fair Value of
which is equal to the sum of the items described in clauses (A), (B) and (C) of
the definition of Net Proceeds), or cash or cash equivalents (including
Investment Grade Securities) in an amount at least equal to the Released Amount.
Section 1208. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid on any
Redemption Date, the principal (and premium, if any, on) and interest then due
in respect thereof shall, until paid, bear interest from the Redemption Date in
accordance with Section 503.
Section 1209. Securities Redeemed in Part.
Subject to Section 301, any Security which is to be redeemed only in
part shall be surrendered at the office or agency of the Company maintained for
such purpose pursuant to Section 1102 (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company, the Security
Registrar or the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee,
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the security so surrendered.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 1301. Securities Subordinate to Senior Indebtedness.
Notwithstanding the provisions of Article 5 and the fact that the
Securities will constitute senior subordinated Indebtedness of the Company, the
Company covenants and agrees, and each Holder of a Security, by his acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article, the Indebtedness represented by the
Securities and the payment of the principal of and premium, if any, and interest
on each and all of the Securities and any fees or other amounts payable by the
Company in connection therewith, are hereby expressly made subordinate and
subject in right of payment to the prior payment in full of all Senior
Indebtedness.
For the purposes of this Indenture, the Senior Indebtedness shall not
be deemed to have been paid in full until the holders or owners of Senior
Indebtedness shall have received payment of the Senior Indebtedness in cash.
Section 1302. Payment Over of Proceeds Upon Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up or arrangement, adjustment, protection, relief or composition of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company, then and in any such event:
(1) the holders of Senior Indebtedness shall be
entitled to receive payment in full of all
amounts due or to become due on or in respect of
all Senior Indebtedness before the Holders of the
Securities are entitled to receive any payment on
account of principal
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of (or premium, if any, on) or interest on the
Securities or any fees or other amounts payable
by the Company in connection therewith; and
(2) the priority of the claims of Holders of
Securities will be on a parity with that of
holders of the Original Series Debentures
remaining outstanding after the Exchange Closing;
and
(3) any payment or distribution of any kind or
character, whether in cash, property or
securities, by set-off or otherwise, to which the
Holders of the Securities or the Trustee would be
entitled but for the provisions of this Article
Thirteen, including any such payment or
distribution which may be payable or deliverable
by reason of the payment of any other
Indebtedness of the Company being subordinated to
the payment of the Securities (except for any
such payment or distribution of securities which
are subordinated, to at least the same extent as
the Securities, to the payment of all Senior
Indebtedness then outstanding), shall be paid by
the liquidating trustee or agent or other person
making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of
Senior Indebtedness or their representative or
representatives, or to the trustee or trustees
under any indenture under which any instruments
evidencing any of such Senior Indebtedness may
have been issued, ratably according to the
aggregate amounts remaining unpaid on account of
the Senior Indebtedness held or represented by
each, for application to (in the case of cash) or
as collateral for (in the case of property or
securities) the payment or prepayment in full of
all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or
distribution to the holders of such Senior
Indebtedness; and
(4) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the
Holder of any Security shall have received such
payment or distribution of any kind or character,
whether in cash, property or securities,
including any such payment or distribution which
may be payable or deliverable by reason of the
payment of any other Indebtedness of the Company
being subordinated to the payment of the
Securities, before all Senior Indebtedness is
paid in full, then and in such event such payment
or distribution shall be received and held in
trust for the holders of Senior Indebtedness and
shall be paid over to the holders of such Senior
Indebtedness or their representative or
representatives or the trustee or trustees under
any indenture under which any instruments
evidencing any of such Senior Indebtedness may
have been issued, ratably as aforesaid, for
application to (in the case of cash) or as
collateral for (in the case of property or
securities) the payment or prepayment of all
Senior Indebtedness remaining unpaid until all
such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent
payment or distribution to or for the holders of
Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties and assets substantially as
an entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of the Company for the purposes of this Section if the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or lease such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer or lease, comply with the conditions
set forth in Article Eight.
Section 1303. No Payment When Senior Indebtedness in Default.
In the event of and during the continuation of any default in the
payment of principal of (or premium, if any, on), or interest on any Senior
Indebtedness, or (b) in the event that any event of default (other than an event
described in clause
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(a)) with respect to any Senior Indebtedness shall have occurred and be
continuing permitting the holders of such Senior Indebtedness to declare such
Senior Indebtedness due and payable prior to the date on which it would
otherwise have become due and payable, then no direct or indirect payment shall
be made by the Company on account of the principal of (or premium, if any, on),
or interest on the Securities or any fees or other amounts payable by the
Company in connection therewith or on account of the purchase or redemption or
other acquisition of Securities (i) in case of any event of default described in
clause (a), unless and until such event of default shall have been cured or
waived in writing or shall have ceased to exist and (ii) in case of any event of
default specified in clause (b), from the date the Company or the Trustee first
receives written notice of such event of default from the holders of Senior
Indebtedness until the earlier of (x) 360 days after such date, and (y) the
date, if any, on which the Senior Indebtedness to which such event of default
relates is discharged or such event of default is waived in writing by the
holders of such Senior Indebtedness or otherwise cured (provided that further
written notice relating to the same or any other event of default specified in
clause (b) above with respect to any Senior Indebtedness received by the Company
or the Trustee within 360 days after receipt of the initial such written notice
shall not be effective for purposes of this clause (ii)).
In the event that the principal amount of the Securities, together with
any accrued interest thereon, is declared due and payable before its Stated
Maturity in accordance with Section 502, then and in such event the holders of
the Senior Indebtedness outstanding at such time shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of such
Senior Indebtedness before the Holders of the Securities are entitled to receive
any payment with respect to the Securities (including, without limitation, any
payment that may be payable by reason of the payment of any other indebtedness
of the Company being subordinated to the payment of the Securities.)
Section 1304. Payment Permitted if No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in section 1302 or under the conditions
described in Section 1303, from making payments at any time of principal of (and
premium, if any, on) or interest on the Securities or any other amount payable
by the Company under the Securities or this Indenture.
Section 1305. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Securities shall be subrogated (equally and ratably with the holders of
all Indebtedness of the Company which by its express terms is subordinated to
Senior Indebtedness of the Company to the same extent as the Securities are
subordinated and which is entitled to like rights of subrogation) to the rights
of the holders of such Senior Indebtedness to receive payments and distributions
of cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any, on) and interest on the Securities shall be
paid in full. For purposes of such subrogation, no payments or distributions to
the holders of Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment or distribution by the Company to or on account of the Senior
Indebtedness. The subrogation rights established hereby shall not create any
obligations or liabilities of any holder or owner of any Senior Indebtedness to
the Holders of the Securities.
Section 1306. Provisions Solely to Define Relative Rights.
The provisions of this Article 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 Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture (other than in Section
1312) or in the Securities is intended to or shall (a) impair, as among the
Company, its creditors other than holders of Senior Indebtedness 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
premium, if any) and interest on, and any other amount payable by the Company
under, the Securities or this Indenture as and when the same shall become due
and payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law
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<PAGE> 54
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness (1) in any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 1302, to receive, pursuant to and in accordance with such Section,
cash, property and securities otherwise payable or deliverable to the Trustee or
such Holder, or (2) under the conditions specified in Section 1303, to prevent
any payment prohibited by such Section.
Section 1307. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
Section 1308. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time or 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
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, and without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in this
Article or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, 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, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (b) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (c) release any Person liable in any manner for
the collection of Senior Indebtedness; (d) exercise or refrain from exercising
any rights against the Company and any other Person; and (e) increase the
aggregate amount of Indebtedness extended to the Company (whether or not the
same shall be Senior Indebtedness).
The provisions of this Article Thirteen are intended to be for the
benefit of, and shall be enforceable directly by, the holders of the Senior
Indebtedness.
Section 1309. 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 to the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the securities, unless
and until the Trustee shall have received written notice thereof from the
Company, or a holder of Senior Indebtedness or from any trustee, fiduciary or
agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 601, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
one Business Day prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any, on) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within one Business Day prior
to such date; provided, further, however, that such receipt and application
shall not affect the rights of the holders of Senior Indebtedness, including any
right such holders may have to the payment over of any such money, against the
Holders of the Securities. The Trustee agrees that its declaration, or the
declaration by the Holders of the Requisite Amount of Securities Outstanding,
that the principal amount of all of the Securities is immediately due and
payable pursuant to Article Five shall be constructive notice to the Trustee of
the existence of facts that would prohibit the Trustee's making of any payment
of monies or taking of any other action under this Indenture.
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<PAGE> 55
Subject to the provisions of Section 601, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article, 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 1310. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts payable or
distributed thereon and all other facts pertinent thereto or to this Article.
Section 1311. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
Section 1312. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
Section 1313. Reliance.
Each Holder of a Security by his or its acceptance thereof acknowledges
and agrees that the provisions of this Article are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of such Security, to acquire and/or continue to hold such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on the provisions of this Article in acquiring and/or continuing
to hold such Senior Indebtedness.
The provisions of this Article Thirteen shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Senior Indebtedness is rescinded or must otherwise be returned by the holder of
Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment had not been made.
The Company hereby waives promptness, diligence, notice of acceptance
and any other notice; with respect to any of the Senior Indebtedness (other than
the notice provided for in Section 1309) and this Article and any requirement
that any holder of Senior Indebtedness protect, secure, perfect or insure any
security interest or Lien or any property subject thereto or exhaust any right
or take any action against the Company or any other Person or any collateral.
No failure on the part of any holder of Senior Indebtedness to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof. No single or partial exercise of any right hereunder shall
preclude any other
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or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
The provisions of this Article Thirteen constitute a continuing
agreement and shall (i) remain in full force and effect until the Senior
Indebtedness shall have been paid in full, (ii) be binding upon the Holders of
the Securities, the Trustee, and the Company and their successors and assigns,
and (iii) inure to the benefit of and be enforceable by each holder of Senior
Indebtedness and their successors, transferees and assigns.
* * * * *
This Indenture may be signed in any number of counterparts with the
same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the day and year first above written.
THE HALLWOOD GROUP INCORPORATED
By:
------------------------------------
Melvin J. Melle
Vice President, Chief Financial
Officer and Secretary
BANK ONE, N.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT ("Agreement") is made as of this
____ day of ______, 1998, by and between THE HALLWOOD GROUP INCORPORATED, a
Delaware corporation (the "Company"), and BANK ONE, N.A., a national banking
association, as trustee (hereinafter, in such capacity, the "Trustee") for the
holders of the Company's 8.5% Collateralized Senior Subordinated Debentures due
July 31, 2005 (the "Securities"), pursuant, to an Indenture, dated as of
_____________, 1998, between the Company and the Trustee (as amended or
supplemented and in effect from time to time, the "Indenture").
W I T N E S S E T H :
WHEREAS, the Company is the direct legal and beneficial owner of the
shares of the common stock of Brookwood Companies, Incorporated ("BCI"),
Hallwood Hotels, Inc. ("HHI") and Brock Suite Hotels, Inc. ("BSH") described on
Annex A hereto; (the stock of BCI is referred to herein as the "Brookwood
Stock," the stock of HHI is referred to herein as the "HHI Stock," the stock of
BSH is referred to herein as the "BSH Stock" and the Brookwood Stock, the HHI
Stock and the BSH Stock is referred to herein collectively as the "Stock"); and
WHEREAS, the Company has issued its 7% Collateralized Senior
Subordinated Debentures ("7% Debentures") pursuant to that certain Indenture
("Original Indenture") between the Company and Norwest Bank Minnesota, National
Association, as Trustee ("Original Trustee") dated as of March 2, 1993 and has
granted to the Original Trustee a pledge and security interest in the Brookwood
Stock and the HHI Stock to secure the 7% Debentures pursuant to that certain
Pledge and Security Agreement ("Original Pledge Agreement") between the Company
and the Original Trustee dated as of March 2, 1993; and
WHEREAS, the Original Indenture provides that the Company may grant a
subordinate pledge and security interest in the security pledged thereunder to
secure other indebtedness of the Company, and the Company now desires to issue
its 8.5% Collateralized Senior Subordinated Debentures ("Debentures") pursuant
to that certain Indenture ("Indenture") between the Company and the Trustee, as
Trustee ("Trustee") dated as of ___________, 1998 and desires to grant to the
Trustee a subordinate pledge and security interest in the Brookwood Stock and
the HHI Stock and a first and prior pledge and security interest in the BSH
Stock to secure the Debentures pursuant to this Agreement; and
WHEREAS, pursuant to the Indenture, upon the occurrence of certain
events, the Company may be required to grant certain additional pledges and
security interests in favor of the Trustee; and
WHEREAS the Company wishes to grant (and provide for such additional
grant of) pledges and security interests in favor of the Trustee, as herein
provided;
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
Section 1. Pledge of Stock, Etc.
(a) The Company hereby pledges, assigns, grants to the Trustee
a security interest in (A) the number of shares of HHI Stock set forth on ANNEX
A hereto, currently held by the Original Trustee, (B) the number of shares of
common and preferred Brookwood Stock held by The Bank of New York ("BONY"), as
collateral agent for the Original Trustee under the Intercreditor Agreement,
dated as of January 7, 1997, between BONY and the Original Trustee, and (C) the
number of shares of BSH Stock to be held by Bank One, N.A., as agent ("Bank
One"), as collateral agent for the Original Trustee under the Intercreditor
Agreement, dated as of ________, 1998, between Bank One and the Trustee, all
for the benefit of the holders from time to time of the Securities, subject to
the terms and conditions hereinafter set forth. The certificates for such
shares, accompanied by stock powers or other appropriate instruments of
assignment thereof duly executed in blank by the Company, have been delivered
to the Original Trustee or the Trustee, as appropriate, or their respective
agents (BONY and Bank One). The pledge and assignment of the HHI Stock is
junior and subordinate to the
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pledge and assignment thereof to the Original Trustee pursuant to the Original
Pledge Agreement and is subject to the terms and conditions contained in the
Original Indenture and the Original Pledge Agreement; and the pledge and
assignment of the Brookwood Stock is junior and subordinate to the pledges and
assignments thereof to (i) The Bank of New York as security for the Company's
guaranty of certain indebtedness of BCI to The Bank of New York and (ii) the
Original Trustee pursuant to the Original Pledge Agreement and subject to the
terms and conditions contained in the Original Indenture and the Original Pledge
Agreement.
(b) In case the Company shall acquire any additional shares of a class
of capital stock of any corporation (i) all or a portion of the shares of such
class of which have been pledged pursuant to Section 1(a) above and (ii) which
is a wholly-owned subsidiary of the Company, or the successor of any such
corporation, or any securities which are exercisable or exchangeable for or
convertible into shares of such capital stock of any such corporation, by
purchase or otherwise, then the Company shall forthwith pledge such number of
shares or other securities to the Trustee under this Agreement and deliver such
number of shares or other securities to the Trustee or the Original Trustee, as
appropriate, or their respective agents (including BONY and Bank One) in
connection therewith as represents the same proportion to the number of shares
or securities being acquired as the number of shares (including shares which
securities are exercisable or exchangeable for or convertible into) of such
class previously pledged hereunder bears to the number of shares (including
shares which securities are exercisable or exchangeable for or convertible into)
of such class owned by the Company immediately prior to such acquisition by the
Company. The Company agrees that the Trustee may from time to time attach as
ANNEX A hereto an updated list of the shares of capital stock or securities at
the time pledged with the Trustee hereunder.
(c) The Company also hereby pledges, assigns, grants a security
interest in, and delivers to the Trustee the Cash Collateral Account and all of
the Cash Collateral, as such terms are hereinafter defined.
Section 2. Definitions. All capitalized terms used herein without
definition have the respective meanings assigned to such terms in the Indenture.
Terms used herein and not defined in the Indenture or otherwise defined herein
that are defined in the Uniform Commercial Code as in effect in the State of
Texas have such defined meanings herein, unless the context otherwise indicates
or requires, and the following terms have the following meanings:
"Cash Collateral" has the meaning ascribed to such term in Section 4
hereof.
"Cash Collateral Account" has the meaning ascribed to such term in
Section 4 hereof.
"Collateral" means the property at any time pledged to the Trustee
hereunder (whether described herein or not) and all income therefrom, increases
therein and proceeds thereof, including without limitation the Stock and the
Cash Collateral.
"Obligations" has the meaning ascribed to such term in Section 3
hereof.
"Release Amounts has the meaning ascribed to such term in Section 10
hereof.
"Stock" means the number of shares of stock set forth and described in
ANNEX A attached hereto and any additional securities pledged with the Trustee
hereunder pursuant to Section i(b) above.
Section 3. Security for Obligations. This Agreement and the security
interest in and pledge of the Collateral hereunder are made with and granted to
the Trustee, as security for the payment, when due, whether at stated maturity,
upon call for redemption, upon acceleration or otherwise, of the principal of,
and premium, if any, and interest on, the Securities and all other obligations
of the Company to the Holders of the Securities under the Indenture
(hereinafter, the "Obligations").
Section 4. Liquidation, Recapitalization, Etc.
(a) Any sums or other property paid or distributed upon or with respect
to any of the Stock, whether by dividend or redemption or upon the liquidation
or dissolution of the issuer thereof or otherwise, shall, except to the extent
provided in Section 6, be paid over and delivered to the Trustee or its agent to
be held by or for the benefit of the Trustee as security for the payment and
performance in full of all of the Obligations. In case, pursuant to the
recapitalization or reclassification of the capital of the issuer thereof or
pursuant to the reorganization thereof, any distribution of capital shall be
made on or in respect of any of the Stock or any property shall be distributed
upon or with respect to any of the Stock,
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the property so distributed shall be delivered to the Trustee or its agent, to
be held by or for the benefit of the Trustee as security for the Obligations.
Except to the extent provided in Section 6, all sums of money and property paid
or distributed in respect of the Stock, whether as a dividend or upon such a
liquidation, dissolution, recapitalization or reclassification or otherwise,
that are received by the Company shall, until paid or delivered to the Trustee
or its agent, be held in trust for the Trustee, for the benefit of the Holders
from time to time of the Securities, as security for the payment and performance
in full of all of the Obligations.
(b) All sums of money that are delivered to the Trustee or its agent
pursuant to this Section 4 shall be deposited into an interest bearing account
maintained by, and under the sole dominion and control of, the Trustee (the
"Cash Collateral Account"). Interest earned on the Cash Collateral Account shall
be deposited in the Cash Collateral Account. The Cash Collateral Account, all
sums from time to time standing to the credit of the Cash Collateral Account,
any cash or cash equivalents (including Investment Grade Securities) deposited
with the Trustee in accordance with Section 1207 of the Indenture, and any and
all proceeds of any thereof are hereinafter referred to as the "Cash
Collateral."
(c) Unless the conditions set forth in Section 1207 of the Indenture
are complied with, the Company shall have no right to withdraw sums from the
Cash Collateral Account or to receive any of the Cash Collateral.
Section 5. Warranty of Title. The Company hereby represents and
warrants that: (a) except as otherwise disclosed on Schedule 5(a) hereto, the
Company has good and marketable title to the Stock described on Annex A , free
and clear of all pledges, liens, security interests, charges, options,
restrictions or other encumbrances except for this Agreement and (b) the
information set forth in Annex A hereto relating to the Stock is true and
correct.
Section 6. Dividends Voting, Etc., Prior to Maturity. So long as no
Event of Default shall have occurred and be continuing, the Company shall be
entitled to receive all cash dividends paid in respect of the Stock, to vote the
Stock and to give consents, waivers and ratifications in respect of the Stock.
All such rights of the Company to vote and give consents, waivers and
ratifications with respect to the Stock shall, at the Trustee's option, as
evidenced by the Trustee's notifying the Company of such election, cease if an
Event of Default shall have occurred and be continuing.
Section 7. Remedies.
(a) If an Event of Default shall have occurred and be continuing, the
Trustee shall thereafter have the following rights and remedies (the extent
permitted by applicable law) in addition to the rights and remedies of a secured
party under the Uniform Commercial Code as in effect in the State of Texas or
such other jurisdiction as may mandatorily be applicable thereto, all such
rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently, at such time or times as the
Trustee deems expedient:
(i) if the Trustee so elects and gives notice of such
election to the Company, the Trustee may vote any or all shares of the
Stock (whether or not the same shall have been transferred into its
name or the name of its nominee or nominees) and, if such Stock (the
"Subsidiary Stock") consists of less than all of the common stock of a
wholly-owned Subsidiary of the Company, all of the other shares of
common stock of such Subsidiary (the "Other Shares") for any lawful
purpose, including, without limitation, if the Trustee so elects, for
the liquidation of the assets of the issuer thereof, and give all
consents, waivers and ratifications in respect of the Stock and
otherwise act with respect thereto as though it were the outright owner
thereof, and the Company hereby irrevocably appoints and constitutes
the Trustee as its lawful attorney-in-fact and proxy with full power of
substitution to vote, and to give all consents, waivers and
ratifications in respect of, the Other Shares following the occurrence
and during the continuance of an Event of Default, and such proxy shall
be irrevocable and coupled with an interest and shall expire upon the
termination of this Agreement pursuant to Section 15 hereof or the
earlier release of the Subsidiary Stock from the Lien created under
this Agreement;
(ii) the Trustee may demand, sue for, collect or make
any compromise or settlement the Trustee deems suitable in respect of
any Collateral;
(iii) the Trustee may sell, resell, assign and
deliver, or otherwise dispose of any or all of the Collateral, for cash
or credit or both and upon such terms, at such places, at such times
and to such Persons as the
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Trustee deems expedient, all without demand for performance by the
Company or any notice or advertisement whatsoever except as expressly
provided herein or as may otherwise be required by law;
(iv) the Trustee may cause all or any part of the
Stock held by it to be transferred into its name or the name of its
nominee or nominees; and
(v) the Trustee may set off against the Obligations
any and all sums deposited with it or held by it, including without
limitation, any sums standing to-the credit of the Cash Collateral
Account.
(b) In the event of any disposition of the Collateral as provided in
clause (iii) of Section 7(a), the Trustee shall give to the Company at least ten
Business Days, prior written notice of the time and place of any public sale of
the Collateral or of the time after which any private sale or any other intended
disposition is to be made. The Company hereby acknowledges that ten Business
Days, prior written notice of such sale or sales shall be reasonable notice. The
Trustee may buy any part or all of the Collateral at any public sale and if any
part or all of the Collateral is of a type customarily sold in a recognized
market or is of the type which is the subject of widely distributed standard
price quotations, the Trustee may buy at private sale and may make payments
thereof by any means.
(c) If the Trustee shall determine to exercise its right to sell any or
all of the Stock pursuant to this Section 7, and if in the opinion of counsel
for the Trustee it is necessary, or if in the reasonable opinion of the Trustee
it is advisable, to have the Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Company agrees to use commercially reasonable efforts to
cause the issuer or issuers of the Stock contemplated to be sold to execute and
deliver, and cause the directors and officers of such issuer or issuers to
execute and deliver, all at the Company's expense, all such instruments and
documents, and to do or cause to be done all such other acts and things as may
be necessary or, in the reasonable opinion of the Trustee, advisable to register
such Stock under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for a period of 3 months from the date such registration statement
became effective, and to make all amendments thereto or to the related
prospectus or both that, in the reasonable opinion of the Trustee, are necessary
or advisable, all in conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange Commission applicable
thereto. The Company agrees to use commercially reasonable efforts to cause such
issuer or issuers to comply with the provisions of the securities or "Blue Sky"
laws of any jurisdiction which the Trustee shall designate and to cause such
issuer or issuers to make available to its security-holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act. If the Trustee
elects to sell Stock in a private sale, the Company agrees to use commercially
reasonable efforts to cause the issuer or issuers of the Stock contemplated to
be sold to execute and deliver, and cause the directors and officers of such
issuer or issuers to execute and deliver, all at the Company's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things as may be necessary or, in the reasonable opinion of the Trustee,
advisable to exempt such Stock from registration under the provisions of the
Securities Act, and to make all amendments to such instruments and documents
which, in the opinion of the Trustee, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto.
(d) The Trustee agrees that any sale of Stock shall be made in a
commercially reasonable manner.
(e) The Company further agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make any sales of any portion
or all of the Stock pursuant to this Section 7 valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Company's expense.
(f) If the Trustee exercises its right, set forth in Section 1006 of
the Indenture, to cause the Company to sell Other Shares, the provisions of this
Section 7 shall be applicable to such sale, except as provided in such Section
1006 with respect to the proceeds of such sale.
Section 8. Company's Obligations Not Affected. The obligations
of the Company hereunder shall remain in full force and effect without regard
to, and shall not be impaired by (a) any exercise or nonexercise, or any waiver,
by the Trustee or any holder of Securities of any right, remedy, power or
privilege under or in respect of any of the Obligations or
56
<PAGE> 62
any security thereof (including under this Agreement); (b) any amendment to or
modification of the Indenture, the Securities or any of the Obligations; or (c)
the taking of additional security for, or any other assurances of payment of,
any of the Obligations or the release, discharge or termination of any security
or other assurances of payment or performance for any of the Obligations.
Section 9. Other Liens. The Company shall not pledge, grant or suffer
to exist any Lien in, or otherwise encumber or restrict, any of the Collateral
or any interest therein, except for the pledge thereof and Lien therein provided
for in this Agreement or any Lien existing on the date hereof; provided,
however, that the Company may grant a Lien on all or any portion of the
Collateral if the conditions specified in Section 1109 of the Original Indenture
and Section 1109 of the Indenture have been satisfied. In connection with the
grant or creation of a Lien by the Company in all or any portion of the
Collateral to the extent permitted under this Section, the Company may require
the Trustee, following receipt by the Trustee of at least five Business Days'
prior written notice from the Company, to deliver the Collateral which is to be
subject to such Lien to the holder of Indebtedness to be secured by such Lien at
such time and place as the Company shall specify in such notice, provided that
such Collateral remains subject to the Lien created under this Pledge Agreement,
and such holder of Indebtedness agrees in writing to act as the Trustee's agent
for such purpose.
Section 10. Release of Collateral. Provided that no Event of Default
has occurred and is continuing, the Trustee, upon receipt of at least five
Business Days written notice from the Company delivered in connection with a
proposed sale of all or any portion of the Collateral, shall take all action
necessary to release such portion of the Collateral as is proposed to be sold
from the Lien created under this Agreement and deliver such Collateral to the
Company free and clear of such Lien at the time and place specified by the
Company in such notice, against receipt by the Trustee or the Paying Agent of
(i) an amount at least equal to the lesser of (A) the Net Value on the Exchange
Closing (or such later date as the asset was added to the Security Pool) of the
Collateral which is to be released, (B) the Net Proceeds received by the company
from the sale of such Collateral, or (C) the Net Proceeds remaining after the
satisfaction of all prior and senior Liens to which such asset is subject (such
lesser amount, the "Released Amount"), which amount shall be applied by the
Trustee or Paying Agent to the simultaneous redemption of Securities at 100% of
the principal amount thereof, plus accrued interest thereon to the Redemption
Date, (ii) the consideration received from the sale of any Collateral released
pursuant to this Section (less a portion of such consideration, the Fair Value
of which is equal to the sum of the items described in clauses (A), (B) and (C)
of the definition of Net Proceeds set forth in the indenture), or cash or cash
equivalents (including Investment Grade Securities) in an amount at least equal
to the Release Amount, which shall be deposited by the Trustee into the Cash
Collateral Account and be Collateral subject to the Lien granted and created
under this Agreement, or (iii) evidence reasonably satisfactory to the Trustee
that Securities are substantially simultaneously being repurchased by the
Company in the open market or in private transactions for an aggregate
consideration, at least equal to the Release Amount. The Trustee agrees to
deliver such documents or instruments as the Company may reasonably request in
connection with the release of any Lien or delivery of any Collateral as
contemplated by this Section. In the case of clause (i) above, it shall be a
condition of the release of such Collateral from such Lien that the Company
shall have taken all action necessary to cause the Redemption Date to occur
simultaneously with such release. The Trustee shall take all steps reasonably
required to release any part of the Collateral from the Lien under this
Agreement in connection with the sale of such asset by the Company if the
proceeds thereof are used to satisfy prior and senior Liens in accordance with
the terms of the Original Pledge Agreement and the Original Indenture and if all
remaining proceeds, if any, are used or delivered as required by this Section
10.
Section 11. Further Assurances. The Company will do all such acts, and
will furnish to the Trustee all such financing statements, certificates, legal
opinions and other documents and will obtain all such governmental consents and
corporate approvals and will do or cause to be done all such other things as the
Trustee may reasonably request from time to time in order to give full effect to
this Agreement and to secure the rights of the Trustee hereunder, all without
any cost or expense to the Trustee. If the Trustee so elects, a photocopy of
this Agreement may at any time and from time to time be filed by the Trustee as
a financing statement in any recording office in any jurisdiction.
Section 12. Trustee's Exoneration. Under no circumstances shall the
Trustee be deemed to assume any responsibility for or obligation or duty to the
Company with respect to any part or all of the Collateral of any nature or kind
or any matter or proceedings arising out of or relating thereto, other than (a)
to exercise reasonable care in the physical custody of the Collateral and (b)
after an Event of Default shall have occurred and be continuing to act in a
commercially reasonable manner. The Trustee shall not be required to take any
action of any kind to collect, preserve or protect its or the
57
<PAGE> 63
Company's rights in the Collateral. The Trustee's prior recourse to any part or
all of the Collateral shall not constitute a condition of any demand, suit or
proceeding for payment or collection of any of the Obligations.
Section 13. No Waiver, Etc. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so modified or
limited, and executed by the Trustee, with the consent of the Required Holders
if such consent is required pursuant to the Indenture, and the Company. No act,
failure or delay by the Trustee shall constitute a waiver of its rights and
remedies hereunder or otherwise. No single or partial waiver by the Trustee of
any default or right or remedy that it may have shall operate as a waiver of any
other default, right or remedy or of the same default, right or remedy on a
future occasion. The Company hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing any of the Obligations or
the Collateral, and any and all other notices and demands whatsoever (except as
expressly provided herein or in the indenture).
Section 14. Notice, Etc. All notices, requests and other communications
hereunder shall be made in the manner set forth in Section 105 of the Indenture.
Section 15. Termination. Upon final payment and performance in full of
the Obligations, this Agreement shall terminate and the Trustee shall, at the
Company's request and expense, return to the Company all Collateral in the
possession or control of the Trustee together with any moneys and other property
at the time held by the Trustee hereunder.
Section 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, except as required
by mandatory provisions of law and except to the extent that the validity or
perfection of the security interest hereunder, or remedies hereunder, in respect
of any particular Collateral are governed by the laws of a jurisdiction other
than the State of Texas.
Section 17. Miscellaneous. The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof. This Agreement and all rights and obligations hereunder shall be
binding upon the Company and its respective successors and assigns, and shall
inure to the benefit of the Trustee and the holder from time to time of the
Securities and their respective successors and assigns. If any term of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity of
all other terms hereof shall be in no way affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein.
IN WITNESS WHEREOF, intending to be legally bound, the Company and the
Trustee have caused this Agreement to be executed as of the date first above
written.
THE HALLWOOD GROUP
INCORPORATED
By:
--------------------------------
Title:
-----------------------------
BANK ONE, N.A.
as Trustee
By:
--------------------------------
Title:
-----------------------------
58
<PAGE> 64
Annex A to Pledge Agreement
<TABLE>
<CAPTION>
Number of Par or
Number of Issued and Number of Liquidation
Class of Certificate Authorized Outstanding Shares being Value per
Issuer Shares Number(s) Shares Shares Pledged Share
- - ------ ------ --------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Brookwood Companies Incorporated Common C1 15,000,00 10,000,000 10,000,000 $ .01
Brookwood Companies Incorporated Preferred P 1, P2 500,000 130,000 130,000 No par value
Hallwood Hotels, Inc. Common 001 1,000 10 10 No par value
Brock Suite Hotels, Inc. Common 7 10,000 8,000 8,000 $ 1.00
</TABLE>
59
<PAGE> 65
Schedule 5(a)
Other Liens
1. All of the common stock and preferred stock of Brookwood
Companies Incorporated ("Brookwood") is subject to a Lien in
favor of The Bank of New York, pursuant to a Pledge Agreement
dated as of January 7, 1997 between the Company and The Bank
of New York, which secures the Obligations of Brookwood under
the Credit Agreement dated as of January 7, 1997 among
Brookwood, its subsidiaries and the Bank of New York, and the
loan documents related thereto.
2. All of the common and preferred stock of Brookwood Companies
Incorporated and Hallwood Hotels, Inc. is subject to a Lien
in favor of Norwest Bank Minnesota, National Association, as
Trustee, under that certain Indenture Trust dated as of March
2, 1993 regarding 7% Collateralized Senior Subordinated
Debentures of The Hallwood Group Incorporated.
60
<PAGE> 1
EXHIBIT 99.T3E.1
EXCHANGE OFFER CIRCULAR
THE HALLWOOD GROUP INCORPORATED
OFFER TO EXCHANGE
8.5% Collateralized Subordinated Debentures due July 31, 2005
for
7% Collateralized Senior Subordinated Debentures due July 31, 2000
- - --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., BOSTON,
MASSACHUSETTS TIME, ON JULY 31, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
- - --------------------------------------------------------------------------------
The Hallwood Group Incorporated (the "Company") hereby offers to
exchange, upon the terms and subject to the conditions set forth in this
Exchange Offer Circular (the "Exchange Offering Circular") and in the
accompanying Letter of Transmittal (the "Letter of Transmittal"), as each may be
amended or supplemented from time to time (collectively referred to herein as
the "Exchange Offer"), up to $20,555,443 aggregate principal amount of the
Company's 8.5% Collateralized Subordinated Debentures due July 31, 2005 (the
"New Collateralized Debentures") for all of its outstanding Collateralized
Senior Subordinated Debentures due July 31, 2000 (the "Existing Debentures")
held by registered holders (as reflected on the books and records of Norwest
Bank Minnesota, National Association, the trustee (the "Old Indenture Trustee")
under the indenture (the "Old Indenture") governing the Existing Debentures, at
the rate of $100 principal amount of 8.5% Debentures for each $100 principal
amount of Existing Debentures validly tendered and accepted in accordance
herewith.
Exchanging holders of Existing Debentures will be entitled to receive
accrued interest on Existing Debentures tendered and accepted for exchange from
the date of the last interest payment (i.e., April 30, 1998 or July 31, 1998).
SEE "SPECIAL CONSIDERATIONS" AND "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN SPECIAL CONSIDERATIONS
AND RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE
EXCHANGE OFFER.
THE NEW COLLATERALIZED DEBENTURES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS EXCHANGE OFFERING CIRCULAR. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
On the Expiration Date, subject to the conditions to the Exchange Offer
set forth in this Exchange Offering Circular, the Company will accept for
exchange any and all Existing Debentures that are properly tendered and not
withdrawn. See "THE EXCHANGE OFFER -- Exchange and Tendering Procedures."
The Company expressly reserves the right to (i) waive any and all
conditions of the Exchange Offer, (ii) extend the period of the Exchange Offer,
(iii) modify the terms of the New Collateralized Debentures, (iv) terminate the
Exchange Offer or (v) otherwise amend the Exchange Offer in any respect, subject
to the terms set forth in this Exchange Offering Circular. Any such waiver,
extension, modification, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. The Exchange Offer is not
conditioned upon a specified minimum principal amount of Existing Debentures
being tendered in the Exchange Offer. See "THE EXCHANGE OFFER -- Conditions of
the Exchange Offer."
The Existing Debentures are traded on the New York Stock Exchange (the
"NYSE"). On ________, 1998, the high and low bid prices, respectively, for (i)
Existing Debentures were $_____ and $_____, per $100 face value, respectively.
The Company has filed an application with the NYSE to list the New
Collateralized Debentures for trading on the NYSE. See "CERTAIN MARKET
INFORMATION REGARDING THE EXISTING DEBENTURES."
THE EXCHANGE OFFER IS NOT BEING MADE TO, AND THE COMPANY WILL NOT ACCEPT TENDERS
FOR EXCHANGE FROM, HOLDERS OF EXISTING DEBENTURES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
APPLICABLE SECURITIES OR BLUE SKY LAWS.
THIS EXCHANGE OFFERING CIRCULAR IS FIRST BEING MAILED TO HOLDERS OF
EXISTING DEBENTURES ON OR ABOUT JUNE 22, 1998.
<PAGE> 2
SOLICITATION OF EXCHANGE
The Exchange Offer is being made by the Company only to holders of
Existing Debentures in reliance on the exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
afforded by Section 3(a)(9) thereof. The Company will therefore not pay any
commission or other remuneration to any broker, dealer, salesman or other person
for soliciting tenders of Existing Debentures. Regular employees and directors
of the Company and its wholly-owned subsidiaries may solicit tenders from
holders of Existing Debentures and will answer inquiries concerning this
Exchange Offering Circular, but they will not receive additional compensation
therefor.
The Company has made no arrangements for, and has no understanding
with, any broker, dealer, salesman or other person regarding the solicitation of
exchanges of Existing Debentures for New Collateralized Debentures hereunder. No
person has been authorized to give any information or to make any representation
not contained in this Exchange Offering Circular in connection with the Exchange
Offer and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any other person.
Neither the delivery of this Exchange Offering Circular nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company and its subsidiaries since the
respective dates as of which information is given herein.
EXCHANGE AGENT; INFORMATION AGENT
The Company has retained State Street Bank and Trust Company to act as
exchange agent (the "Exchange Agent") with respect to the Exchange Offer. The
Company has appointed Hallwood Petroleum, Inc. as information agent (the
"Information Agent"). Any debenture holder who requires assistance or additional
copies of this Exchange Offering Circular or the accompanying Letter of
Transmittal should contact the Information Agent at (800) 882-9225. Debenture
holders must deliver the Letter of Transmittal, certificates representing
Existing Debentures and any other documents required by the Letter of
Transmittal to the Exchange Agent: State Street Bank and Trust Company, Two
International Place, Boston, Massachusetts, 02110.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Annual Report of the Company for the year ended December 31, 1997,
including the financial statements included therein (the "1997 Annual Report"),
is supplied herewith. The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998, as filed with the Commission on May 13, 1998,
including the financial statements therein (the "Form 10-Q"), is supplied
herewith. The Company's Proxy Statement, dated April 10, 1998, in connection
with its Annual Meeting of Stockholders held on May 6, 1998 and all other
documents and reports filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") after the date of this Exchange Offering Circular and prior to the
Expiration Date shall be deemed to be incorporated by reference in this Exchange
Offering Circular and to be a part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
The Company will provide to any person receiving a copy of this Exchange
Offering Circular without charge, upon request, a copy of the documents or
information incorporated by reference herein. Requests should be directed to the
Information Agent at 4582 S. Ulster Street Parkway, Suite 1700, Denver,
Colorado, 80237, Attention: Monica Dozier, telephone: (800) 882-9225, or to the
Company at 3710 Rawlins, Suite 1500, Dallas, Texas 75219, Attention: Mary Doyle,
telephone: (800) 225-0135.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY .........................................................................................................1
THE EXCHANGE OFFER................................................................................................3
PRO FORMA FINANCIAL INFORMATION...................................................................................5
SUMMARY COMPARISON OF EXISTING DEBENTURES AND
NEW COLLATERALIZED DEBENTURES..........................................................................13
SPECIAL CONSIDERATIONS...........................................................................................19
General ...............................................................................................19
Consequences to Tendering Debenture holders.............................................................19
Certain Federal Income Tax Risks........................................................................21
Consequences to Non-Tendering Debenture holders.........................................................22
Certain Litigation......................................................................................22
CERTAIN MARKET INFORMATION REGARDING THE EXISTING DEBENTURES.....................................................23
THE EXCHANGE OFFER...............................................................................................24
Terms of the Exchange Offer; Period for Tendering Existing Debentures...................................24
Position of the Company With Respect to the Exchange Offer..............................................25
Exchange and Tender Procedures..........................................................................25
Acceptance of Existing Debentures for Exchange;
Delivery of New Collateralized Debentures......................................................27
Interest on Existing Debentures.........................................................................28
Withdrawal Rights.......................................................................................28
Appraisal Rights........................................................................................29
Backup Withholding......................................................................................29
Conditions to the Exchange Offer........................................................................29
No Payments for Solicitation; Payment of Expenses.......................................................30
Exchange Agent; Assistance..............................................................................30
Brokerage Commissions, Fees and Transfer Taxes..........................................................30
Miscellaneous...........................................................................................31
DESCRIPTION OF EXISTING DEBENTURES...............................................................................31
General ...............................................................................................31
Subordination...........................................................................................31
Collateral Security.....................................................................................32
Redemption..............................................................................................33
Events of Default; Rights on Default....................................................................34
Modification and Amendment of Old Indenture.............................................................35
Restrictive Covenants...................................................................................35
Governing Law...........................................................................................36
The Old Indenture Trustee...............................................................................36
DESCRIPTION OF NEW COLLATERALIZED DEBENTURES.....................................................................36
General ...............................................................................................36
Subordination...........................................................................................37
Collateral Security.....................................................................................37
Redemption..............................................................................................40
Events of Default; Rights on Default....................................................................40
Modification and Amendment of New Indenture.............................................................42
Restrictive Covenants...................................................................................42
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Governing Law...........................................................................................43
The New Indenture Trustee...............................................................................43
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS........................................................................43
Qualification of the Exchange as a Recapitalization.....................................................43
Tendering Holders.......................................................................................44
Other Federal Income Tax Consequences Associated with Ownership of New Collateralized
Debentures............................................................................................46
Backup Withholding and Information Reporting............................................................46
Certain Effects of the Exchange Offer to the Company....................................................47
AVAILABLE INFORMATION............................................................................................47
</TABLE>
ii
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Exchange Offering Circular, including
the 1997 Annual Report and the Form 10-Q, which are supplied herewith, and the
more detailed information contained in the information incorporated herein by
reference.
THE COMPANY
Upon its formation in 1981, The Hallwood Group Incorporated (the
"Company") (NYSE:HWG) became engaged in the ownership, operation and management
of the real estate portfolios of its corporate predecessors and in the merchant
banking business, specializing in assisting troubled companies to implement
plans of financial restructuring. After 1981, the Company disposed of its
initial real estate portfolio and, through its merchant banking activities,
acquired substantial investment positions in a number of previously unaffiliated
enterprises. By the early 1990's the Company had become a diversified holding
company engaged in three principal activities: asset management, operating
subsidiaries and investments in associated companies. In March 1997, the Company
sold its investment in ShowBiz Pizza Time, Inc., which was its remaining
investment in the associated company segment. Accordingly, the Company and its
operating subsidiaries are currently engaged in the commercial and industrial
real estate, energy, textile products and hotel businesses and, for financial
reporting purposes, considers itself to operate in four business segments: real
estate, energy, textile products and hotels. The Company is no longer engaged in
the merchant banking business, other than in connection with the businesses in
which its operating subsidiaries are engaged. Financial information for each
industry segment in which the Company operates is set forth in Note 18 to the
Company's consolidated financial statements included in the 1997 Annual Report.
The Company's principal executive offices are located at 3710 Rawlins,
Suite 1500, Dallas, Texas 75219 and its telephone number is (800) 225-0135. See
the 1997 Annual Report supplied herewith for a more complete description of the
Company's businesses.
TERMS OF THE EXISTING DEBENTURES AND NEW COLLATERALIZED DEBENTURES
The Existing Debentures
The Existing Debentures bear interest at 7% per annum, payable quarterly
in cash on January 31, April 30, July 31, and October 31, of each year,
commencing on April 30, 1993 and mature on July 31, 2000. The Existing
Debentures are secured by a pool of assets (the "Security Pool"). The Security
Pool consists of all of the issued and outstanding capital stock of the
Brookwood Companies Incorporated ("BCI") Brookwood Laminating, Inc., ("BCI")
and Kenyon Industries, Inc. ("KII"), each a direct or indirect wholly-owned
subsidiary of the Company (BCI, BLI and KII, collectively referred to as the
"Brookwood Collateral"), as well as all of the capital stock of HHI.
BCI is a complete textile service firm that develops and produces
innovative fabrics and related products through specialized finishing, treating
and coating processes.
HHI owns leasehold interests in the Longboat Key Holiday Inn hotel in
Sarasota, Florida and the Airport Embassy Suites hotel in Oklahoma City,
Oklahoma. The Longboat Key Holiday Inn, originally constructed in 1973, is
situated on 750 feet of private beach on the Gulf of Mexico. The combination
two-story/three-story destination resort hotel is one of the few beach front
resorts in one of the prestigious Florida Keys. The hotel has 121 rooms and 25
suites and, as part of the conversion to a Holiday Inn & Suites hotel, was
recently renovated at a cost of $3.5 million. The renovation was substantially
completed in March 1998. The Airport Embassy Suites hotel is the only
full-service, all-suite hotel in Oklahoma City and is strategically located two
miles from the Will Rogers International Airport. The six-story, 236-room suite
hotel was originally constructed in 1981 and is in excellent condition due to
substantial capital investment in recent years. The airport area has developed
into Oklahoma City's primary hotel district and draws the highest number of
travelers. Capitalizing on its location, the hotel has consistently achieved
high levels of market penetration due to its amenities.
The stock of BCI (the "Brookwood Collateral") is also pledged to The
Bank of New York pursuant to a first lien to secure the indebtedness of BCI
(the "BCI Senior Indebtedness"), which constitutes Senior Indebtedness under
both the Old Indenture and the New Indenture. Therefore, the lien granted on
the Brookwood Collateral with respect to the Existing Debentures
1
<PAGE> 6
constitutes a second lien behind the prior lien of The Bank of New York. As of
March 31, 1998, the outstanding principal amount of the BCI Senior Indebtedness
owed to The Bank of New York was $13,600,000. The stock of HHI is currently
subject only to the lien granted to the Existing Debentures.
The New Collateralized Debentures
The New Collateralized Debentures will bear interest at 8.5% per annum,
payable quarterly in cash on January 31, April 30, July 31, and October 31, of
each year, commencing on July 31, 1998 and will mature July 31, 2005. Other
terms of the New Collateralized Debentures are substantially the same as the
terms of the Existing Debentures. The New Collateralized Debentures will be
secured by a lien on the Security Pool that is subordinate and junior to the
lien in favor of the Existing Debentures, and by a senior lien on the stock
(the "Senior Collateral"), of Brock Suite Hotels, Inc. ("Brock Suites").
Brock Suites owns fee interests in Residence Inn by Marriott hotels
located in Tulsa, Oklahoma and Greenville, South Carolina, and a leasehold
interest in a Residence Inn by Marriott hotel in Huntsville, Alabama. The
Residence Inn in Tulsa was constructed in two phases, in 1981 and 1983, as an
upper tier, extended stay hotel. The property is arranged in an apartment-like
setting offering a residential environment for extended stay guests. The hotel
is comprised of 135 suites in seventeen, two-story residential buildings. Each
of the buildings contains eight suites each and offers large rooms and superior
amenities. The two-story Gatehouse serves as a registration and lobby area along
with a breakfast bar, central gathering area and an executive board room. The
property is centrally located within minutes from downtown, the airport and
other major business districts. The Greenville, South Carolina hotel was
constructed in 1984 as a first-class extended stay Residence Inn hotel. Similar
to the Tulsa hotel, the Greenville hotel offers 96 suites in twelve, two-story
residential buildings of eight suites each, along with a central Gatehouse. The
hotel is centrally located in one of Greenville's fastest growing areas and has
maintained strong relationships with the area's primary corporations, which
provide a strong customer base for the hotel. The Huntsville, Alabama hotel was
also constructed in 1984 as a first-class, extended stay Residence Inn hotel. As
with the other Residence Inn hotels, the property is arranged in an
apartment-like setting offering a residential environment for extended stay
guests. The hotel provides 112 suites in fourteen, two-story residential
buildings of eight suites each, along with a central Gatehouse. The hotel is
strategically located between Huntsville's two largest research and business
centers, which are the largest generators of extended stay guests, and is
located only minutes from downtown Huntsville. Huntsville is considered one of
the top research and development communities in the United States and is home to
several governmental operations, such as the Redstone Arsenal, the Army Aviation
and Missile Command and NASA's Marshall Space Flight Center.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Company believes that the consummation of the Exchange Offer will
enhance the Company's liquidity and improve its financial ability to achieve its
business plan by deferring the time at which the Company is required to pay in
full the Existing Debentures. Although the Company is considering the sale of
certain of the assets in the Security Pool, the proceeds of which would be used
to redeem the Existing Debentures in whole or in part, the Company believes that
the net sales proceeds from such sales will be maximized if the Company has a
longer period of time to effect such sales. Accordingly, a principal purpose of
the Exchange Offer is to refinance the Existing Debentures with the New
Collateralized Debentures having a longer maturity than the Existing Debentures.
In exchange for participation in the Exchange Offer, holders of Existing
Debentures will receive New Collateralized Debentures, which are secured by a
first and senior lien on the Senior Collateral and by a subordinate and junior
lien on the Security Pool. Consequently, in the event of a bankruptcy or
liquidation of the Company, and for so long as the existing prior liens on
assets in the Security Pool remain in place, (i) the priority of the liens of
the holders of New Collateralized Debentures will be subordinate to those of The
Bank of New York with respect to the Brookwood Collateral, and to the Existing
Debentures with respect to all of the Security Pool, and (ii) the holders of New
Collateralized Debentures will be entitled to receive proceeds of the
liquidation of the Security Pool only after payment in full to The Bank of New
York and to the holders of the Existing Debentures and all Senior Indebtedness.
See "SUMMARY"; "HISTORICAL AND PRO FORMA CAPITALIZATION"; "SPECIAL
CONSIDERATIONS -- Consequences to Tendering Debenture holders" and
"--Consequences to Non-Tendering Debenture holders"; and "DESCRIPTION OF NEW
COLLATERALIZED DEBENTURES."
2
<PAGE> 7
THE EXCHANGE OFFER
EXCHANGE OFFER.................. $100 principal amount of New
Collateralized Debentures for each $100
principal amount of Existing Debentures
validly tendered and not withdrawn prior
to the Expiration Date. See "THE EXCHANGE
OFFER."
EXPIRATION DATE................. 5:00 P.M., Boston, Massachusetts time,
on July 31, 1998; provided, that if the
Company extends the period of time for
which the Exchange Offer is open, the
Expiration Date shall be the latest time
and date to which the Exchange Offer may
be extended.
CONDITIONS TO THE The Exchange Offer is subject to certain
EXCHANGE OFFER.................. conditions, however the Exchange Offer is
not conditioned upon a specified minimum
principal amount of Existing Debentures
being tendered in the Exchange Offer. See
"THE EXCHANGE OFFER -- Conditions to the
Exchange Offer." The Company expressly
reserves the right to (i) waive any and
all conditions of the Exchange Offer,
(ii) extend the period of the Exchange
Offer, (iii) modify the terms of the New
Collateralized Debentures, (iv) terminate
the Exchange Offer or (v) otherwise amend
the Exchange Offer in any respect,
subject to the terms set forth in this
Exchange Offering Circular.
FEDERAL INCOME TAX For a discussion of certain federal
CONSIDERATIONS.................. income tax considerations of the Exchange
Offer to tendering holders and to the
Company, see "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
EXCHANGE PROCEDURES
EXCHANGE PROCEDURES............. Any holder of Existing Debentures wishing
to participate in the Exchange Offer must
complete and sign the accompanying Letter
of Transmittal in accordance with the
instructions contained therein, and
forward or hand deliver them together
with any other required documents and
certificates for Existing Debentures
being tendered to the Exchange Agent on
or prior to the Expiration Date. A
beneficial owner of Existing Debentures
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee is urged to contact such
registered holder promptly if such
beneficial owner wishes to participate in
the Exchange Offer. A registered holder
of Existing Debentures held through an
account with the Depository Trust Company
("DTC") will be deemed to be a "holder"
of Existing Debentures for purposes of
the Exchange Offer. A holder of Existing
Debentures unable to tender such holder's
certificates for Existing Debentures
prior to the Expiration Date may utilize
the guaranteed delivery procedures
described herein and in the Letter of
Transmittal. See "THE EXCHANGE OFFER --
Exchange and Tender Procedures."
3
<PAGE> 8
ACCEPTANCE OF EXISTING Upon the terms and subject to the
DEBENTURES; DELIVERY OF conditions set forth herein and
NEW COLLATERALIZED in the accompanying Letter of
DEBENTURES...................... Transmittal, the Company will
accept for exchange all Existing
Debentures validly tendered and not
withdrawn on or prior to the Expiration
Date, and the Exchange Agent will deliver
certificates representing New
Collateralized Debentures to tendering
holders or their designees as soon as
practicable after the satisfaction or
waiver of the conditions to the Exchange
Offer. See "THE EXCHANGE OFFER --
Acceptance of Existing Debentures for
Exchange; Delivery of New Collateralized
Debentures."
EXCHANGE AGENT.................. State Street Bank and Trust Company will
act as the Exchange Agent with respect to
the Exchange Offer.
INFORMATION AGENT............... Hallwood Petroleum, Inc. will act as the
Information Agent with respect to the
Exchange Offer.
SPECIAL CONSIDERATIONS
The investment in New Collateralized Debentures and retention of
Existing Debentures following consummation of the Exchange Offer each involve a
high degree of risk. See "SPECIAL CONSIDERATIONS" for a discussion of certain
important factors to be considered in evaluating the terms of the Exchange
Offer, including the financial condition of the Company and the consequence to
tendering and non-tendering holders of Existing Debentures.
4
<PAGE> 9
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as of March
31, 1998, and the pro forma consolidated statements of operations for the year
ended December 31, 1997 and the three months ended March 31, 1998 have been
prepared to illustrate the pro forma effects of the Exchange Offer, based upon
the exchange of 50% of the outstanding Existing Debentures ("50% Acceptance")
and, alternatively, the exchange of 100% of the outstanding Existing Debentures
("100% Acceptance").
The pro forma consolidated balance sheet is presented assuming the
transaction was completed on March 31, 1998. The pro forma consolidated
statements of operations are presented assuming the transaction was completed on
January 1, 1997.
The pro forma adjustments are based upon currently available information
and upon assumptions that management of the Company believes are reasonable.
This pro forma information should be read in conjunction with the audited
historical consolidated financial statements of the Company contained in the
1997 Annual Report and the Form 10-Q, which accompany this Exchange Offering
Circular. The pro forma financial statements do not purport to represent what
the Company's actual consolidated financial position or results of operations
would have been if the transactions so described had in fact occurred on such
date, or to project the Company's consolidated financial position or results of
operations at any future date or for any future period.
5
<PAGE> 10
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
--------------------------- ---------------------------
PRO PRO
FORMA PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Investments in HRP........................ $ 6,967 $ 6,967 $ 6,967
Receivables and other assets.............. 860 860 860
-------- -------- --------
7,827 7,827 7,827
ENERGY
Oil and gas properties, net............... 7,890 7,890 7,890
Current assets of HEP..................... 2,297 2,297 2,297
Noncurrent assets of HEP.................. 1,801 1,801 1,801
Receivables and other assets.............. 75 75 75
-------- -------- ---------
12,063 12,063 12,063
-------- -------- ---------
Total asset management assets.......... 19,890 19,890 19,890
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Inventories............................... 19,681 19,681 19,681
Receivables............................... 17,514 17,514 17,514
Property, plant and equipment, net........ 8,816 8,816 8,816
Other..................................... 877 877 877
-------- -------- ---------
46,888 46,888 46,888
HOTELS
Properties, net........................... 14,109 14,109 14,109
Receivables and other assets.............. 1,941 1,941 1,941
-------- -------- ---------
16,050 16,050 16,050
-------- -------- ---------
Total operating subsidiaries assets.... 62,938 62,938 62,938
OTHER
Deferred tax asset, net................... 2,040 2,040 2,040
Cash and cash equivalents................. 1,695 (125) (A) 1,570 (150) (A) 1,545
Other..................................... 897 897 897
Restricted cash........................... 671 671 671
-------- ---------- -------- ------- ---------
Total other assets..................... 5,303 (125) 5,178 (150) 5,153
-------- ---------- -------- ------- ---------
TOTAL.................................. $ 88,131 $ (125) $ 88,006 $ (150) $ 87,981
======== ========== ======== ======= =========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
6
<PAGE> 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
------------------------ --------------------
PRO PRO
FORMA PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Accounts payable and accrued expenses..... $ 1,279 $ 1,279 $ 1,279
Loan payable.............................. 500 500 500
---------- --------- --------
1,779 1,779 1,779
ENERGY
Loan payable.............................. 3,467 3,467 3,467
Long-term obligations of HEP.............. 3,024 3,024 3,024
Current liabilities of HEP................ 2,155 2,155 2,155
Accounts payable and accrued expenses..... 608 608 608
---------- --------- --------
9,254 9,254 9,254
---------- --------- --------
Total asset management liabilities..... 11,033 11,033 11,033
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Loan payable.............................. 13,600 13,600 13,600
Accounts payable and accrued expenses..... 12,086 12,086 12,086
---------- --------- --------
25,686 25,686 25,686
HOTELS
Loans payable............................. 11,981 11,981 11,981
Accounts payable and accrued expenses..... 1,469 1,469 1,469
---------- --------- --------
13,450 13,450 13,450
---------- --------- --------
Total operating subsidiaries liabilities 39,136 39,136 39,136
OTHER
7% Debentures............................. 21,909 (10,954) (B) 10,955 (21,909) (B) --
8.5% Debentures........................... -- 10,954 (B) 10,954 21,909 (B) 21,909
Interest and other accrued expenses....... 788 788 788
---------- --------- --------- --------- --------
Total other liabilities................ 22,697 -- 22,697 -- 22,697
---------- --------- --------- --------- --------
TOTAL LIABILITIES.................. 72,866 -- 72,866 -- 72,866
REDEEMABLE PREFERRED STOCK
Series B ................................ 1,000 1,000 1,000
STOCKHOLDERS' EQUITY
Common stock.............................. 160 160 160
Additional paid-in capital................ 54,823 54,823 54,823
Accumulated deficit....................... (31,349) (125) (A) (31,474) (150) (A) (31,499)
Treasury stock............................ (9,369) (9,369) (9,369)
---------- --------- --------- --------- --------
TOTAL STOCKHOLDERS' EQUITY......... 14,265 (125) 14,140 (150) 14,115
---------- --------- --------- --------- --------
TOTAL.............................. $ 88,131 $ ( 125) $ 88,006 $ (150) $ 87,981
========== ========= ========= ========= ========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
7
<PAGE> 12
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
------------------------ --------------------
PRO PRO
FORMA PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees........................................ $ 6,022 $ 6,022 $ 6,022
Equity income from investments in HRP....... 900 900 900
--------- ---------- ----------
6,922 6,922 6,922
Administrative expenses..................... 2,436 2,436 2,436
Depreciation and amortization............... 674 674 674
Interest.................................... 160 160 160
Provision for losses........................ 81 81 81
--------- ---------- ----------
3,351 3,351 3,351
--------- ---------- ----------
Income from real estate operations.......... 3,571 3,571 3,571
ENERGY
Oil and gas revenues........................ 6,013 6,013 6,013
Other income................................ 337 337 337
--------- ---------- ----------
6,350 6,350 6,350
Operating expenses.......................... 1,401 1,401 1,401
Depreciation, depletion and amortization.... 1,387 1,387 1,387
Administrative expenses..................... 1,317 1,317 1,317
Interest.................................... 413 413 413
--------- ---------- ----------
4,518 4,518 4,518
--------- ---------- ----------
Income from energy operations............ 1,832 1,832 1,832
--------- ---------- ----------
Income from asset management
operations............................... 5,403 5,403 5,403
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales....................................... 91,552 91,552 91,552
Cost of sales............................... 79,473 79,473 79,473
Administrative and selling expenses......... 9,072 9,072 9,072
Interest.................................... 1,030 1,030 1,030
--------- ---------- ----------
89,575 89,575 89,575
--------- ---------- ----------
Income from textile products operations..... 1,977 1,977 1,977
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
8
<PAGE> 13
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
------------------------ ------------------------
PRO PRO
FORMA PRO FORMA PRO
OPERATING SUBSIDIARIES (CONTINUED) HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
HOTELS
Sales..................................... $21,038 $21,038 $21,038
Operating expenses........................ 16,990 16,990 16,990
Depreciation and amortization............. 2,841 2,841 2,841
Interest.................................. 1,444 1,444 1,444
------- ------- -------
Income (loss) from hotel operations....... 21,275 21,275 21,275
------- ------- -------
Income (loss) from operating (237) (237) (237)
subsidiaries........................ ------- ------- -------
1,740 1,740 1,740
ASSOCIATED COMPANY
Income from investment in ShowBiz......... 19,416 19,416 19,416
Interest.................................. 607 607 607
------- ------- -------
Income from associated company......... 18,809 18,809 18,809
------- ------- -------
OTHER
Insurance settlement...................... 1,508 1,508 1,508
Interest.................................. 1,423 1,423 1,423
Fee income................................ 560 560 560
------- ------- -------
3,491 3,491 3,491
Interest.................................. 3,597 154 (C) 3,751 308 (C) 3,905
Administrative expenses................... 3,291 3,291 3,291
------- ------- ------- ------- -------
6,888 154 7,042 308 7,196
------- ------- ------- ------- -------
Other loss, net........................ (3,397) (154) (3,551) (308) (3,705)
------- ------- ------- ------- -------
Income before income taxes and
extraordinary gain..................... 22,555 (154) 22,401 (308) 22,247
Income taxes.............................. 9,908 9,908 9,908
------- ------- ------- ------- -------
Income before extraordinary gain.......... 12,647 (154) 12,493 $ (308) 12,339
Extraordinary gain from extinguishment
of debt................................ 200 200 200
------- ------- ------- ------ -------
NET INCOME....................................... $12,847 $ (154) $12,693 $ (308) $12,539
======= ======= ======= ====== =======
PER COMMON SHARE
BASIC
Income before extraordinary gain.......... $ 8.96 $ (0.11) $ 8.85 $(0.22) $ 8.74
Extraordinary gain........................ 0.14 0.14 0.14
------- ------- ------- ------ -------
Net income............................. $ 9.10 $ (0.11) $ 8.99 $(0.22) $ 8.88
======= ======= ======= ====== =======
ASSUMING DILUTION
Income before extraordinary gain.......... $ 8.63 $ (0.11) $ 8.52 $(0.22) $ 8.41
Extraordinary gain........................ 0.14 0.14 0.14
------- ------- ------- ------ -------
Net income............................. $ 8.77 $ (0.11) $ 8.66 $(0.22) $ 8.55
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
9
<PAGE> 14
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
------------------------ --------------------------
PRO PRO
FORMA PRO FORMA PRO
ASSET MANAGEMENT HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REAL ESTATE
Fees ................................... $ 1,242 $ 1,242 $ 1,242
Equity loss from investments in HRP....... (62) (62) (62)
-------- -------- --------
1,180 1,180 1,180
Administrative expenses................... 555 555 555
Depreciation and amortization............. 168 168 168
Interest.................................. 58 58 58
-------- -------- --------
781 781 781
-------- -------- --------
Income from real estate operations..... 399 399 399
ENERGY
Gas revenues.............................. 863 863 863
Oil revenues.............................. 426 426 426
Other income.............................. 50 50 50
-------- -------- --------
1,339 1,339 1,339
Operating expenses........................ 399 399 399
Depreciation, depletion and amortization.. 377 377 377
Administrative expenses................... 225 225 225
Interest.................................. 146 146 146
-------- -------- --------
1,147 1,147 1,147
-------- -------- --------
Income from energy operations.......... 192 192 192
-------- -------- --------
Income from asset management
operations......................... 591 591 591
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales ................................... 23,315 23,315 23,315
Cost of sales............................. 20,158 20,158 20,158
Administrative and selling expenses....... 2,263 2,263 2,263
Interest ................................. 269 269 269
-------- -------- --------
22,690 22,690 22,690
-------- -------- --------
Income from textile products operations... 625 625 625
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
10
<PAGE> 15
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
50% ACCEPTANCE 100% ACCEPTANCE
------------------------ -------------------------
PRO PRO
FORMA PRO FORMA PRO
OPERATING SUBSIDIARIES (CONTINUED) HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS FORMA
HOTELS ---------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Sales..................................... $4,998 $ 4,998 $4,998
Operating expenses........................ 4,425 4,425 4,425
Depreciation and amortization............. 669 669 669
Interest.................................. 252 252 252
------ ------- ------
5,346 5,346 5,346
------ ------- ------
Income (loss) from hotel operations.... (348) (348) (348)
------ ------- ------
Income from operating subsidiaries..... 277 277 277
OTHER
Fee income................................ 137 137 137
Interest on short-term investments and
other income........................... 131 131 131
------- ------- ------
268 268 268
Administrative expenses................... 565 565 565
Interest.................................. 239 38 277 76 315
------ ------ ------- ------ ------
804 38 842 76 880
------ ------ ------- ------ ------
Other loss, net........................ (536) (38) (574) (76) (612)
------ ------ ------- ------ ------
Income before income taxes and
extraordinary gain..................... 332 (38) 294 (76) 256
Income taxes.............................. 95 95 95
------ ------ ------- ------ ------
Income before extraordinary gain.......... 237 (38) 199 (76) 161
Extraordinary gain from
extinguishment of debt................. 107 107 107
------ ------ ------- ------ ------
NET INCOME....................................... $ 344 $ (38) $ 306 $ (76) $ 268
====== ====== ======= ====== ======
PER COMMON SHARE
BASIC
Income before extraordinary gain.......... $ 0.19 $(0.03) $ 0.16 $(0.06) $ 0.13
Extraordinary gain........................ 0.08 0.08 0.08
------ ----- ------- ------ ------
Net income............................. $ 0.27 $(0.03) $ 0.24 $(0.06) $ 0.21
====== ====== ======= ====== ======
ASSUMING DILUTION
Income before extraordinary gain.......... $ 0.18 $(0.03) $ 0.15 $(0.06) $ 0.12
Extraordinary gain........................ 0.08 0.08 0.08
------ ------ ------- ------ ------
Net income............................. $ 0.26 $(0.03) $ 0.23 $(0.06) $ 0.20
====== ====== ======= ====== ======
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
11
<PAGE> 16
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
A. Represents the payment of estimated costs for completion of Exchange
Offer. The actual costs will be expensed in the period incurred.
B. Represents the exchange of Existing Debentures for New Collateralized
Debentures. The exchange of Existing Debentures for New Collateralized
Debentures will be treated as a re-capitalization and no gain or loss
will be recognized on the exchange. The historical balance sheet amount
at March 31, 1998 of $21,909,000 is comprised of the outstanding face
amount of 7% Debentures in the amount of $20,555,443, plus the remaining
unamortized balance of an "unrecognized gain from the purchase and
exchange" in the amount of $1,354,000.
C. Represents the increase in interest expense from the Exchange Offer due
to a higher interest rate on the New Collateralized Debentures (8.5%, as
compared to 7%).
12
<PAGE> 17
SUMMARY COMPARISON OF EXISTING DEBENTURES AND
NEW COLLATERALIZED DEBENTURES
The following summary compares certain terms of the Existing Debentures
and the New Collateralized Debentures. The statements set forth below do not
purport to be complete and are qualified in their entirety by reference to each
of the Existing Debentures and the New Collateralized Debentures and their
respective indentures and the information contained elsewhere in this Exchange
Offering Circular, including the information under "SPECIAL CONSIDERATIONS
- - --Consequences to Tendering Debenture Holders" and "-- Consequences to
Non-Tendering Debenture Holders"; "DESCRIPTION OF EXISTING DEBENTURES" and
"DESCRIPTION OF NEW COLLATERALIZED DEBENTURES" herein. Unless otherwise defined,
capitalized terms used in the following summary are used as defined in the Old
Indenture or the New Indenture, as the case may be.
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
PRINCIPAL $20,555,443 Up to $20,555,443
AMOUNT:
INTEREST: 7% per annum, payable quarterly in 8.5% per annum, payable quarterly in
cash on January 31, April 30, July cash on January 31, April 30, July 31,
31, and October 31, of each year, and October 31, of each year,
commencing on April 30, 1993. commencing on July 31, 1998.
MATURITY: July 31, 2000 July 31, 2005
RANKING: Constitutes senior subordinated Constitutes senior subordinated
indebtedness of the Company, indebtedness of the Company,
subordinated to Senior Indebtedness, subordinated to Senior Indebtedness,
which is defined in the Old which shall be defined in the New
Indenture as all Indebtedness of the Indenture as all Indebtedness of the
Company existing at any time and Company existing at any time and
from time to time which, by its from time to time, which by its terms,
terms, is expressly senior in right of is expressly senior in right of payment
payment to the Existing Debentures. to the New Collateralized Indentures.
The Existing Debentures rank on a The New Collateralized Debentures
parity in right of payment to the rank on a parity in right of payment to
New Collateralized Debentures, but the Existing Debentures, but have
have different rights from the New different rights from the Existing
Collateralized Debentures with Debentures with respect to security.
respect to security. See "SPECIAL See "SPECIAL CONSIDERATIONS
CONSIDERATIONS-- -- Consequences to Tendering
Consequences to Tendering Debenture Holders" and "--
Debenture Holders" and "-- Consequences to Non-Tendering
Consequences to Non-Tendering Debenture Holders."
Debenture Holders."
SECURITY: The Existing Debentures are secured The New Collateralized Debentures
by a pool of assets ("the Security Pool"), will be secured by first and senior lien
which is pledged to the Old Indenture on all of the issued and outstanding
Trustee for the benefit of the Holders capital stock (the "Senior Collateral")
of Existing Debentures. The Security Pool of Brock Suite Hotels, Inc., ("Brock Suites")
consists of all of the issued and an indirect, wholly-owned subsidiary of
outstanding capital stock of the the Company and in which the Holders of the
Brookwood Companies Incorporated Existing Debentures will hold no interest.
("BCI"), and Hallwood Hotels, Inc. The New Collateralized Debentures will also
("HHI"), each a direct or indirect be secured by a subordinate and junior
wholly-owned subsidiary of the lien on the assets in the Security Pool,
Company. The stock of BCI (the as described in "SUMMARY; DESCRIPTION OF
"Brookwood Collateral") is also EXISTING DEBENTURES -- Collateral
pledged to Security."
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
SECURITY The Bank of New York pursuant to The New Indenture contains
(CONT...) a first lien to secure provisions regarding security
indebtedness of BCI (the substantially similar to those in the
"BCI Senior Indebtedness"), Old Indenture.
which constitutes Senior
Indebtedness under both the Old Pursuant to the terms of the New
Indenture and the New Indenture. Indenture, the Company may not grant
The outstanding principal amount of or create a security interest in any of
the BCI Senior Indebtedness was the assets in the Security Pool with
$13,600,000 as of March 31, 1998. respect to other Indebtedness of the
See "DESCRIPTION OF EXISTING Company, unless (i) the aggregate Net
DEBENTURES-- Collateral Security." Value (as defined below) of the
Security Pool immediately following
the granting or creation of such
Pursuant to the terms of the Old security interest is at least equal to the
Indenture, the Company is permitted then aggregate outstanding principal
to grant or create a security interest amount of Existing Debentures that
in any of the assets in the Security are then outstanding, if any, and the
Pool with respect to other New Collateralized Debentures that
Indebtedness of the Company, but are then outstanding and (ii) such
only if (a) the aggregate Net Value additional Indebtedness does not
of the assets in the Security Pool exceed $25 million in the aggregate at
immediately following the grant or any time. The Company may also
creation of such security interest is grant an additional security interest in
at least equal to the then aggregate the Senior Collateral to secure any
outstanding principal amount of additional Indebtedness of the
Existing Debentures and (b) such Company that is also secured by an
additional Indebtedness does not additional security interest on the
exceed $25 million in the aggregate assets in the Security Pool. To the
at any time. If the Company grants extent the Company is not prohibited
or creates a further security interest from granting or creating such a
in such assets, the Old Indenture security interest with respect to other
Trustee will so notify the holders of Indebtedness, such security interest
Existing Debentures. "Net Value" is may rank senior to the security interest
defined in the Old Indenture to of the Pledge and Security Agreement (the "Pledge
mean, with respect to assets in the Agreement") between the Company and the New
Security Pool that are securities Indenture Trustee, and the Company
traded or quoted on a national may require the New Indenture
securities exchange, national Trustee to transfer possession of assets
securities quotation system or in the Security Pool and the Senior
established over-the-counter market Collateral to the holder of such other
("Traded Securities"), the value, Indebtedness in connection with such
determined pursuant to the Old grant or creation of a security interest,
Indenture, of such securities on the provided that such assets remain
trading day prior to the date of subject to the security interest of the
determination of Net Pledge Agreement pursuant to an Intercreditor
Value, and, with respect to assets that are Agreement reasonably satisfactory to the
not Traded Securities, the consolidated net Trustee.
book value of such assets, determined in
accordance with generally accepted "Net Value" is defined in the New Indenture
accounting principles (GAAP). to mean, with respect to assets in the Security
Pool that are Traded Securities, value, determined
In the event of a bankruptcy or liquidation pursuant to the New Indenture, of such securities
of the Company, subject to the rights of on the trading day prior to the date of determination
holders of any other security interest in of Net Value, and, with respect to assets that
the Security Pool permitted under the Old are not Traded Securities, the consolidated net
Indenture, holders of Existing Debentures book value of such assets, determined in accordance
will be entitled to receive the proceeds with generally accepted accounting principles
of the Security Pool. (GAAP).
</TABLE>
14
<PAGE> 19
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
SECURITY There can be no assurance that the In the event of a bankruptcy,
(CONT...) amount realizable upon a liquidation insolvency or liquidation of the
of the Security Pool at any time will Company, and subject to the rights of
equal the aggregate principal amount holders of Senior Indebtedness,
of the Senior Indebtedness and the holders of New Collateralized
Existing Debentures outstanding at Debentures will be entitled to receive
the time of such liquidation, or that the proceeds of the Senior Collateral.
the proceeds of any such liquidation Subject to the rights of holders of
will be available for payment of or Existing Debentures, the rights of
against the Existing Debentures. holders of any other security interests
See "SPECIAL CONSIDERATIONS-- in the Security Pool and of holders of
Consequences to Tendering Debenture Senior Indebtedness, holders of New
holders--Security" and Collateralized Debentures will be
"DESCRIPTION OF EXISTING entitled to receive any remaining
DEBENTURES--Subordination." proceeds of the Security Pool.
There can be no assurance that the amount realizable
upon a liquidation of the Security Pool at any time
will equal the aggregate principal amount of the
Senior Indebtedness and the Existing Debentures
outstanding at the time of such liquidation, or that
any proceeds of any such liquidation will be
available for payment of or against the New
Collateralized Debentures. Similarly, there can be no
assurance that the amount realizable upon a
liquidation of the Security Pool at any time that is
available for payment against the New Collateralized
Debentures plus the amount realizable upon a
liquidation of the Senior Collateral will equal the
aggregate principal amount of the New Collateralized
Debentures outstanding at the time of such
liquidation. See "SPECIAL CONSIDERATIONS--
Consequences to Tendering Debenture holders
--Security." See "DESCRIPTION OF NEW COLLATERALIZED
DEBENTURES--Redemption and Repurchase."
OPTIONAL The Existing Debentures may be redeemed The New Collateralized Debentures may be redeemed
REDEMPTION: at the election of the Company, at any at the election of the Company, at any time
time and from time to time, as a whole, and from time to time, as a whole, or in part, at a
or in part, at a redemption price equal redemption price equal to 100% of the principal amount
to 100% of the principal amount of of New Collateralized Debentures to be redeemed,
Existing Debentures to be redeemed, together with accrued interest to the redemption date.
together with accrued interest to the
redemption date.
MANDATORY During the five-year period from The New Indenture contains
REDEMPTION March 2, 1993 to March 2, 1998 the provisions regarding mandatory
Company was required to redeem, at redemption that are substantially
100% of the principal amount similar to those in the Old Indenture,
thereof, together with accrued although there is no minimum mandatory
interest to the redemption date, or redemption amount similar to that in the
repurchase in the open market or Old Indenture.
privately, Existing Debentures in an
aggregate principal amount at least
equal to 25% of the Initial Amount.
In addition, if the Company
proposes that an asset be released
from the Security Pool to
</TABLE>
15
<PAGE> 20
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
MANDATORY enable the Company to sell such asset, an
REDEMPTION amount at least equal to the lesser of (i)
(CONT...) the Net Value of such asset on the date of
the issuance of the Existing Debenture (or
such later date as the asset was added to
the Security Pool) and (ii) Net Proceeds (as
defined in the Old Indenture) received by
the Company from the sale of such asset must
be used by the Company simultaneously
therewith to redeem Existing Debentures at
100% of the principal amount thereof,
together with accrued interest to the
redemption date, or, substantially
simultaneously therewith, to repurchase
Existing Debentures in the open market or
privately, unless there is added to the
Security Pool either (x) such amount in cash
or cash equivalents (including investment
grade securities) or (y) if other than cash,
(A) the actual consideration received in
connection with such sale or (B) if such
consideration, for any reason, cannot be
contributed to the Security Pool, an amount
equal to the fair value (determined in
accordance with the Old Indenture) of such
consideration (less, in the case of clause
(A) or (B), the reasonable out-of-pocket
expenses incurred by the Company in
connection with such sale and taxes
attributable to such sale). Any such
redemptions or repurchases are credited
against the 25% mandatory redemption
requirement described above. The Company has
since fulfilled its obligations as to the
25% mandatory redemption requirement. See
"DESCRIPTION OF EXISTING DEBENTURES
--Redemption and Repurchase."
PRINCIPAL In addition to the restrictive covenant The New Indenture contains restrictive
RESTRICTIVE described above under "Security" the covenants substantially similar to
COVENANTS: Old Indenture contains a covenant those in the Old Indenture.
restricting the Company from incurring
any liability having a stated maturity at
the same time or after the stated maturity
of the Existing Debentures that in any way
prohibits or restricts the payment at
maturity of the Existing Debentures.
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
EVENTS OF Events of Default under the Old Events of Default under the New
DEFAULT: Indenture include (i) default in (a) Indenture are substantially similar to
the payment of the principal of (or those in the Old Indenture, excluding
premium, if any) on any Existing any default relating to mandatory
Debenture at its maturity, or (b) the redemption other than from sales of
payment of any interest on any assets in the Security Pool, but
Existing Debenture when such including default under the Existing
interest becomes due and payable Debentures. In addition, the New
and the default continues unremedied Indenture provides that the occurrence
for 30 days (ii) default in the of an Event of Default under the Old
observance of or breach of any Indenture also constitutes an Event of
covenants relating to release of Default under the New Indenture.
assets from the Security Pool, the
covenant described in "Security,"
above, or the mandatory redemption
provision described above under
"Mandatory Redemption."
MODIFICATION OF The Company may make certain The New Indenture contains
INDENTURE: modifications by supplemental provisions regarding modifications of
indenture without the consent of the New Indenture substantially
holders of Existing Debentures, if similar to those in the Old Indenture.
such modification (i) evidences the
succession of and assumption by
another person of the covenants of
the Company; (ii) adds to the
covenants of the Company for the
benefit of the holders of Existing
Debentures or surrenders any right
or power conferred upon the
Company; (iii) secures the Existing
Debentures; or (iv) does not
adversely affect the right of any
holders of Existing Debentures. All
other modifications by the
Company may be made by
supplemental indenture only with
the consent of holders of a majority
in principal amount of Existing
Debentures then outstanding, except
modifications to the maturity date,
the interest payment terms, the
outstanding principal amount, the
redemption premium, rights of
holders of Existing Debentures to
enforce payments, the mandatory
redemption or repurchase
requirements, the Existing
Debentures required for
modification, subordination
provisions, and selection by the Old
Indenture Trustee in cases of partial
redemption, any of which require the
consent of all holders of Existing
Debentures then outstanding,
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
EXISTING DEBENTURES NEW COLLATERALIZED DEBENTURES
------------------- -----------------------------
<S> <C> <C>
MODIFICATION OF
INDENTURE
(CONT...)
</TABLE>
18
<PAGE> 23
SPECIAL CONSIDERATIONS
Participation in, and acceptance of, the Exchange Offer, may have
certain adverse consequences to holders of Existing Debentures, and consummation
of the Exchange Offer may have certain adverse consequences to holders of
Existing Debentures who do not tender their Existing Debentures in the Exchange
Offer. Prior to deciding whether to tender Existing Debentures pursuant to the
Exchange Offer, each holder of Existing Debentures should carefully evaluate the
following special considerations, together with all other information set forth
elsewhere in this Exchange Offering Circular, including the information
incorporated herein by reference. For a further discussion of certain federal
income tax consequences of the Exchange Offer to tendering and non-tendering
holders of Existing Debentures and to the Company, see "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS."
GENERAL
Valuation of Security Pool and Senior Collateral. There can be no
assurance (i) that the amount realizable upon a liquidation of the assets in the
Security Pool (as defined in "DESCRIPTION OF EXISTING DEBENTURES -- Collateral
Security -- Contents of Security Pool.") at any time will equal the aggregate
principal amount outstanding of the Senior Indebtedness and the Existing
Debentures outstanding at such time, or (ii) that the amount realizable upon a
liquidation of the assets in the Security Pool and the capital stock of Brock
Suites Hotels, Inc. ("Brock Suites), which comprises the senior collateral (the
"Senior Collateral") at any time will equal the aggregate principal amount
outstanding of the Senior Indebtedness, the Existing Debentures outstanding at
such time and the New Collateralized Debentures outstanding at such time.
As of March 31, 1998, the aggregate net book values for the assets in
the Security Pool and for the assets that comprise the Senior Collateral was
$26,541,000, which amounts are allocated among the Brookwood Collateral (as
defined in "DESCRIPTION OF EXISTING DEBENTURES -- Collateral Security --
Contents of Security Pool," below), the stock of Hallwood Hotels, Inc. ("HHI")
and the Senior Collateral. These net book values do not represent the market
values of such items of collateral.
The Company has engaged Sonnenblick Goldman to explore the sale of the
hotel properties that are owned by subsidiaries of Brock Suites and HHI. The
hotels are substantially all of the tangible assets owned by the companies that
comprise the Senior Collateral other than the Brookwood Collateral. As of the
date hereof, the Company has not entered into any agreements for the sale of any
of such properties and does not intend to enter into any sales agreement unless
the sales price is significantly in excess of book value.
The President of Brookwood Companies Incorporated ("BCI"), the issued
and outstanding capital stock of which comprises the Brookwood Collateral,
requested and was granted an option to purchase for cash all of the outstanding
capital stock of the BCI for a minimum of $9,800,000, including the payment of
a cash dividend and other payments of at least $1,800,000. The option was not
exercised and the option expired on March 31, 1998.
Certain summary, unaudited financial information concerning Brock
Suites, HHI and BCI is included as Appendix A to this Exchange Offer Circular.
Holders of Existing Debentures are encouraged to review this information in
determining whether to accept the Exchange Offer. See also, "DESCRIPTION OF
EXISTING DEBENTURES -- Collateral Security -- Contents of Security Pool."
"DESCRIPTION OF NEW COLLATERALIZED DEBENTURES -- Collateral Security --
Contents of Security Pool."
CONSEQUENCES TO TENDERING DEBENTURE HOLDERS
Ranking. The New Collateralized Debentures will rank on a parity in
right of payment to Existing Debentures, but they will have different rights
from the Existing Debentures with respect to security.
Security. The Existing Debentures will have a lien senior and prior to
the lien of the New Collateralized Debentures with respect to assets in the
Security Pool. Although the New Collateralized Debentures will have a
subordinate lien to that of the Existing Debentures in the Security Pool, they
will have a first and prior lien in the Senior Collateral in which the holders
of the Existing Debentures will have no interest. In the event of a bankruptcy
or liquidation of the Company, the priority of the claim of the holders of New
Collateralized Debentures with respect to the Security Pool will be junior and
19
<PAGE> 24
subordinate to that of the holders of Existing Debentures remaining outstanding
after the closing of the Exchange Offer (the "Exchange Closing"), and the
holders of the New Collateralized Debentures will share in proceeds of the
Security Pool only after the claims of all prior liens (including the lien of
The Bank of New York and the lien in favor of the Existing Debentures) have
been satisfied in full. The holders of the New Collateralized Debentures will
have a first and prior lien in the Senior Collateral and will be entitled to
the proceeds of the Senior Collateral free of the claims of the holders of the
Existing Debentures. See "DESCRIPTION OF NEW COLLATERALIZED DEBENTURES --
Collateral Security." As described more fully below under "DESCRIPTION OF
EXISTING DEBENTURES -- Collateral Security," except under certain specific
circumstances, the Company may not grant or create any security interest in any
of the assets in the Security Pool or the assets that comprise the Senior
Collateral with respect to other Indebtedness of the Company.
The Old Indenture Trustee may not release assets from the Security Pool
unless immediately thereafter the Company consummates a mandatory redemption or
repurchase of Existing Debentures in an amount at least equal to the Old
Indenture Release Amount (as defined below under "DESCRIPTION OF EXISTING
DEBENTURES -- Redemption -- Upon Release of an Asset from the Security Pool") or
the Old Indenture Trustee deposits an amount equal to the Old Indenture Release
Amount in a special account maintained by the Old Indenture Trustee for the
Benefit of holders of Existing Debentures. There can be no assurance that, after
giving effect to such redemption or repurchase or deposit, the then aggregate
liquidation value of the Security Pool will at least equal the then aggregate
outstanding principal amount of the Senior Indebtedness, the Existing Debentures
and the New Collateralized Debentures. Similarly, there can be no assurance that
the amount realizable upon a liquidation of the Security Pool at any time that
is available for payment against the New Collateralized Debentures, if any, plus
the amount realizable upon a liquidation of the Senior Collateral will equal the
aggregate principal amount of the New Collateralized Debentures outstanding at
the time of such liquidation. To the extent that assets remain in the Security
Pool after payment of the Senior Indebtedness and redemption of the Existing
Debentures, such assets will be used to redeem the New Collateralized Debentures
or to continue to secure the New Collateralized Debentures.
The New Indenture Trustee shall take all steps reasonably required to
release any part of the Security Pool from the lien granted in favor of the New
Collateralized Debentures in connection with the sale of such asset by the
Company if the proceeds thereof are used to satisfy senior and prior liens in
accordance with the terms of the Old Indenture and if all remaining proceeds, if
any, are used to redeem New Collateralized Debentures or continue to serve as
collateral for the New Collateralized Debentures. Accordingly, the New Indenture
Trustee may not release assets that comprise part of the Senior Collateral or
the Security Pool, (the "Free Security Pool Assets") unless immediately
thereafter the Company consummates a mandatory redemption or repurchase of New
Collateralized Debentures in the amount of the "New Indenture Release Amount"
(as defined below) under "Description of New Collateralized Debentures
- - --Collateral Security -- Release of Assets"), or deposits with the New
Indenture Trustee the New Indenture Release Amount. If an asset that is part of
the Senior Collateral or the Free Security Pool Assets is released from the
lien granted to secure the New Collateralized Debentures, in connection with a
sale of such asset, an amount at least equal to the lesser of (i) the Net Value
of such asset on the date of the Exchange Closing and (ii) the Net Proceeds (as
defined below under "Description of New Collateralized Debentures - Collateral
Security Release of Assets") received by the Company from the sale or release
of an asset that is part of the Senior Collateral or the Free Security Pool
Assets must be used by the Company (A) simultaneously therewith, to redeem New
Collateralized Debentures at 100% of the principal amount thereof, together
with accrued interest to the redemption date, or (B) substantially
simultaneously therewith, to repurchase New Collateralized Debentures in the
open market or privately for an aggregate amount at least equal to the net
proceeds from the sale of such asset, or (C) simultaneously therewith, for
deposit in a special account maintained by the New Indenture Trustee for the
benefit of the holders of New Collateralized Debentures. New Collateralized
Debentures will constitute secured indebtedness of the Company and will rank on
a parity with the Existing Debentures.
The Company may, under certain circumstances, obtain the release of
assets that comprise the Senior Collateral in order to effect their sale. Sale
of those assets will be subject to substantially the same requirements for
redemption of the New Collateralized Debentures that apply to sale of the assets
in the Security Pool with respect to redemption of the Existing Debentures.
There can be no assurance that, after giving effect to such redemption,
repurchase or deposit, the then aggregate Net Value of the assets that comprise
the Senior Collateral will at least equal the then aggregate outstanding
principal amount of New Collateralized Debentures.
The Security Pool consists of the Brookwood Collateral and all the
stock of HHI. It is likely that the realizable value of all the assets in the
Security Pool and those that comprise the Senior Collateral will fluctuate
throughout the term of the New Collateralized Debentures and that such
fluctuations may be material. Under the terms of the New Indenture, the Company
is under no obligation to maintain any minimum value of the Senior Collateral,
the Security Pool or any assets
20
<PAGE> 25
included therein. Furthermore, if the aggregate value of the Senior Collateral
or the Security Pool or the value of an asset in the Security Pool decreases at
any time, the Company is under no obligation to add additional assets to or
substitute different assets for assets in the Senior Collateral or the Security
Pool.
The Brookwood Collateral that is included in the Security Pool is also
pledged to The Bank of New York pursuant to a first lien to secure the BCI
Senior Indebtedness, which constitutes Senior Indebtedness under both the Old
Indenture and the New Indenture. Therefore, the lien to be granted on the
Brookwood Collateral with respect to the New Collateralized Debentures will
constitute a third lien behind the prior liens of The Bank of New York and the
Existing Debentures. As of March 31, 1998, the outstanding principal amount of
the BCI Senior Indebtedness owed to The Bank of New York was $13,600,000. The
Old Indenture Trustee, the New Indenture Trustee and The Bank of New York are
expected to enter into certain intercreditor agreements with respect to the
security interests in such securities, which agreements will restrict the
ability of the Old Indenture Trustee and the New Indenture Trustee to foreclose
on and realize upon assets in the Security Pool. Pursuant to the New Indenture,
the holders of New Collateralized Debentures will be deemed to acknowledge and
agree that such security interests in favor of the Existing Debentures and The
Bank of New York are senior to the security interests in favor of the New
Collateralized Debentures and that the terms and conditions of such
intercreditor agreements will be binding on the holders of New Collateralized
Debentures.
There can be no assurance that the amount realizable upon a liquidation
of the Security Pool at any time will equal the aggregate principal amount of
the Senior Indebtedness and the Existing Debentures outstanding at the time of
such liquidation, or that any proceeds of any such liquidation will be available
for payment of the New Collateralized Debentures. Similarly, there can be no
assurance that the amount realizable upon a liquidation of the Security Pool at
any time that is available for payment of or against the New Collateralized
Debentures, if any, plus the amount realizable upon a liquidation of the Senior
Collateral will equal the aggregate principal amount of the New Collateralized
Debentures outstanding at the time of such liquidation.
Interest; Maturity. The New Collateralized Debentures will bear
interest at an annual rate of 8.5%, as compared to an annual rate of 7% on
Existing Debentures, and will mature on July 31, 2005 (i.e., five years later
than the Existing Debentures). See "DESCRIPTION OF NEW COLLATERALIZED DEBENTURES
- - -- General."
Waiver of Default. Holders who tender their Existing Debentures for
exchange will also be deemed to have waived any defaults and their consequences
under the Old Indenture or the Existing Debentures, except for a default in the
payment of the principal of, or interest on, any Existing Debentures tendered
and accepted for exchange. No such waiver or other action shall impair the
rights of any holder of any Existing Debentures not tendered or accepted for
exchange or purchase.
Trading Market. The New Collateralized Debentures will constitute a new
issue of the Company's debt securities as to which there will be no established
trading market at the time of issuance. The Company has applied to list the New
Collateralized Debentures for trading on the NYSE, although there can be no
assurance that the New Collateralized Debentures will be listed for trading on
the NYSE. If the aggregate principal amount of New Collateralized Debentures
issued pursuant to the Exchange Offer is less than $5,000,000, the New
Collateralized Debentures will not be eligible for listing on the NYSE. Whether
or not the New Collateralized Debentures are listed on the NYSE, there can be no
assurance that an active trading market for the New Collateralized Debentures
will develop, or, if a market develops, whether such market will provide
sufficient liquidity for holders of New Collateralized Debentures to readily
trade their positions.
The Exchange Offer is not conditioned upon a specified minimum
principal amount of Existing Debentures being tendered in the Exchange Offer
and, accordingly, there can be no assurance as to the outstanding principal
amount of New Collateralized Debentures that will be available for trading. A
debt security with a small outstanding principal amount available for trading (a
smaller "float") may command a lower price than would a comparable debt security
with a greater float. Furthermore, regardless of whether the New Collateralized
Debentures are listed on the NYSE, under today's market conditions, it is
possible that they would trade at a discount, depending upon prevailing interest
rates, the market for similar securities and other factors. Accordingly, no
assurance can be given that a holder of the New Collateralized Debentures will
be able to sell such New Collateralized Debentures in the future or as to the
price at which such sale may occur.
CERTAIN FEDERAL INCOME TAX RISKS
Assuming that, for federal income tax purposes, the Existing Debentures
or the New Collateralized Debentures are not treated as "securities," under
applicable federal income tax regulations, the exchange of New Collateralized
Debentures
21
<PAGE> 26
for Existing Debentures (the "Exchange") would not qualify as a recapitalization
for federal income tax purposes and a holder (an "Exchanging Holder") who
participates in the Exchange Offer generally would be required to recognize gain
or loss equal to the difference between the fair market value of the New
Collateralized Debentures received and such Exchanging Holder's adjusted tax
basis in the Existing Debentures exchanged therefor. Such recognized gain could
be recharacterized as ordinary income to the extent of accrued market discount.
See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Tendering Holders."
If both the Existing Debentures and the New Collateralized Debentures
are treated as "securities" and the Exchange Offer qualifies as a
recapitalization for federal income tax purposes, then an Exchanging Holder
would not recognize any gain or loss realized upon the consummation of the
Exchange Offer. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Tendering
Holders."
Holders of Existing Debentures should be aware that amounts of interest
on New Collateralized Debentures will be included in such holder's income in
advance of the receipt of cash in respect thereof if New Collateralized
Debentures are issued with original issue discount. See "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS -- Federal Income Tax Consequences Associated with New
Collateralized Debentures -- OID."
It is unclear whether the Exchange will result in cancellation of debt
income to the Company. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Certain
Effects of the Exchange Offer on the Company -- Cancellation of Debt Income."
CONSEQUENCES TO NON-TENDERING DEBENTURE HOLDERS
Maturity and Ranking. The contractual rights of the holders of Existing
Debentures will remain unchanged. The maturity date, interest rate and security
will not be affected by the Exchange Offer. However, as noted below, the trading
markets, liquidity and market price of the Existing Debentures could be
adversely affected.
Trading Market, Liquidity and Market Value. Existing Debentures are
traded on the NYSE. After the consummation of the Exchange Offer, the
outstanding principal amount of Existing Debentures available for trading may be
significantly reduced. If the outstanding principal amount of Existing
Debentures falls below $5,000,000 as a result of the Exchange Offer, the
Existing Debentures will not be eligible for listing on the NYSE, which could
adversely affect their liquidity and market price. Because the principal amount
of Existing Debentures exchanged pursuant to the Exchange Offer will reduce the
float, the liquidity and market price of the Existing Debentures may be
adversely affected even if the Existing Debentures continue to be listed on the
NYSE. The extent of the public market for the Existing Debentures would depend
upon the number of holders of Existing Debentures at such time, and the interest
in maintaining a market in the Existing Debentures on the part of securities
firms and other factors.
CERTAIN LITIGATION
The Company is involved in certain litigation, which, if decided
adversely, could have an adverse effect on the Company. (See page 5 of the
Company's 1997 Annual Report supplied herewith.)
22
<PAGE> 27
\
CERTAIN MARKET INFORMATION REGARDING THE EXISTING DEBENTURES
Existing Debentures are traded on the NYSE under the symbol HWG00.
The high and low bid prices for the Existing Debentures are set forth for the
periods indicated.
<TABLE>
<CAPTION>
Existing
Debentures
Bid
---
High Low
--------------------
<S> <C> <C>
1995
1st Quarter $ 76 1/2 $ 64 1/4
2nd Quarter 80 72 1/8
3rd Quarter 77 73
4th Quarter 83 3/8 73 7/8
1996
1st Quarter 77 1/8 74
2nd Quarter 88 77 7/8
3rd Quarter 91 85
4th Quarter 90 7/8 85 1/2
1997
1st Quarter 94 88
2nd Quarter 96 89 5/8
3rd Quarter 95 86
4th Quarter 94 7/8 92
1998
1st Quarter 96 7/8 93
through
2nd Quarter, 1998
</TABLE>
23
<PAGE> 28
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING DEBENTURES
The Company hereby offers to exchange upon the terms and subject to the
conditions set forth in this Exchange Offering Circular and in the accompanying
Letter of Transmittal, Existing Debentures that are properly tendered in
accordance with the terms of the Exchange Offer on or prior to the Expiration
Date and not withdrawn, at the rate of $100 principal amount of New
Collateralized Debentures for each $100 principal amount of Existing Debentures
so tendered in the Exchange Offer. Tendering holders of Existing Debentures will
be entitled to receive accrued interest on Existing Debentures accepted by the
Company for exchange from the date of the last interest payment (i.e., April 30,
1998 or July 31, 1998). The Exchange Agent will deliver certificates
representing New Collateralized Debentures pursuant to the Exchange Offer on the
Exchange Closing and a check for accrued interest due, if any, on such Existing
Debentures tendered for exchange.
No fractional New Collateralized Debentures (i.e., in a principal
amount other than an integral multiple of $100) will be issued pursuant to the
Exchange Offer. The Company expressly reserves the right, in its sole
discretion, to delay acceptance of any Existing Debentures or terminate the
Exchange Offer and not accept for exchange any Existing Debentures not
theretofore accepted if any of the conditions to the Exchange Offer are not
satisfied or waived.
Tendering holders of Existing Debentures 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 tendering of Existing Debentures
pursuant to the Exchange Offer. The Company will pay all charges, expenses and,
other than certain taxes described below under "Brokerage Commissions, Fees and
Transfer Taxes," transfer taxes in connection with the Exchange Offer.
As used with respect to the Exchange Offer, the term "Expiration Date"
means 5:00 P.M., Boston, Massachusetts time, on July 31, 1998; provided,
however, that if the Company, in its sole discretion, extends the period of time
for which the Exchange Offer is open, the term "Expiration Date" shall mean the
latest time and date to which the Exchange Offer has been extended. Unless
Existing Debentures being tendered are deposited with the Exchange Agent on or
prior to the Expiration Date (accompanied by properly completed Letter of
Transmittal or a facsimile thereof and any other documents required by the
Letter of Transmittal) or tendered pursuant to the guaranteed delivery
procedures set forth under " -- Exchange and Tendering Procedures -- Notice of
Guaranteed Delivery", the Company may, at its option, reject such tender.
Issuance of New Collateralized Debentures will be made only against deposit of
properly tendered and accepted Existing Debentures.
The Company's obligation to accept Existing Debentures for exchange
pursuant to the Exchange Offer is also subject to certain conditions as set
forth below under "-- Conditions to the Exchange Offer." If any of such
conditions is not satisfied on the Expiration Date, the Company reserves the
right (but shall not be obligated) to (i) decline to accept for exchange
Existing Debentures tendered, terminate the Exchange Offer and promptly return
all Existing Debentures tendered pursuant to the Exchange Offer to tendering
holders; (ii) modify the Exchange Offer to modify or waive the conditions
thereof and, in accordance with applicable law and subject to any requirements,
accept for exchange and exchange all Existing Debentures validly tendered: or
(iii) extend the Exchange Offer and retain any Existing Debentures that have
been tendered during the period or periods for which the Exchange Offer is
extended, subject to a tendering holder's withdrawal rights.
The Company expressly reserves the right, at any time or from time to
time, for any reason, to extend the Expiration Date and thereby delay acceptance
for exchange any Existing Debentures previously tendered, by giving oral or
written notice of such extension to the Exchange Agent and making a public
announcement thereof. There can be no assurance that the Company will exercise
its right to extend the Exchange Offer. During any such extension, all Existing
Debentures previously tendered and not withdrawn will remain subject to the
Exchange Offer and may be exchanged by the Company at the expiration of the
Exchange Offer, subject to the right of a tendering holder to withdraw his
Existing Debentures. See "Withdrawal Rights."
The Company also expressly reserves the right, in its sole discretion
and subject to applicable law, (i) to delay acceptance for exchange or delay
exchange any Existing Debentures to be exchanged by it pursuant to the Exchange
Offer, regardless of whether such Existing Debentures were theretofore accepted
for exchange, or to terminate the Exchange Offer and not accept for exchange any
Existing Debentures not theretofore accepted for exchange if any of the
conditions to the Exchange Offer is not satisfied or waived, by giving written
notice of such delay or termination to the Exchange Agent; (ii) at any time or
from time to time, to amend the Exchange Offer in any respect; or (iii) to waive
any condition to the Exchange Offer and accept all Existing Debentures
previously tendered pursuant thereto. The reservation by the Company of the
right
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to delay acceptance for exchange of Existing Debentures is subject to the
provisions of Rule 14e-l(c) under the Exchange Act, which requires that the
Company pay the consideration offered or return Existing Debentures deposited by
or on behalf of holders promptly after the termination of the Exchange Offer.
Any extension, delay, termination or amendment to the Exchange Offer
will be followed as promptly as practicable by public announcement thereof.
Without limiting the manner in which the Company may choose to make such public
announcement, the Company shall have no obligation, except as may be required by
law, to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a release to the Dow Jones News Service,
except in the case of an announcement of an extension of the Exchange Offer, in
which case the Company shall have no obligation, except as may be required by
the Exchange Act, to publish, advertise or otherwise communicate such
announcement other than by issuing a notice of such extension by press release
or other public announcement, which announcement shall be issued no later than
9:00 a.m., Boston, Massachusetts time, on the next business day after the
previously scheduled Expiration Date.
For purposes of the Exchange Offer, a "business day" means any day
other than a Saturday, Sunday, or federal holiday, and consists of the time
period from 12:01 A.M. through 12:00 Midnight, Boston, Massachusetts time.
The Commission has taken the position that the minimum period during
which an offer must remain open following material changes in the terms of or
information concerning such offer, other than a change in the price offered or a
change in percentage of securities sought, will depend upon the facts and
circumstances, including the relative materiality of the terms or information
changed. With respect to a change in price or a change in percentage of
securities sought, a minimum ten business day period is required by the Exchange
Act to allow for adequate dissemination. Except as required by the Securities
Act, the Exchange Act and the rules and regulations under each of them, the
Company does not intend to give written notification of any such changes to the
holders of Existing Debentures.
POSITION OF THE COMPANY WITH RESPECT TO THE EXCHANGE OFFER
Pursuant to the provisions of Rule 14e-2 promulgated under the Exchange
Act, the Company is required to publish, send or give to holders of the Existing
Debentures a statement disclosing that the Company either (i) recommends
acceptance or rejection of the Exchange Offer, (ii) expresses no opinion and is
remaining neutral with respect to the Exchange Offer or (iii) is unable to take
a position with respect to the Exchange Offer; in each case, together with the
reasons therefor.
DUE TO THE CONFLICT OF INTEREST WITH RESPECT TO THE EXCHANGE OFFER IN
THAT THE COMPANY IS BOTH THE OFFEROR AND THE SUBJECT COMPANY, NONE OF THE
COMPANY, ITS BOARD OF DIRECTORS OR ANY AFFILIATE OF THE COMPANY EXPRESSES ANY
OPINION OR MAKES ANY RECOMMENDATION AS TO WHETHER HOLDERS SHOULD SURRENDER THEIR
EXISTING DEBENTURES FOR EXCHANGE.
EXCHANGE AND TENDER PROCEDURES
General. The tender to the Company of Existing Debentures by a holder
thereof pursuant to one of the procedures set forth below will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Exchange Offering Circular and
in the accompanying Letter of Transmittal. Except as set forth below under
"-- Book-Entry Transfer Facility" and "-- Notice of Guaranteed Delivery," a
holder wishing to tender Existing Debentures pursuant to the Exchange Offer must
complete and sign the accompanying Letter of Transmittal in accordance with the
instructions contained therein, and forward or hand deliver them together with
any other required documents and certificates for Existing Debentures being
tendered on or prior to the Expiration Date to the Exchange Agent at its address
set forth on the back cover page hereof.
The Letter of Transmittal and Existing Debentures should be sent only
to the Exchange Agent. No Letter of Transmittal or Existing Debentures should be
sent to the Company, the Old Indenture Trustee or the New Indenture Trustee. The
method of delivery of Existing Debentures, the Letter of Transmittal and all
other required documents is at the election and risk of the holder of Existing
Debentures. If such delivery is by mail, it is recommended that registered mail,
properly insured, with return receipt requested, be used. In all cases,
sufficient time should be allowed to assure timely delivery.
All references to a "holder" of Existing Debentures contained in this
Exchange Offering Circular shall mean the registered holder thereof or any other
person to whom certificates for Existing Debentures are endorsed for transfer,
either by endorsement on such certificate or pursuant to a properly executed
bond power. The term "registered holder" means a
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<PAGE> 30
person (other than the Company or any of its subsidiaries) in whose name
Existing Debentures are registered as of the date of this Exchange Offering
Circular on the books of the Company or the Old Indenture Trustee, as the
registrar of Existing Debentures. Any beneficial owner whose Existing Debentures
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee or in the name of CEDE & Co. and who wishes to exchange
Existing Debentures for New Collateralized Debentures should contact such broker
or other nominee or CEDE & Co. promptly and instruct such person, as the
registered holder of Existing Debentures, to execute and deliver the Letter of
Transmittal to the Exchange Agent on such beneficial owner's behalf.
Unless (i) the Letter of Transmittal is signed by the registered
holder(s) of Existing Debentures tendered therewith and issuance of New
Collateralized Debentures pursuant to the Exchange Offer is to be made directly
to such holder and the "Special Issuance and Payment Instructions" box on the
Letter of Transmittal has not been completed, or (ii) such Existing Debentures
are being tendered for the account of an Eligible Institution (as defined
below), the authenticity of the signature on any Letter of Transmittal must be
guaranteed by a commercial bank or trust company having an office or branch in
the United States or by a firm that is a member of a registered national
securities exchange or member of the National Association of Securities
Dealers, Inc. and which is a member of (a) the Securities Transfer Agents
Medallion Program (STAMP), administered by Kemark Financial Services, (b) the
New York Stock Exchange Medallion Signature Program (MSP), or (c) the Stock
Exchanges Medallion Program (SEMP), each of which is an "Eligible Institution."
If Existing Debentures are registered in the name of a person other than the
signer of the Letter of Transmittal, such Existing Debentures must be endorsed
or accompanied by bond powers signed by the registered holder, with the
signature on the endorsement or bond powers guaranteed in each case by an
Eligible Institution. If Existing Debentures are registered in the name of a
person other than the signer of a Letter of Transmittal, such Existing
Debentures must be endorsed or accompanied by bond powers signed by the
registered holder(s), with the signatures on the endorsement or bond powers
guaranteed in each case by an Eligible Institution.
Book-Entry Transfer Facility. The Exchange Agent will seek to establish
an account with respect to the Existing Debentures at the DTC (the "Book-Entry
Transfer Facility,") promptly after the date of this Exchange Offering Circular.
A financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Existing Debentures by causing
the Book-Entry Transfer Facility to transfer such Existing Debentures into the
Exchange Agent's account, at the Book-Entry Transfer Facility in accordance with
the Book-Entry Transfer Facility's procedure for such transfer. Although
delivery of Existing Debentures may be effected through book-entry transfer at
the Book-Entry Transfer Facility, in either case (i) a properly completed and
duly executed Letter of Transmittal (or facsimiles thereof) with any required
signature guarantees and any other required documents must be transmitted to and
received by the Exchange Agent at its address set forth in the Letter of
Transmittal on or prior to the Expiration Date or (ii) the guaranteed delivery
procedure set forth below must be followed. Delivery of documents to the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Exchange Agent.
Notice of Guaranteed Delivery. If a holder of Existing Debentures
elects to tender Existing Debentures pursuant to the Exchange Offer and (i) such
Existing Debentures are not immediately available, but are not lost, (ii) time
will not permit the holder to deliver all required documents to the Exchange
Agent by the Expiration Date, or (iii) such holder cannot complete the procedure
for book-entry transfer on a timely basis, such Existing Debentures may
nevertheless be tendered if all of the following conditions are satisfied:
(a) the tender is made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Exchange Agent
receives from an Eligible Institution (by facsimile
transmission, mail or hand delivery) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in
the form provided by the Company, signed and dated, setting
forth the name and address of the holder of Existing
Debentures and the principal amount of Existing Debentures
tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the
Expiration Date, the duly executed Letter of Transmittal,
together with the certificate(s) representing Existing
Debentures (or confirmation of a book-entry transfer of
Existing Debentures into the Exchange Agent's account at the
Book-Entry Transfer Facility as described under "--Book-Entry
Transfer Facility") and all other documents required by the
Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and
(c) within five business days after the Expiration Date, the
Exchange Agent receives the certificates for all tendered
Existing Debentures in proper form for transfer (or a
confirmation of a book-entry transfer of
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such Existing Debentures into the Exchange Agent's account at
the Book-Entry Transfer Facility, as described above),
together with properly completed and duly executed Letter of
Transmittal and any required signature guarantees, and all
other documents required thereby.
If a holder of Existing Debentures desires to tender Existing
Debentures pursuant to the Exchange Offer, but is unable to locate the
certificates for such Existing Debentures, such holder should telephone the
Exchange Agent at the telephone number set forth on the back cover page hereof
about procedures for tendering such Existing Debentures (which include delivery
of duly executed Letter of Transmittal together with a duly executed (and
notarized) Affidavit of Loss and Indemnity Bond).
Miscellaneous. If any holder desires to tender less than the entire
principal amount of any Existing Debentures evidenced by a submitted
certificate(s), such holder should fill in the principal amount tendered in the
appropriate box on the Letter of Transmittal with respect to the deposit being
made, but only to the extent of the principal amount of Existing Debentures
being tendered. The entire principal amount represented by the certificates for
all Existing Debentures deposited with the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Debentures tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. Tenders of Existing Debentures will not be deemed to have
been made until all defects and irregularities have been waived by the Company
or cured. Any Existing Debentures received by the Exchange Agent that are not
properly tendered and as to which the defects and irregularities have not been
waived by the Company or cured will be returned by the Exchange Agent to the
tendering holders thereof as soon as practicable following the Expiration Date.
The Company reserves the absolute right to reject any or all tenders of any
particular Existing Debentures determined by it not to be in proper form or the
acceptance of or payment for which Existing Debentures may, in the opinion of
the Company's counsel, be unlawful. The Company also reserves the absolute
right to waive, in whole or in part, subject to any applicable law, any of the
conditions of the Exchange Offer, and to waive any defect or irregularity in
the tender of any particular Existing Debenture. The Company's interpretation
of the terms and conditions of the Exchange Offer, including the Letter of
Transmittal and the instructions thereto, will be final and binding on all
parties. All tendering holders of Existing Debentures by execution of the
Letter of Transmittal, will waive any right to receive notice of acceptance of
their Existing Debentures, for exchange. Neither the Company, the Exchange
Agent, nor any other person will be under any duty to give notification of any
defects or irregularities with respect to tenders of Existing Debentures nor
shall any of them incur any liability for failure to give any such
notification.
If the Letter of Transmittal is signed by any person or persons other
than the registered holder or holders of Existing Debentures, such Existing
Debentures must be endorsed for transfer to any such person or persons by the
registered holder(s) thereof, either by endorsement on the certificate(s) or by
a properly executed bond power, and accompanied by a valid proxy obtained from
such registered holder(s), each signed by the registered holder(s) and
guaranteed as described under "-- Notice of Guaranteed Delivery" above. If the
Letter of Transmittal or any Existing Debentures or powers of attorney are
signed or endorsed 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, provide proper evidence satisfactory to the
Company (which may delegate powers in whole or in part to the Exchange Agent) of
the appointment and their authority to so act.
ACCEPTANCE OF EXISTING DEBENTURES FOR EXCHANGE;
DELIVERY OF NEW COLLATERALIZED DEBENTURES
Upon the satisfaction or waiver of all the conditions to the
consummation of the Exchange Offer, at the Exchange Closing the Company will
accept for exchange Existing Debentures validly tendered pursuant to the
Exchange Offer and not withdrawn. The Exchange Agent will thereafter deliver
certificates representing New Collateralized Debentures promptly after the
Exchange Closing and a check for accrued interest, if any.
The Company expressly reserves the right to delay acceptance of any
tendered Existing Debentures or terminate the Exchange Offer and not accept for
exchange any tendered Existing Debentures not theretofore accepted in its sole
discretion if any conditions set forth under "--Conditions to the Exchange
Offer" shall not have been satisfied or waived by the Company or fail to comply,
in whole or in part, with any applicable law. If, for any reason, acceptance for
exchange of, or delivery of New Collateralized Debentures in exchange for,
Existing Debentures pursuant to the Exchange Offer is delayed, or the Company is
unable to accept Existing Debentures for exchange, or issue or deliver New
Collateralized
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Debentures, then without prejudice to the Company's rights set forth herein, the
Exchange Agent may nevertheless, on behalf of the Company, retain tendered
Existing Debentures and such Existing Debentures may not be withdrawn except to
the extent that the tendering holder thereof is entitled to withdrawal rights as
described under "-- Withdrawal Rights" below. The foregoing is subject to Rule
14e-l(c) under the Exchange Act, which requires that the Company pay the
consideration offered or return the Existing Debentures tendered promptly after
the termination or withdrawal of the Exchange Offer. The term "promptly" has
been interpreted by the staff of the Commission to mean within five business
days after termination.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Existing Debentures when, as and if the
Company has given written notice thereof to the Exchange Agent. The Exchange
Agent will act as agent for the tendering holders of Existing Debentures for the
purposes of receiving the New Collateralized Debentures from the Company and
transmitting such New Collateralized Debentures to the tendering holders. Any
tendered Existing Debentures not accepted for exchange by the Company will be
returned without expense to the tendering holders (or, in the case of Existing
Debentures tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility, credited to an account maintained at the
Book-Entry Transfer Facility designated by the participant therein who so
delivered such Existing Debentures) as promptly as practicable following the
Expiration Date. In all cases, New Collateralized Debentures will be delivered
in exchange for Existing Debentures accepted for exchange pursuant to the
Exchange Offer only after timely receipt by the Exchange Agent of Existing
Debentures (through delivery of certificates or book-entry transfer), a properly
completed and duly executed Letter of Transmittal (or facsimiles thereof) and
any other documents required by the Letter of Transmittal.
INTEREST ON EXISTING DEBENTURES
Tendering holders of Existing Debentures will be entitled to receive
accrued interest on Existing Debentures accepted by the Company for exchange
from the date of the last interest payment (i.e., April 30, 1998 or July 31,
1998).
WITHDRAWAL RIGHTS
Prior to the Expiration Date, holders of Existing Debentures will have
the right to withdraw any and all Existing Debentures tendered pursuant to the
Exchange Offer. If a holder who has tendered Existing Debentures pursuant to the
Exchange Offer subsequently effects a valid withdrawal of such holder's tender
of Existing Debentures, such action will render the tender defective and the
Company will have the right, which it may waive, to reject such tender as
invalid and ineffective. To be effective, a written, telegraphic, or facsimile
transmission notice of withdrawal must:
(i) be timely received by the Exchange Agent at the address set
forth on the back cover page of this Exchange Offering
Circular before the Exchange Agent receives notice of
acceptance from the Company of tendered Existing Debentures;
(ii) specify the name of the person who tendered the Existing
Debentures;
(iii) specify the name of the registered holder, the serial numbers
of the particular Existing Debentures, and the aggregate
principal amount represented by such Existing Debentures; and
(iv) be signed by the registered holder who tendered such Existing
Debentures in the same manner as the original signature on the
Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the
Company (which may delegate powers in whole or in part to the
Exchange Agent) that the person withdrawing the tender has
succeeded to the registered ownership of the Existing
Debentures. If Existing Debentures have been tendered pursuant
to the procedure for book-entry transfer as set forth herein,
any notice of withdrawal must also specify the name and number
of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Existing Debentures.
Withdrawals of tenders of Existing Debentures may not be rescinded, and
any Existing Debentures withdrawn will thereafter be deemed not validly tendered
for purposes of the Exchange Offer; provided, however, that withdrawn Existing
Debentures may be tendered by following one of the procedures described herein
at any time prior to the Expiration Date.
All questions as to the validity, form and eligibility including time
of receipt) of notices of withdrawal will be determined by the Company, in its
sole discretion, which determination will be final and binding. None of the
Company,
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the Exchange Agent, the Information Agent or any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give any such
notification.
APPRAISAL RIGHTS
There are no appraisal or other similar statutory rights available to
holders of Existing Debentures in connection with the Exchange Offer.
BACKUP WITHHOLDING
The payments received pursuant to the Exchange Offer may be subject to
backup withholding. In order to avoid the possible application of the federal
income tax backup withholding rules, each tendering holder of Existing
Debentures must complete the Substitute Form W-9 provided in the Letter of
Transmittal and either (i) provide his correct taxpayer identification number,
which in the case of a holder who is an individual is such holder's social
security number, and certify under penalties of perjury that the taxpayer
identification number provided is correct (or that such holder is awaiting a
taxpayer identification number) and that (a) such holder has not been notified
by the Internal Revenue Service (the "IRS") that he is subject to backup
withholding as a result of failure to report all interest or dividends or (b)
the IRS has notified such holder that he is no longer subject to backup
withholding, or (ii) provide an adequate basis for exemption. Holders of
Existing Debentures who do not satisfy these conditions may be subject to a $50
penalty imposed by the IRS and may be subject to backup withholding. Exempt
holders (including, among others, corporations and certain foreign individuals)
are not subject to these requirements if they satisfactorily established their
status as such.
By tendering Existing Debentures pursuant to the Exchange Offer, a
holder that does not comply with the conditions described in the preceding
paragraph authorizes the Exchange Agent or the Company, as the case may be, to
withhold a portion of New Collateralized Debentures issuable to such holder of
Existing Debentures to sell New Collateralized Debentures so withheld so as to
enable the Exchange Agent or the Company to satisfy their backup withholding
obligations. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Backup
Withholding and Information Reporting."
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Collateralized
Debentures pursuant to the Exchange Offer in exchange for, any Existing
Debentures and may terminate or amend the Exchange Offer, if, at any time before
the acceptance of such Existing Debentures for exchange, any of the following
events shall occur:
(i) any required consents and approvals to the commencement or
consummation of the Exchange Offer are not obtained, including qualification of
the New Indenture under the Trust Indenture Act; or
(ii) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued by,
any court or governmental agency or other governmental regulatory or
administrative agency or commission, (a) seeking to restrain or prohibit the
making or consummation of either of the Exchange Offer, or assessing or seeking
any damages as a result thereof, (b) resulting in a material delay in the
ability of the Company to accept for exchange or to exchange some or all of the
Existing Debentures pursuant to the Exchange Offer, or (c) seeking to limit the
benefits expected to be derived by the Company as a result of the transactions
contemplated by the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the Exchange Offer by any government or governmental authority,
domestic or foreign, or any action shall have been taken, proposed or
threatened, by any government, governmental authority or agency or court,
domestic or foreign, that in the sole judgment of the Company might directly or
indirectly result in any of the consequences referred to in clauses (a), (b) or
(c) above or, in the sole judgment of the Company, would make it inadvisable to
proceed with the Exchange Offer; or
(iii) there shall have occurred (a) any general suspension of, or
general limitation on prices for, or trading in, securities on the NYSE, (b)
any limitation by any governmental agency or authority which adversely affects
the ability of the Company to complete the transactions contemplated by the
Exchange Offer, (c) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit or (d) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States, or,
in the case of any of the foregoing existing at the time of the commencement of
the Exchange Offer, a material acceleration or worsening thereof; or
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(iv) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Company and its subsidiaries taken as a whole, including such change in
financial markets generally affecting equity securities of corporations or the
ability of corporations to raise debt or equity capital that, in the sole
judgment of the Company, is or may be adverse to the Company, or the Company
shall have become aware of facts that, in the sole judgment of the Company, have
or may have adverse significance with respect to the value of the New
Collateralized Debentures or the Existing Debentures; which, in the sole
judgment of the Company in any such case, and regardless of circumstances
(including any action by the Company) giving rise to any such condition, makes
it inadvisable to proceed with the Exchange Offer, and/or with such acceptance
for exchange or purchase or with such exchange or purchase.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion, subject to any applicable
legal requirements. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
The Exchange Offer is not conditioned upon a specified minimum
principal amount of Existing Debentures being tendered in the Exchange Offer.
NO PAYMENTS FOR SOLICITATION; PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to any broker,
dealer or other person soliciting the exchange of Existing Debentures pursuant
to the Exchange Offer. The Company, 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 therewith. The Company will also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Exchange Offering Circular and related documents to the beneficial owners of
Existing Debentures, and in handling and forwarding tenders to the Company.
The expenses to be incurred in connection with the Exchange Offer,
including the fees and expenses of the Exchange Agent, the fees and expenses of
legal counsel and accountants to the Company, and printing and filing costs,
will be paid by the Company and are estimated to be approximately $100,000.
EXCHANGE AGENT; INFORMATION AGENT; ASSISTANCE
The Company has retained State Street Bank and Trust Company to act as
Exchange Agent with respect to the Exchange Offer. The Company has agreed to pay
the Exchange Agent reasonable and customary fees for its services and to
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company has also agreed to indemnify the Exchange Agent against certain
liabilities and expenses.
Questions and requests for assistance may be directed to the Exchange
Agent or the Information Agent at their respective addresses set forth on the
back cover page hereof. Requests for additional copies of this Exchange Offering
Circular, the Letter of Transmittal, and other related documents should be
directed to the Exchange Agent or the Information Agent.
BROKERAGE COMMISSIONS, FEES AND TRANSFER TAXES
Holders who tender their Existing Debentures will not be obligated to
pay brokerage commissions or fees with respect to the tender of any Existing
Debentures. Holders who tender their Existing Debentures for exchange will not
be obligated to pay any transfer taxes in connection therewith, except that (i)
holders who instruct the Exchange Agent to register or issue the New
Collateralized Debentures in the name of, or who request that Existing
Debentures not accepted in the Exchange Offer be delivered to, a person other
than the registered holder, or (ii) if a transfer tax is imposed for any reason
other than the exchange of Existing Debentures for New Collateralized
Debentures, such tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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MISCELLANEOUS
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Existing Debentures in any jurisdiction in
which the making or acceptance thereof would not be in compliance with the laws
of such jurisdiction. However, the Company may, in its discretion, take such
action as it may deem necessary to make the Exchange Offer in any jurisdiction
and to extend the Exchange Offer to holders of Existing Debentures in such
jurisdiction. The Company is not aware of any jurisdiction in which the making
of the Exchange Offer or the acceptance thereof would not be in compliance with
the laws of any such jurisdiction. In any jurisdiction where securities or blue
sky laws require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer shall be deemed to be made on behalf of the Company by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
DESCRIPTION OF EXISTING DEBENTURES
The Existing Debentures are issued under the Old Indenture dated as of
March 2, 1993 between the Company and Norwest Bank Minnesota, National
Association, as trustee (the "Old Indenture Trustee").
THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE
SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF CERTAIN PROVISIONS OF THE OLD
INDENTURE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE OLD INDENTURE.
Unless otherwise defined, capitalized terms used in the following description
are used as defined in the Old Indenture. All section references in the
following description are to sections in the Old Indenture.
GENERAL
The Existing Debentures are issued in fully registered form in
denominations of $100 or integral multiples thereof. Interest on Existing
Debentures accrued from the date of issuance at the rate of 7% per annum, and is
payable quarterly on January 31, April 30, July 31 and October 31 of each year.
(Section 301).
The Existing Debentures will mature on July 31, 2000. They are
transferable and registrable without charge, except for any tax or other
governmental charge connected therewith. (Section 305).
SUBORDINATION
The Existing Debentures constitute senior subordinated Indebtedness of
the Company, subordinated to Senior Indebtedness, which is defined in the Old
Indenture as all Indebtedness of the Company existing at any time and from time
to time, which, by its terms, is expressly senior in right of payment to the
Existing Debentures. As of the date hereof, the only outstanding Senior
Indebtedness of the Company is the BCI Senior Indebtedness in the outstanding
principal amount of $13,600,000 as of March 31, 1998, which Senior Indebtedness
is secured by the Brookwood Collateral. The Brookwood Collateral is part of the
Security Pool in which the company has granted the Existing Debentures a
subordinate security interest and in which the Company will grant the New
Collateralized Debentures a security interest that is subordinate to both the
Senior Indebtedness and the Existing Debentures. See "-- Collateral Security --
Contents of Security Pool."
In the event of (i) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, (ii) any liquidation, dissolution or other winding up
or arrangement, adjustment, protection, relief or composition of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company, then the holders of Senior
Indebtedness are entitled, among other things, to receive payment in full before
holders of Existing Debentures are entitled to receive any payment. If, in any
of the situations referred to in clauses (i), (ii) or (iii) above, a payment or
distribution is made to the Old Indenture Trustee or to holders of Existing
Debentures before all Senior Indebtedness has been paid in full, such payment or
distribution shall be held in trust by the Old Indenture Trustee and paid over
to the holders of Senior Indebtedness, notwithstanding the fact that the
Existing Debentures are secured, as described in "-- Collateral Security," below
(Section 1302).
The Old Indenture provides that in the event of, and during the
continuation of, any default in the payment of principal of or interest on any
Senior Indebtedness, no payment may be made by the Company with respect to the
Existing
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Debentures until such event of default shall have been cured or waived in
writing or shall have ceased to exist. Furthermore, in the event that any other
event of default with respect to Senior Indebtedness has occurred and is
continuing permitting the holders of Senior Indebtedness to declare the same due
and payable prior to the date on which it would otherwise have become due and
payable, then no payment may be made by the Company with respect to the Existing
Debentures from the date the Company or the Old Indenture Trustee first receives
written notice of such Event of Default from the holders of Senior Indebtedness
until the earlier of (i) 360 days after such date, and (ii) the date, if any, on
which such Senior Indebtedness is discharged or such Event of Default is waived
in writing by the holders of Senior Indebtedness or otherwise cured.
In any case where payment in respect of the Existing Debentures is
prevented by the foregoing subordination provisions, the obligation of the
Company to make payments of principal, premium, if any, and interest on the
Existing Debentures, subject to the other provisions of the Old Indenture, will
not otherwise be affected (Section 1306). By reason of the subordination
provisions described herein, in the event of insolvency of the Company, the
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Existing Debentures.
COLLATERAL SECURITY
General. The Existing Debentures are secured by a Security Pool that is
pledged to the Old Indenture Trustee for the benefit of the holders of Existing
Debentures.
The Existing Debentures will have a lien senior and prior to the lien
of the New Collateralized Debentures with respect to assets in the Security
Pool. Although the New Collateralized Debentures will have a subordinate lien to
that of the Existing Debentures in the Security Pool, they will have a first and
prior lien in the Senior Collateral in which the holders of the Existing
Debentures will have no interest. In the event of a bankruptcy or liquidation of
the Company, the priority of the claim of the holders of New Collateralized
Debentures with respect to the Security Pool will be junior and subordinate to
that of the holders of Existing Debentures remaining outstanding after the
Exchange Closing, and the holders of the New Collateralized Debentures will
share in proceeds of the Security Pool only after the claims of all prior liens
and the Senior Indebtedness have been satisfied in full.
Contents of Security Pool. The Security Pool consists of all of the
issued and outstanding capital stock of BCI (the "Brookwood Collateral"), as
well as all of the capital stock of HHI. BCI and HHI are each a direct or
indirect wholly-owned subsidiary of the Company.
BCI is a complete textile service firm that develops and produces
innovative fabrics and related products through specialized finishing, treating
and coating processes.
HHI owns leasehold interests in the Longboat Key Holiday Inn hotel in
Sarasota, Florida and the Airport Embassy Suites hotel in Oklahoma City,
Oklahoma. The Longboat Key Holiday Inn, originally constructed in 1973, is
situated on 750 feet of private beach on the Gulf of Mexico. The combination
two-story/three-story destination resort hotel is one of the few beach front
resorts in one of the prestigious Florida Keys. The hotel has 121 rooms and 25
suites and, as part of the conversion to a Holiday Inn & Suites hotel, was
recently renovated at a cost of $3.5 million. The renovation was substantially
completed in March 1998. The Airport Embassy Suites hotel is the only
full-service, all-suite hotel in Oklahoma City and is strategically located two
miles from the Will Rogers International Airport. The six-story, 236-room suite
hotel was originally constructed in 1981 and is in excellent condition due to
substantial capital investment in recent years. The airport area has developed
into Oklahoma City's primary hotel district and draws the highest number of
travelers. Capitalizing on its location, the hotel has consistently achieved
high levels of market penetration due to its amenities.
The Brookwood Collateral is also pledged to The Bank of New York
pursuant to a first lien to secure the BCI Senior Indebtedness, which
constitutes Senior Indebtedness under both the Old Indenture and the New
Indenture. Therefore, the lien granted on the Brookwood Collateral with respect
to the Existing Debentures constitutes a second lien behind the prior lien of
The Bank of New York. As of March 31, 1998, the outstanding principal amount of
the BCI Senior Indebtedness owed to The Bank of New York was $13,600,000. The
stock of HHI is currently subject only to the lien granted to the Existing
Debentures.
Additional Security Interests. Pursuant to the terms of the Old
Indenture, the Company is not permitted to grant or create a security interest
(which security interest may be senior to that of the holders of Existing
Debentures) in any of
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the assets in the Security Pool with respect to other Indebtedness of the
Company, unless (i) the aggregate Net Value (as defined below) of the Security
Pool immediately following the granting or creation of such security interest is
at least equal to the then aggregate outstanding principal amount of Existing
Debentures and (ii) such additional Indebtedness does not exceed $25 million in
the aggregate at any time. If the Company grants or creates a further security
interest in such assets, the Old Indenture Trustee will so notify the holders of
Existing Debentures. "Net Value" means (a) with respect to assets in the
Security Pool that are securities traded or quoted on a national securities
exchange, or, if traded or quoted in the over-the-counter market, for which
closing bid and asked prices are reported by the National Association of
Securities Dealers Inc. Automated Quotation System ("NASDAQ") or the National
Quotation Bureau, Inc. ("NQB") (individually or collectively, "Traded
Securities"), on the trading day prior to the date of determination of Net
Value, (i) the last reported sales price, regular way, on such day on the
principal securities exchange on which such security is then listed or admitted
to unlisted trading privileges; (ii) if no sale takes place on such day on any
such exchange, the average of the last reported closing bid and asked prices,
regular way, on such day as officially quoted on any such exchange; or (iii) if
the security is not then listed or admitted to unlisted trading privileges on
any securities exchange, the average of the last reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by NASDAQ or
NQB, less, in each case, the principal amount of any Indebtedness that is
secured by such Traded Securities, and, (b) with respect to securities that are
not Traded Securities, the consolidated net book value, determined in accordance
with GAAP, of an asset in the Security Pool. See "SPECIAL CONSIDERATIONS
Consequences to Tendering Debentureholders -- Security."
In the event of a bankruptcy, insolvency or liquidation of the Company,
subject to the rights of holders of any other security interests in the Security
Pool permitted under the Old Indenture and of holders of Senior Indebtedness,
holders of Existing Debentures will be entitled to receive the proceeds of the
Security Pool.
Release of Assets from Security Pool. The Old Indenture Trustee may not
release assets from the Security Pool unless immediately thereafter the Company
consummates a mandatory redemption or repurchase in the amount of the Old
Indenture Release Amount (as defined below under "-- Redemption -- Upon Release
of an Asset from Security Pool"), or deposits with the Old Indenture Trustee the
Old Indenture Release Amount, in the manner described below under "-- Redemption
- - -- Upon Release of an Asset from Security Pool."
REDEMPTION
Mandatory. During the five-year period following the original issuance
of the Existing Debentures (the "Original Issue Date"), the Company was required
to redeem, at 100% of the principal amount thereof, together with accrued
interest to the redemption date, or repurchase in the open market or privately,
Existing Debentures in an aggregate principal amount at least equal to 25% of
the Initial Amount (as defined in the Old Indenture). Since the Original Issue
Date, the Company has redeemed an aggregate principal amount of $6,925,757 of
the Existing Debentures, leaving outstanding $20,555,443 in principal amount
thereof.
Upon Release of an Asset from Security Pool. In order to obtain the
release of an asset from the Security Pool in connection with its sale, an
amount at least equal to the lesser of (i) the Net Value of such asset on the
Original Issue Date (or such later date as the asset was added to the Security
Pool) and (ii) the Net Proceeds (as defined below) of the sale of such asset
(the "Old Indenture Release Amount") must be used by the Company, simultaneously
with such release, to redeem Existing Debentures at 100% of the principal amount
thereof, together with accrued interest to the Redemption Date, or,
substantially simultaneously therewith, to repurchase Existing Debentures in the
open market or privately, unless either (x) such amount is deposited in a
special account maintained by the Old Indenture Trustee for the benefit of
holders of Existing Debentures and designated as part of and added to the
Security Pool in cash or cash equivalents (including investment grade
securities) or (y) if other than cash, (a) the actual consideration received in
connection with such sale (less the amounts set forth in clauses (B) and (C) of
the definition of Net Proceeds, below) is designated as part of and added to the
Security Pool, or (b) if such consideration cannot, for any reason, be
contributed to the Security Pool, an amount equal to the fair value (determined
as provided in the Old Indenture) of such consideration (less the amounts set
forth in clauses (B) and (C) of the definition of Net Proceeds, below)
designated as part of and added to the Security Pool. For purposes of the Old
Indenture, "Net Proceeds" means the excess, if any, of (i) the cash (or fair
value of other assets) received in connection with the disposition of an asset
by the Company over (ii) the sum of (A) the principal amount of any Indebtedness
which is secured by such asset and which is required to be repaid in connection
with the disposition thereof, plus (B) the reasonable out-of-pocket expenses
incurred by the Company in connection with such disposition, plus (C) provision
for taxes, including federal, state and local income taxes, attributable to the
disposition of such asset. For the purposes of the Old Indenture, "Fair Value"
means, in the case of Traded Securities, the Net Value of such Traded Securities
and, in the case of any assets other than Traded Securities, the price which
could be negotiated in an arm's length market transaction, for cash, between a
willing
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seller and a willing and able buyer, neither of whom is under undue pressure to
complete the transaction, as determined in good faith by the Company's Board of
Directors or, to the extent otherwise required under the Old Indenture, an
independent engineer, appraiser or other expert.
Optional. Existing Debentures may be redeemed at the election of the
Company, at any time and from time to time, as a whole or in part, at a
redemption price equal to 100% of the principal amount of Existing Debentures to
be redeemed, together with accrued interest to the redemption date. In the event
of redemption of less than all of the Existing Debentures, the Old Indenture
Trustee shall select, by lot and at random, from the outstanding Existing
Debentures not previously called for redemption. Notwithstanding anything to the
contrary set forth herein, no Existing Debentures shall be redeemed in part
unless the portion thereof that remains outstanding following such partial
redemption is in a principal amount equal to $100 or an integral multiple of
$100. On and after the redemption date, interest ceases to accrue on the
Existing Debentures or portions thereof called for redemption (Sections 1204 and
1205).
EVENTS OF DEFAULT; RIGHTS ON DEFAULT
The term "Event of Default" when used in the Old Indenture means any
one of the following: (i) the failure of the Company to pay the principal of (or
premium, if any ) any Existing Debenture or to pay the interest, if any, on any
Existing Debenture when such interest comes due and such default continue for 30
days; (ii) a breach by the Company of its obligations described above under
"-- Redemption -- Mandatory" or of the restrictive covenant described under
"-- Restrictive Covenants -- Prohibition on Additional Liens on Assets in
Security Pool"; (iii) the failure of the Company to perform any other covenant
or agreement in the Old Indenture for 30 days; (iv) certain events of (a)
bankruptcy, (b) insolvency, or (c) reorganization of the Company or its
Subsidiaries; (v) release of an asset from the Security Pool without complying
with the conditions described under "-- Redemption -- Upon Release of an Asset
from Security Pool"; and (vi) the Company's or a Subsidiary's inability, or
admission in writing of its inability, to pay its debts as they become due
(Section 501).
If an Event of Default referred to in clause (iv) (a) or (b) occurs,
the principal amount of and all accrued interest on the Existing Debentures will
become due and payable immediately. If any other Event of Default occurs and is
continuing, the Old Indenture Trustee or the holders of at least a majority in
principal amount of Existing Debentures then outstanding, by notice in writing
to the Company, may declare the principal amount of, and all accrued interest
on, all Existing Debentures to be due and payable immediately. Five days
following such declaration, all such Existing Debentures shall become due and
payable. However, such declaration and its consequences may be rescinded and
annulled in certain circumstances by the holders of a majority in aggregate
principal amount of the outstanding Existing Debentures (Section 502). The
holders of a majority in aggregate principal amount of the Existing Debentures
may also waive any past default under the Old Indenture except (i) a default in
the payment of principal of, or premium or interest on, any Existing Debenture
and (ii) in respect of a covenant or provision that cannot be modified or
amended under the Old Indenture without the consent of the holder of each
Existing Debenture affected (Section 513).
The Old Indenture provides that the Old Indenture Trustee will, within
90 days after the occurrence of a default, give to the holders of Existing
Debentures notice of all uncured or unwaived defaults known to it, provided that
the Old Indenture Trustee may withhold from holders of Existing Debentures
notice of any continuing default (except a default in payment of principal of or
interest on the Existing Debentures) if it determines in good faith that
withholding notice is in the interest of such holders (Section 602).
The Company is required, pursuant to the terms of the Old Indenture, to
furnish to the Old Indenture Trustee within 90 days after the close of each
fiscal year a statement of certain officers of the Company to the effect that
they have reviewed the activities of the Company and its performance under the
Old Indenture and that, to the best of their knowledge, no default has occurred
or, if one has occurred, specifying its nature and status (Section 1106).
When any event has occurred and is continuing that is an Event of
Default, or if the Old Indenture Trustee or any holder of Existing Debentures or
the Old Indenture Trustee for, or the holder of, any other evidence of
indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default, the Company is required to
deliver to the Old Indenture Trustee an officers' certificate specifying such
event, notice or other action within five business days of its occurrence
(Section 1107).
The holders of a majority of the principal amount of outstanding
Existing Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Old Indenture Trustee,
or exercising
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any trust or power conferred on the Old Indenture Trustee; provided that (i)
such direction is not in violation of law or the provisions of the Old Indenture
and (ii) the Old Indenture Trustee may take any other action deemed proper by
the Old Indenture Trustee not inconsistent with such direction (Section 512).
If an Event of Default shall occur, the Old Indenture Trustee is
required to use the degree of care and skill of a prudent person in the conduct
of his own affairs. Subject to such provisions, the Old Indenture Trustee will
be under no obligation to exercise any of its rights or powers under the Old
Indenture at the request of any of the holders of the Existing Debentures unless
they shall have offered to the Old Indenture Trustee reasonable security or
indemnity. Except as specifically provided in the Old Indenture, nothing therein
relieves the Old Indenture Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct (Section 601).
No holder of any Existing Debenture shall have the right to institute
suit to enforce the terms of the Old Indenture or for any other remedy
thereunder unless (i) he has given written notice of the default to the Old
Indenture Trustee; (ii) the holders of at least 50% in aggregate principal
amount of the Existing Debentures outstanding have requested in writing the Old
Indenture Trustee to institute suit and have offered to provide the Old
Indenture Trustee with reasonable indemnity against liability in connection with
such suit; (iii) the Old Indenture Trustee has failed to institute such suit for
60 days after receipt of such request and offer of indemnity; and (iv) during
such 60-day period, the holders of a majority in principal amount of the
outstanding Existing Debentures do not give the Old Indenture Trustee a
direction inconsistent with this request (Section 507).
Subject to the foregoing paragraph and the subordination provisions of
the Old Indenture, the right of each holder of Existing Debentures to enforce
his rights to receive payment of principal of, premium, if any, and interest on
the Existing Debentures held by him may not be impaired without his consent
(Section 508).
MODIFICATION AND AMENDMENT OF OLD INDENTURE
The Old Indenture may be amended or supplemented by the Company and the
Old Indenture Trustee with the consent of the holders of at least a majority in
principal amount of Existing Debentures then outstanding; provided, however,
that no modification of the Old Indenture will be effective (i) to change the
stated maturity of any New Collateralized Debenture; (ii) to reduce the interest
rate or extend the time for the payment of interest on any Existing Debenture;
(iii) to reduce the principal amount of any New Collateralized Debenture; (iv)
to reduce the amount of any premium payable upon redemption; (v) to change the
mandatory redemption or repurchase requirements; (vi) to impair the right of
holders of Existing Debentures to institute suit for the enforcement of payment
with respect to the Existing Debentures; (vii) to reduce the percentage
principal amount of Existing Debentures required for modification; (viii) to
modify the subordination provisions in a manner adverse to the holders of
Existing Debentures; or (ix) with respect to the selection by the Old Indenture
Trustee of Existing Debentures to be redeemed in connection with a partial
redemption of Existing Debentures by the Company, in each case, against any
holder of Existing Debentures without his consent (Section 902).
Without the consent of the holders of Existing Debentures, the Company
and the Old Indenture Trustee may enter into one or more supplemental indentures
to (i) evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company; (ii) add
further covenants for the benefit of the holders of Existing Debentures or to
surrender any right or power conferred upon the Company; (iii) secure the
Existing Debentures; and (iv) make any change that does not adversely affect the
interests of the holders of Existing Debentures (Section 901).
The Old Indenture may be satisfied and discharged upon (i) cancellation
of all of the outstanding Existing Debentures; or (ii) under certain other
conditions, upon deposit with the Old Indenture Trustee of money or U.S.
Government obligations sufficient to pay the principal of and accrued interest
on outstanding Existing Debentures to redemption or maturity (Section 401).
RESTRICTIVE COVENANTS
Prohibition on Additional Liens on Assets in Security Pool. Pursuant to
the terms of the Old Indenture, the Company is prohibited from granting or
creating any security interest in any of the assets in the Security Pool with
respect to other Indebtedness of the Company unless (i) the aggregate Net Value
of the Security Pool immediately following the granting or creation of such
security interest is at least equal to the then aggregate outstanding principal
amount of Existing Debentures and (ii) such additional Indebtedness does not
exceed $25 million in the aggregate.
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No Restriction on Payment at Stated Maturity. The Old Indenture
provides that the Company may not create, incur, assume or suffer to exist any
Indebtedness having a stated maturity at the same time as or after the stated
maturity of the Existing Debentures which, by its terms or the terms of the
instrument creating or evidencing it, in any way prohibits or restricts the
payment at stated maturity of the principal of the Existing Debentures in
accordance with the terms of the Existing Debentures and the Old Indenture.
Corporate Existence; Conduct of Business. Subject to the discussion
below under the "Merger, Consolidation or Sale of Assets," the Company shall and
shall cause its Subsidiaries to preserve, renew and keep in full force and
effect its corporate existence, and take all reasonable action to maintain all
material rights (charter and statutory), privileges and franchises necessary or
desirable in the normal conduct of its business; provided, however, that the
Company shall not be required to preserve any such rights, privileges or
franchises, or the corporate existence of any Subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries taken as a
whole, and that the loss thereof is not, and will not be, adverse in any
material respect to the holders of the Existing Debentures.
Merger, Consolidation or Sale of Assets. The Company may not
consolidate or merge with, or sell or convey its property as an entirety or
substantially as an entirety to, another corporation, person or entity unless
after giving effect thereto (i) no Event of Default exists; (ii) the successor
Person (if other than the Company) assumes in writing all of the obligations of
the Company under the Existing Debentures and the Old Indenture; and (iii) the
Company or such Person has delivered to the Old Indenture Trustee an officers'
certificate and an opinion of counsel, each stating that such transaction and,
if a supplemental indenture is required in connection therewith, such
supplemental indenture complies with the Old Indenture and that all conditions
precedent relating to such transaction have been satisfied (Section 801).
GOVERNING LAW
The Old Indenture and the Existing Debentures is governed by and
construed in accordance with the laws of the State of New York (Section 112).
THE OLD INDENTURE TRUSTEE
Norwest Bank Minnesota, National Association is the Old Indenture
Trustee under the Old Indenture. The Old Indenture provides that during the
existence of an Event of Default, the Old Indenture Trustee will exercise the
rights and powers vested in it by the Old Indenture, using the same degree of
care and skills as a prudent person would exercise under the circumstances in
the conduct of its own affairs. The Old Indenture Trustee is permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined in the Old Indenture) it must eliminate such conflict or
resign.
DESCRIPTION OF NEW COLLATERALIZED DEBENTURES
New Collateralized Debentures will be issued under the New Indenture to
be dated as of the Expiration Date between the Company and Bank One, N.A., as
trustee (the "New Indenture Trustee").
THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE
SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF CERTAIN PROVISIONS OF THE NEW
INDENTURE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE NEW INDENTURE.
Unless otherwise defined, capitalized terms used in the following description
are used as defined in the New Indenture. All section references in the
following description are to sections in the New Indenture.
GENERAL
The New Collateralized Debentures will be issued in fully registered
form in the original aggregate principal amount of up to $20,555,443, in
denominations of $100 or integral multiples thereof. Interest on Existing
Debentures will accrue from the date of issuance at the rate of 8.5 % per annum,
and will be payable quarterly on January 31, April 30, July 31 and October 31 of
each year, commencing July 31, 1998. (Section 301).
The New Collateralized Debentures will mature on July 31, 2005. They
will be transferable and registrable without charge, except for any tax or other
governmental charge connected therewith. (Section 305).
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SUBORDINATION
The New Collateralized Debentures will constitute senior subordinated
Indebtedness of the Company, subordinated to Senior Indebtedness, which shall be
defined in the New Indenture as all Indebtedness of the Company existing at any
time and from time to time, which, by its terms, is expressly senior in right of
payment to the New Collateralized Debentures. As of March 31, 1998, the only
outstanding Senior Indebtedness was the BCI Senior Indebtedness in the principal
amount of $13,600,000, which is secured by the Brookwood Collateral. The
Brookwood Collateral is part of the Security Pool in which the Company has
granted the Existing Debentures a subordinate security interest and in which the
Company will grant the New Collateralized Debentures a security interest which
is subordinate to both the Senior Indebtedness and the Existing Debentures. See
"Collateral Security," below (Section 1302).
In the event of (i) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, (ii) any liquidation, dissolution or other winding up
or arrangement, adjustment, protection, relief or composition of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company, then and in any such event,
the holders of Senior Indebtedness shall be entitled, among other things, to
receive payment in full before holders of New Collateralized Debentures are
entitled to receive any payment. If, in any of the situations referred to in
clauses (i), (ii) or (iii) above, a payment or distribution is made to the New
Indenture Trustee or to holders of New Collateralized Debentures before all
Senior Indebtedness has been paid in full, such payment or distribution shall be
held in trust by the New Indenture Trustee and paid over to the holders of
Senior Indebtedness, notwithstanding the fact that the New Collateralized
Debentures are secured, as described in "--Collateral Security," below (Section
1302).
The New Indenture provides that in the event of and during the
continuation of any default in the payment of principal of or interest on any
Senior Indebtedness, no payment may be made by the Company with respect to the
New Collateralized Debentures until such event of default shall have been cured
or waived in writing or shall have ceased to exist. Furthermore, in the event
that any other event of default with respect to Senior Indebtedness has occurred
and is continuing permitting the holders of Senior Indebtedness to declare the
same due and payable prior to the date on which it would otherwise have become
due and payable, then no payment may be made by the Company with respect to the
New Collateralized Debentures from the date the Company or the New Indenture
Trustee first receives written notice of such event of default from the holders
of Senior Indebtedness until the earlier of (i) 360 days after such date, and
(ii) the date, if any, on which such Senior Indebtedness is discharged or such
event of default is waived in writing by the holders of Senior Indebtedness or
otherwise cured.
In any case where payment in respect of the New Collateralized
Debentures is blocked by the foregoing subordination provisions, the obligation
of the Company to make payments of principal, premium, if any, and interest on
the New Collateralized Debentures, subject to the other provisions of the New
Indenture, will not otherwise be affected (Section 1306). By reason of the
subordination provisions described herein, in the event of insolvency of the
Company, the holders of Senior Indebtedness may recover more, ratably, than the
holders of the New Collateralized Debentures.
COLLATERAL SECURITY
General. The New Collateralized Debentures will be secured by a first
and senior lien on the Senior Collateral (described below), which will be
pledged to the New Indenture Trustee pursuant to the Pledge Agreement and will
be entitled to be proceeds of the Senior Collateral free of the claims of the
holders of the Existing Debentures. The New Collateralized Debentures will also
be secured by a subordinate and junior lien on the Security Pool, which is
currently pledged to the Old Indenture Trustee for the benefit of the holders of
Existing Debentures. The Security Pool consists of the Brookwood Collateral and
all the stock of HHI (as described above in "DESCRIPTION OF EXISTING DEBENTURES
- - -- Collateral Security -- Contents of Security Pool"). The Brookwood Collateral
is also pledged to The Bank of New York pursuant to a first lien to secure the
BCI Senior Indebtedness that constitutes Senior Indebtedness under both the Old
Indenture and the New Indenture. Therefore, the lien to be granted on the
Brookwood Collateral with respect to the New Collateralized Debentures will
constitute a third lien behind the prior liens of The Bank of New York and the
Existing Debentures. Consequently, in the event of a bankruptcy, insolvency or
liquidation of the Company, the priority of the claim of the New Collateralized
Debentures with respect to the Security Pool will be junior and subordinate to
that of the holders of Existing Debentures remaining outstanding after the
Exchange Closing and that of the Bank of New York with respect to the Brookwood
Collateral, and, subject to the holders of Senior Indebtedness, the holders of
the New Collateralized Debentures will share in the proceeds of the Security
Pool only after the claims of all prior liens have been
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satisfied in full. As of March 31, 1998, the outstanding principal amount of the
BCI Senior Indebtedness owed to The Bank of New York was $13,600,000. The
outstanding principal amount of the Existing Debentures that will continue to be
secured by a lien on the Security Pool that is senior to the lien to be granted
for the New Collateralized Debentures will depend on the principal amount of
Existing Debentures that are exchanged for New Collateralized Debentures in the
Exchange Offer. The greater the principal amount of Existing Debentures that are
exchanged, the smaller the dollar amount of liens senior to the lien to be
granted to the New Collateralized Debentures.
The stock of HHI that is also part of the Security Pool is currently
subject only to the lien granted to the Existing Debentures. Accordingly, the
lien to be granted to the New Collateralized Debentures will be a second lien
subordinate only to the lien in favor of the Existing Debentures.
The final element of security for the New Collateralized Debentures
will be the stock of Brock Suites, which stock is not pledged to secure any
other Indebtedness of the Company. The lien to be granted to the New
Collateralized Debentures will be a first and prior lien subordinate to no other
liens.
Contents of the Security Pool and Senior Collateral. The Security Pool
consists of the Brookwood Collateral and all the stock of HHI. The Senior
Collateral consists of all the issued and outstanding capital stock of Brock
Suites.
Brock Suites owns fee interests in Residence Inn by Marriott hotels
located in Tulsa, Oklahoma and Greenville, South Carolina, and a leasehold
interest in a Residence Inn by Marriott hotel in Huntsville, Alabama. The
Residence Inn in Tulsa was constructed in two phases, in 1981 and 1983, as an
upper tier, extended stay hotel. The property is arranged in an apartment-like
setting offering a residential environment for extended stay guests. The hotel
is comprised of 135 suites in seventeen, two-story residential buildings. Each
of the buildings contains eight suites each and offers large rooms and superior
amenities. The two-story Gatehouse serves as a registration and lobby area along
with a breakfast bar, central gathering area and an executive board room. The
property is centrally located within minutes from downtown, the airport and
other major business districts. The Greenville, South Carolina hotel was
constructed in 1984 as a first-class extended stay Residence Inn hotel. Similar
to the Tulsa hotel, the Greenville hotel offers 96 suites in twelve, two-story
residential buildings of eight suites each, along with a central Gatehouse. The
hotel is centrally located in one of Greenville's fastest growing areas and has
maintained strong relationships with the area's primary corporations, which
provide a strong customer base for the hotel. The Huntsville, Alabama hotel was
also constructed in 1984 as a first-class, extended stay Residence Inn hotel. As
with the other Residence Inn hotels, the property is arranged in an
apartment-like setting offering a residential environment for extended stay
guests. The hotel provides 112 suites in fourteen, two-story residential
buildings of eight suites each, along with a central Gatehouse. The hotel is
strategically located between Huntsville's two largest research and business
centers, which are the largest generators of extended stay guests, and is
located only minutes from downtown Huntsville. Huntsville is considered one of
the top research and development communities in the United States and is home to
several governmental operations, such as the Redstone Arsenal, the Army Aviation
and Missile Command and NASA's Marshall Space Flight Center.
It is likely that the realizable value of all the assets in the
Security Pool and those that comprise the Senior Collateral will fluctuate
throughout the term of the New Collateralized Debentures and that such
fluctuations may be material. Under the terms of the New Indenture, the Company
is under no obligation to maintain any minimum value of the Senior Collateral,
the Security Pool or any asset included therein. Therefore, if the aggregate
value of the Senior Collateral and/or any of the assets in the Security Pool
decreases after the Exchange Closing, the Company is under no obligation to add
additional assets to or substitute different assets for assets in the Senior
Collateral or the Security Pool. In addition, the Brookwood Collateral that is
included in the Security Pool is subject to prior security interests, including
the security interest granted to The Bank of New York to secure the BCI Senior
Indebtedness and the security interest in favor of the Existing Debentures. The
ability of the New Indenture Trustee to foreclose on and realize upon such
securities will be limited as a consequence thereof. There can be no assurance
that the amount realizable upon a liquidation of the Security Pool at any time
will equal the aggregate principal amount of the Senior Indebtedness and the
Existing Debentures outstanding at the time of such liquidation, or that any
proceeds of any such liquidation will be available for payment of the New
Collateralized Debentures. Similarly, there can be no assurance that the amount
realizable upon a liquidation of the Security Pool at any time that is available
for payment against the New Collateralized Debentures plus the amount realizable
upon a liquidation of the Senior Collateral will equal the aggregate principal
amount of the New Collateralized Debentures outstanding at the time of such
liquidation.
Valuation of Security Pool and Senior Collateral. Certain provisions of
the Old Indenture and the New Indenture that relate to valuation of the assets
in the Security Pool and assets that comprise the Senior Collateral base the
valuations
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(i) for Traded Securities, on the trading values of such assets on the national
securities exchange, the national securities quotation system or the established
over-the-counter market on which they are traded; or (ii) for securities that
are not Traded Securities, on the consolidated net book value of such assets.
None of the assets in the Security Pool or the assets which comprise the Senior
Collateral are Traded Securities. Therefore, their values for purposes of the
Old Indenture and the New Indenture (including the provisions which relate to
release of liens) are based upon their respective consolidated net book values.
Those net book values are based upon the depreciated values of the assets owned
by the various companies, which depreciated values are based upon the lower of
the cost of the assets or their market value when acquired by the respective
companies.
As of March 31, 1998, the aggregate net book values for the assets in
the Security Pool and for the assets which comprise the Senior Collateral was
$26,541,000 which amounts are allocated among the Brookwood Collateral, the
stock of HHI and the Senior Collateral. These net book values do not represent
the market values of such items of collateral.
The Company has engaged Sonnenblick Goldman to explore the sale of the
hotel properties that are owned by subsidiaries of Brock Suites and HHI. The
hotels are substantially all of the tangible assets owned by the companies that
comprise the Senior Collateral other than the Brookwood Collateral. As of the
date hereof, the Company has not entered into any agreements for the sale of any
of such properties and does not intend to enter into any sales agreement unless
the sales price is significantly in excess of book value.
The President of BCI, all of the issued and outstanding capital stock
of which comprises the Brookwood Collateral, requested and was granted an
option to purchase for cash all of the outstanding capital stock of BCI for a
minimum of $9,800,000, including the payment of a cash dividend and other
payments of at least $1,800,000. The option was not exercised and the option
expired on March 31, 1998.
Certain summary, unaudited financial information concerning Brock
Suites, HHI and BCI is included as appendix A to this Exchange Offer Circular.
Holders of the Existing Debentures are encouraged to review this information in
determining whether to accept the Exchange Offer.
Additional Security Interests. Pursuant to the terms of the New
Indenture, the Company may not grant or create any security interest on any of
the assets in the Security Pool with respect to other Indebtedness of the
Company unless (i) such security interest is permitted by the Old Indenture (for
so long as it remains in effect); (ii) the aggregate Net Value of the assets in
the Security Pool immediately following the granting or creating of such
security interest is at least equal to the then aggregate outstanding principal
amount of the Existing Debentures that are then outstanding, if any, and the New
Collateralized Debentures; and (iii) such additional Indebtedness does not
exceed $25 million in the aggregate at any time. The Company may also grant an
additional security interest in the Senior Collateral to secure any additional
Indebtedness of the Company that is also secured by an additional security
interest on the assets in the Security Pool. To the extent the Company is not
prohibited from granting or creating such a security interest with respect to
other Indebtedness, such security interest may rank senior to the security
interest in the Pledge Agreement, and the Company may require the New Indenture
Trustee to transfer possession of assets in the Security Pool and the Senior
Collateral to the holder of such other Indebtedness in connection with such
grant or creation of a security interest, provided that such assets remain
subject to the security interest of the Pledge Agreement pursuant to an
intercreditor agreement reasonably satisfactory to the Old Indenture Trustee.
In the event of a bankruptcy, insolvency or liquidation of the Company,
and subject to the rights of holders of holders of Senior Indebtedness, holders
of New Collateralized Debentures will be entitled to receive the proceeds of the
Senior Collateral. Subject to the rights of holders of Existing Debentures, the
rights of holders of any other security interests in the Security Pool and of
holders of Senior Indebtedness, holders of New Collateralized Debentures will be
entitled to receive any remaining proceeds of the Security Pool.
Release of Assets. The New Indenture Trustee shall take all steps
reasonably required to release any part of the Security Pool from the lien
granted in favor of the New Collateralized Debentures in connection with the
sale of such asset
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by the Company if the proceeds thereof are used to satisfy senior and prior
liens in accordance with the terms of the Old Indenture and if all remaining
proceeds, if any, are used to redeem New Collateralized Debentures or continue
to serve as collateral for the New Collateralized Debentures. Accordingly, the
New Indenture Trustee may not release assets that comprise part of the Senior
Collateral or the Free Security Pool Assets unless immediately thereafter the
Company consummates a mandatory redemption or repurchase of New Collateralized
Debentures in an amount at least equal to the lesser of (i) the Net Value on the
date of issue of the New Collateralized Debentures (or such later date as the
asset was added to the Security Pool) and (ii) the Net Proceeds (as defined
below) of the sale of such asset (the "New Indenture Release Amount"), or
deposits with the New Indenture Trustee the New Indenture Release Amount. If an
asset that is part of the Senior Collateral or the Free Security Pool Assets is
released from the lien granted to secure the New Collateralized Debentures, in
connection with a sale of such asset, an amount at least equal to the lesser of
(i) the Net Value of such asset on the date of the Exchange Closing and (ii) the
Net Proceeds (as defined below) received by the Company from the sale or release
of an asset that is part of the Senior Collateral or the Free Security Pool
Assets must be used by the Company (A) simultaneously therewith, to redeem New
Collateralized Debentures at 100% of the principal amount thereof, together with
accrued interest to the redemption date, or (B) substantially simultaneously
therewith, to repurchase New Collateralized Debentures in the open market or
privately for an aggregate amount at least equal to the Net Proceeds from the
sale of such asset, or (C) simultaneously therewith, for deposit in a special
account maintained by the New Indenture Trustee for the benefit of the holders
of New Collateralized Debentures. For purposes of the New Indenture, "Net
Proceeds" shall mean the excess, if any, of (i) the cash (or fair value of other
assets) received in connection with the disposition of an asset by the Company
over (ii) the sum of (A) the principal amount of any Indebtedness which is
secured by such asset and which is required to be repaid in connection with the
disposition thereof, plus (B) the reasonable out-of-pocket expenses incurred by
the Company in connection with such disposition, plus (C) provisions for taxes,
including federal, state and local income taxes, attributable to the disposition
of such asset. For the purposes of the New Indenture, "Fair Value" shall mean,
in the case of Traded Securities, the Net Value of such Traded Securities and,
in the case of any assets other than Traded Securities, the price which could be
negotiated in an arm's length market transaction, for cash, between a willing
seller and a willing and able buyer, neither of whom is under undue pressure to
complete the transaction, as determined in good faith by the Company's Board of
Directors or, to the extent otherwise required under the New Indenture, as
independent engineer, appraiser or other expert. New Collateralized Debentures
will constitute secured indebtedness of the Company and will rank on a parity
with the Existing Debentures.
REDEMPTION
New Collateralized Debentures may be redeemed at the election of the
Company, at any time and from time to time, as a whole or in part, at a
redemption price equal to 100% of the principal amount of New Collateralized
Debentures to be redeemed, together with accrued interest to the redemption
date. In the event of redemption of less than all of the New Collateralized
Debentures, the New Indenture Trustee shall select, by lot and at random, from
the outstanding New Collateralized Debentures not previously called for
redemption. Notwithstanding anything to the contrary set forth herein, no New
Collateralized Debentures shall be redeemed in part unless the portion thereof
which remains outstanding following such partial redemption is in a principal
amount equal to $100 or an integral multiple of $100. On and after the
redemption date, interest ceases to accrue on the New Collateralized Debentures
or portions thereof called for redemption (Sections 1204 and 1205).
EVENTS OF DEFAULT; RIGHTS ON DEFAULT
The term "Event of Default" when used in the New Indenture means any
one of the following: (i) the failure of the Company to pay the principal of (or
premium, if any) any New Collateralized Debenture or to pay the interest, if
any, on any Existing Debenture when such interest comes due and such default
continues for 30 days; (ii) a breach by the Company of or its obligations
described above under -- Restrictive Covenants -- Prohibition on Additional
Liens on Assets in Security Pool"; (iii) the failure of the Company to perform
any other covenant or agreement in the New Indenture for 30 days; (iv) release
of an asset from the Security Pool without complying with the conditions
described under "--Redemption -- Upon Release of an Asset from Security Pool";
(v) an Event of Default shall have occurred and be continuing with respect to
the Existing Debentures, and (vi) certain events of (a) bankruptcy, (b)
insolvency, or (c) reorganization of the Company or its Subsidiaries. In
addition, the New Indenture provides that the occurrence of an Event of Default
under the Old Indenture Constitutes an Event of Default under the New Indenture.
(Section 501).
If an Event of Default referred to in clause (vi) (a) or (b) occurs,
the principal amount of and all accrued interest on the New Collateralized
Debentures will become due and payable immediately. If any other Event of
Default occurs and is continuing, the New Indenture Trustee or the holders of at
least a majority in principal amount of New Collateralized
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Debentures then outstanding, by notice in writing to the Company, may declare
the principal amount of, and all accrued interest on, all New Collateralized
Debentures to be due and payable immediately. Five days following such
declaration, all such New Collateralized Debentures shall become due and
payable. However, such declaration and its consequences may be rescinded and
annulled in certain circumstances by the holders of a majority in aggregate
principal amount of the outstanding New Collateralized Debentures (Section 502).
The holders of a majority in aggregate principal amount of the New
Collateralized Debentures may also waive any past default under the New
Indenture except (i) a default in the payment of principal of or premium or
interest on any New Collateralized Debenture and (ii) in respect of a covenant
or provision that cannot be modified or amended under the New Indenture, without
the consent of the holder of each New Collateralized Debenture affected (Section
513).
The New Indenture provides that the New Indenture Trustee will, within
90 days after the occurrence of a default, give to the holders of New
Collateralized Debentures notice of all uncured or unwaived defaults known to
it, provided that the New Indenture Trustee may withhold from holders of New
Collateralized Debentures notice of any continuing default (except a default in
payment of principal of or interest on the New Collateralized Debentures) if it
determines in good faith that withholding notice is in the interest of such
holders (Section 602).
The Company is required, pursuant to the terms of the New Indenture, to
furnish to the New Indenture Trustee within 90 days after the close of each
fiscal year a statement of certain officers of the Company to the effect that
they have reviewed the activities of the Company and its performance under the
New Indenture and that, to the best of their knowledge, no default has occurred
or, if one has occurred, specifying its nature and status (Section 1106).
When any event has occurred and is continuing that is an Event of
Default, or if the New Indenture Trustee or any holder of New Collateralized
Debentures or the New Indenture Trustee for, or the holder of, any other
evidence of indebtedness of the Company or any Subsidiary gives any notice or
takes any other action with respect to a claimed default, the Company is
required to deliver to the New Indenture Trustee an officers' certificate
specifying such event, notice or other action within five business days of its
occurrence (Section 1107).
The holders of a majority of the principal amount of outstanding New
Collateralized Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the New Indenture Trustee,
or exercising any trust or power conferred on the New Indenture Trustee;
provided that (i) such direction is not in violation of law or the provisions of
the New Indenture and (ii) the New Indenture Trustee may take any other action
deemed proper by the New Indenture Trustee not inconsistent with such direction
(Section 512).
If an Event of Default shall occur, the New Indenture Trustee is
required to use the degree of care and skill of a prudent person in the conduct
of his own affairs. Subject to such provisions, the New Indenture Trustee will
be under no obligation to exercise any of its rights or powers under the New
Indenture at the request of any of the holders of the New Collateralized
Debentures unless they shall have offered to the New Indenture Trustee
reasonable security or indemnity. Except as specifically provided in the New
Indenture, nothing therein relieves the New Indenture Trustee from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct (Section 601).
No holder of any New Collateralized Debenture shall have the right to
institute suit to enforce the terms of the New Indenture or for any other remedy
thereunder unless (i) he has given written notice of the default to the New
Indenture Trustee; (ii) the holders of at least 50% in aggregate principal
amount of the New Collateralized Debentures outstanding have requested in
writing the New Indenture Trustee to institute suit and have offered to provide
the New Indenture Trustee with reasonable indemnity against liability in
connection with such suit; (iii) the New Indenture Trustee has failed to
institute such suit for 60 days after receipt of such request and offer of
indemnity; and (iv) during such 60-day period, the holders of a majority in
principal amount of the outstanding New Collateralized Debentures do not give
the New Indenture Trustee a direction inconsistent with this request (Section
507).
Subject to the foregoing paragraph and the subordination provisions of
the New Indenture, the right of each holder of New Collateralized Debentures to
enforce his rights to receive payment of principal of, premium, if any, and
interest on the New Collateralized Debentures held by him may not be impaired
without his consent (Section 508).
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MODIFICATION AND AMENDMENT OF NEW INDENTURE
The New Indenture may be amended or supplemented by the Company and the
New Indenture Trustee with the consent of the holders of at least a majority in
principal amount of New Collateralized Debentures then outstanding; provided,
however, that no modification of the New Indenture will be effective (i) to
change the stated maturity of any New Collateralized Debenture; (ii) to reduce
the interest rate or extend the time for the payment of interest on any New
Collateralized Debenture; (iii) to reduce the principal amount of any New
Collateralized Debenture; (iv) to reduce the amount of any premium payable upon
redemption; (v) to change the mandatory redemption or repurchase requirements;
(vi) to impair the right of holders of New Collateralized Debentures to
institute suit for the enforcement of payment with respect to the New
Collateralized Debentures; (vii) to reduce the percentage principal amount of
New Collateralized Debentures required for modification; (viii) to modify the
subordination provisions in a manner adverse to the holders of New
Collateralized Debentures; or (ix) with respect to the selection by the New
Indenture Trustee of New Collateralized Debentures to be redeemed in connection
with a partial redemption of New Collateralized Debentures by the Company, in
each case, against any holder of New Collateralized Debentures without his
consent (Section 902).
Without the consent of the holders of New Collateralized Debentures,
the Company and the New Indenture Trustee may enter into one or more
supplemental indentures to (i) evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of the
Company; (ii) add further covenants for the benefit of the holders of New
Collateralized Debentures or to surrender any right or power conferred upon the
Company; (iii) secure the New Collateralized Debentures; and (iv) make any
change that does not adversely affect the interests of the holders of New
Collateralized Debentures (Section 901).
The New Indenture may be satisfied and discharged upon (i) cancellation
of all of the outstanding New Collateralized Debentures, or (ii) under certain
other conditions, upon deposit with the New Indenture Trustee of money or U.S.
Government obligations sufficient to pay the principal of and accrued interest
on outstanding Existing Debentures to redemption or maturity (Section 401).
RESTRICTIVE COVENANTS
Prohibition on Additional Liens on the Security Pool. The Company may
grant additional liens on the Senior Collateral and the Security Pool only in
certain circumstances. See "Additional Security Interests," above.
No Restriction on Payment at Stated Maturity. The New Indenture
provides that the Company may not create, incur, assume or suffer to exist any
Indebtedness having a stated maturity at the same time as or after the stated
maturity of the New Collateralized Debentures which, by its terms or the terms
of the instrument creating or evidencing it, in any way prohibits or restricts
the payment at stated maturity of the principal of the New Collateralized
Debentures in accordance with the terms of the New Collateralized Debentures and
the New Indenture.
Corporate Existence; Conduct of Business. Subject to the discussion
below under the caption "Merger, Consolidation or Sale of Assets," the Company
shall and shall cause its Subsidiaries to preserve, renew and keep in full force
and effect its corporate existence, and take all reasonable action to maintain
all material rights (charter and statutory), privileges and franchises necessary
or desirable in the normal conduct of its business; provided, however, that the
Company shall not be required to preserve any such rights, privileges or
franchises, or the corporate existence of any Subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries taken as a
whole, and that the loss thereof is not, and will not be, adverse in any
material respect to the holders of the New Collateralized Debentures.
Merger, Consolidation or Sale of Assets. The Company may not
consolidate or merge with, or sell or convey its property as an entirety or
substantially as an entirety to, another corporation, person or entity unless
after giving effect thereto (i) no Event of Default exists; (ii) the successor
Person (if other than the Company) assumes in writing all of the obligations of
the Company under the New Collateralized Debentures and the New Indenture; and
(iii) the Company or such Person has delivered to the New Indenture Trustee an
officers' certificate and an opinion of counsel, each stating that such
transaction and, if a supplemental indenture is required in connection
therewith, such supplemental indenture complies with the New Indenture and that
all conditions precedent relating to such transaction have been satisfied
(Section 801).
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GOVERNING LAW
The New Indenture and the New Collateralized Debentures will be
governed by and construed in accordance with the laws of the State of Texas
(Section 112).
THE NEW INDENTURE TRUSTEE
Bank One, N.A. will be the New Indenture Trustee under the New
Indenture. The New Indenture provides that during the existence of an Event of
Default, the New Indenture Trustee will exercise the rights and powers vested in
it by the New Indenture, using the same degree of care and skills as a prudent
person would exercise under the circumstances in the conduct of its own affairs.
The New Indenture Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest (as defined in
the New Indenture) it must eliminate such conflict or resign.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
consequences to tendering holders of Existing Debentures and to the Company
resulting from the (i) exchange of Existing Debentures for New Collateralized
Debentures pursuant to the Exchange Offer and (ii) ownership and disposition of
New Collateralized Debentures.
This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations thereunder, IRS rulings
and pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice. No assurance can be given that
future legislative, judicial or administrative actions, which may be retroactive
in effect, will not affect the accuracy of any statement in this disclosure with
respect to transactions entered into prior to the effective date of the change.
This summary is general in nature and does not discuss all aspects of
federal income taxation that may be relevant to a particular holder in light of
such holder's individual circumstances or to certain types of holders subject to
special treatment under the federal income tax laws (for example, dealers in
securities, individual retirement accounts, banks, life insurance companies,
tax-exempt organizations and foreign taxpayers). In addition, this summary does
not discuss any aspect of state, local or foreign taxation or any United States
tax consequences other than income tax (for example, estate or gift tax)
consequences that may be applicable to particular investors.
For purposes of this summary, an Exchanging Holder is presumed to hold
his Existing Debentures and New Collateralized Debentures as "capital assets"
(generally property held for investment) within the meaning of Section 1221 of
the Code. Further, this summary assumes that the Existing and New Collateralized
Debentures will be treated as debt and not equity for federal income tax
purposes.
No rulings have been requested or received from the IRS as to any of
the matters described herein. Accordingly, there can be no assurance that the
IRS will not take a different position concerning the tax consequences described
herein. No opinion of counsel has been or will be issued with respect to the tax
matters discussed herein.
EACH HOLDER OF EXISTING DEBENTURES SHOULD CONSULT WITH HIS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OF PARTICIPATION IN
THE EXCHANGE, AND THE OWNERSHIP AND DISPOSITION OF NEW COLLATERALIZED
DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
QUALIFICATION OF THE EXCHANGE AS A RECAPITALIZATION
The federal income tax consequences of the exchange of Existing
Debentures for New Collateralized Debentures pursuant to the Exchange Offer (the
"Exchange") depends primarily on whether the Exchange will qualify as a
recapitalization under Section 368(a)(1)(E) of the Code. The Exchange should
qualify as a recapitalization if both the Existing Debentures and the New
Collateralized Debentures are "securities" for federal income tax purposes. The
term "security" is not defined in the Code or in the regulations promulgated
thereunder and has not been clearly defined by judicial decisions. Whether a
debenture will qualify as a "security" for purposes of Section 368(a)(1)(E)
depends upon an overall evaluation of the nature of the debt instrument, with
one of the most significant factors being the term thereof. In general,
43
<PAGE> 48
the longer the term of a debt instrument, the greater the likelihood that it
will be considered a "security." Instruments with a maturity of less than five
years generally are less likely to be treated as "securities" for federal income
tax purposes.
The Company intends to report the Exchange as a recapitalization based
upon its belief that both the Existing Debentures and the New Collateralized
Debentures should be "securities" for federal income tax purposes. Because such
determinations are fact specific, there can be no assurance that the IRS will
respect such characterization. The remaining discussion assumes that the
Exchange is a recapitalization for federal income tax purposes.
TENDERING HOLDERS
Gain or Loss on the Exchange
Assuming the Exchange is a recapitalization, an Exchanging Holder will
recognize no gain or loss on the receipt of a New Collateralized Debenture
solely in exchange for an Existing Debenture. The Exchanging Holder's tax basis
in the New Collateralized Debenture will equal the Exchanging Holder's tax basis
in the Existing Debentures. The Exchanging Holder's holding period in the New
Collateralized Debentures will include his holding period in the Existing
Debentures.
Payments of Qualified Stated Interest
Existing Debentures. The Existing Debentures pay interest at a stated
rate of 7%. The Company expects to accrue and pay all stated interest on the
Existing Debentures as of the effective date of the Exchange. The stated
interest paid on the Existing Debentures should be included as interest income
of such holders of the Existing Debentures in accordance with their respective
methods of accounting.
New Collateralized Debentures. The New Collateralized Debentures will
pay interest at a stated rate of 8.5%. The stated interest paid on the New
Collateralized Debentures should be included as interest income of holders of
the New Collateralized Debentures in accordance with their respective methods of
accounting.
Original Issue Discount
General. If a debt obligation bears original issue discount ("OID"),
the holder of such debt obligation is required to include such OID in income as
interest income on a constant yield to maturity method basis, in advance of the
receipt of the cash payments to which such income is attributable and generally
in increasing amounts over the life of the debt obligation.
The total amount of OID with respect to a debt obligation will be equal
to the excess of the stated redemption price at maturity ("SRPM") of such debt
obligation over the "issue price" of such debt obligation. The SRPM of a debt
obligation is the sum of all payments, whether denominated as interest or
principal, required to be made on such debt obligation other than payments of
qualified stated interest ("QSI"). A QSI payment is generally any one of a
series of stated interest payments on a debt obligation that is unconditionally
payable at least annually at a single fixed rate (with certain exceptions for
lower rates paid during some periods) applied to the outstanding principal
amount of the debt obligation. The "issue price" of a debt obligation is
determined based on a combination of whether such debt obligation is issued in
exchange for cash or other property and whether either such debt obligation or
the property for which it is exchanged is publicly traded. If a new debt
obligation is issued in exchange for an existing debt obligation and the new
debt obligation is publicly traded, then the issue price of the new debt
obligation will be the fair market value of the new debt obligation. If the new
debt obligation is not publicly traded but is issued in exchange for a debt
obligation that is publicly traded, then the issue price of the new debt
obligation will be the fair market value of the publicly traded existing debt
obligation.
Holders are not required to report OID on a constant yield to maturity
method basis, however, if the OID is de minimus. OID on a debt obligation will
be treated as de minimus if the OID is less than 0.25% of the SRPM of such debt
obligation multiplied by the number of complete years to the maturity of the
debt obligation.
The amount of OID required to be included in a holder's income for any
taxable year (regardless of whether the holder uses the cash or accrual method
of accounting) is the sum of the daily portions of OID with respect to the debt
obligation for each day during the taxable year or portion of the taxable year
in which the holder holds such debt obligations ("accrued original issue
discount"). The daily portion is determined by allocating to each day in any
"accrual period" a pro rata portion of the OID allocable to that accrual period.
Accrual periods with respect to a debt obligation may be of any
44
<PAGE> 49
length selected by the holder and may vary in length over the term of the debt
obligation as long as (i) no accrual period is longer than one year and (ii)
each scheduled payment of interest or principal on the debt obligation occurs on
either the first or final day of an accrual period. The amount of OID allocable
to each accrual period will be equal to the excess of (a) the product of the
adjusted issue price of the debt obligation at the beginning of an accrual
period and the yield to maturity of such debt obligation (determined on the
basis of a compounding assumption that reflects the length of the accrual
period) over (b) the sum of the payments of QSI on the debt obligation allocable
to the accrual period. The adjusted issue price of a debt obligation at the
beginning of an accrual period will be equal to its original issue price
increased by all previously accrued OID (disregarding any reduction on account
of acquisition premium described below) and reduced by the amount of all
previous cash payments on the debt obligation (other than a payment of QSI). The
yield to maturity is that interest rate, expressed as a constant annual interest
rate, that when used in computing the present value of all payments of principal
and interest to be paid in connection with the debt obligation produces an
amount equal to the issue price of the debt obligation.
Existing Debentures. The Existing Debentures bear OID, and the Company
has reported such OID to the holders of Existing Debentures annually. Holders of
Existing Debentures are required to include such OID in income as interest
income. Exchanging Holders will be required to include in their gross income as
ordinary interest income an amount equal to the sum of the daily portions of OID
that has accrued but has not been included in such Exchanging Holder's gross
income from the last accrual period through the effective date of the Exchange.
New Collateralized Debentures. The OID on the New Collateralized
Debentures will equal the OID which has not yet accrued on the Existing
Debentures at the Effective Time of the Exchange. Exchanging Holders who receive
New Collateralized Debentures will be required to include OID as determined
above in income as ordinary interest income on a constant yield to maturity
method basis, in advance of the receipt of the cash payments to which such
income is attributable. See "Original Issue Discount -- General", above.
Acquisition Premium
If a holder of a debt obligation acquired such debt obligation by
purchase subsequent to its original issuance for an amount greater than its
adjusted issue price as of the purchase date and less than or equal to the sum
of all amounts payable on the debt obligation after its purchase by such holder
other than payments of QSI, such holder will be considered to have purchased
such debt obligation at an "acquisition premium." The amount of OID that such
holder includes in gross income with respect to such debt obligation for any
taxable year is generally reduced by the portion of such acquisition premium
properly allocable to such year.
If an Exchanging Holder acquired an Existing Debenture at an
acquisition premium and the Exchange is treated as a recapitalization for
federal income tax purposes, any remaining acquisition premium would carry over
to the New Collateralized Debenture. Any acquisition premium carried over to a
New Collateralized Debenture would accrue over the remaining term of the New
Collateralized Debenture and reduce the amount of OID that such Exchanging
Holder includes in gross income with respect to such New Collateralized
Debenture for any taxable year by the portion of such acquisition premium
properly allocable to such year.
Market Discount
In general, if a holder purchases, subsequent to its original issuance,
a debt obligation for an amount that is less than its "revised issue price" as
of the purchase date, the amount of the difference generally will be treated as
"market discount." The Code provides that the revised issue price of a debt
obligation equals its issue price plus the amount of OID includable in the
income of all holders for periods prior to the purchase date (disregarding any
deduction for acquisition premium). Under a de minimus exception, however, there
would be no market discount if the excess of the SRPM of the obligation less any
unamortized OID over the holder's tax basis is less than 0.25% of the SRPM
multiplied by the number of complete years to the maturity of the obligation.
Under the market discount rules generally, a holder will be required to
treat any gain recognized on the maturity or disposition of debt obligation as
ordinary income to the extent of the market discount that has accrued while the
instrument was held by such holder and that has not previously been included in
income. In addition, the holder may be required to defer, until the maturity
date of a debt obligation or its earlier disposition in a taxable transaction,
the deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such debt obligation.
45
<PAGE> 50
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the debt obligation,
unless the holder elects to accrue market discount on a constant interest
method. Also, a holder of a debt obligation may elect to include market discount
in income currently as it accrues (under either the ratable or constant interest
method). This election to include currently, once made applies to all market
discount obligations acquired in or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. If a
holder of a debt obligation makes such an election, the foregoing rules with
respect to the deferral of interest deductions on debt incurred or maintained to
purchase or carry such debt instruments would not apply.
Based on the legislative history to the market discount provisions,
Treasury Regulations are expected to be issued that would provide exchanges of
market discount bonds in a tax free recapitalization would not cause recognition
of accrued market discount. If such regulations are promulgated and are
applicable to the Exchange and the Exchange is treated as a recapitalization for
federal income tax purposes, any accrued market discount on the Existing
Debentures would not be treated as ordinary income at the time of the Exchange,
but the market discount (including accrued market discount) would carry over to
the New Collateralized Debentures issued in exchange therefor.
OTHER FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED
WITH OWNERSHIP OF NEW COLLATERALIZED DEBENTURES
Tax Basis
Generally, a holder's tax basis in New Collateralized Debentures will
be increased by the amount of OID, if any, that is included in the holder's
income pursuant to the foregoing rules through the day preceding the date of
disposition and will be decreased by the amount of any cash payments received,
other than payments of QSI.
OID
The New Collateralized Debentures will bear OID. A holder of a New
Collateralized Debentures will be required to include OID as determined above in
income as ordinary interest income on a constant yield to maturity method basis,
in advance of the receipt of the cash payments to which such income is
attributable. See "Original Issue Discount -- General", above. The Company will
furnish annually to the IRS and to record holders of New Collateralized
Debentures information relating to the OID accruing during the calendar year.
Sale or Redemption
The sale, exchange, redemption (including pursuant to an offer by the
Company) or other disposition of New Collateralized Debentures generally will be
a taxable event for federal income tax purposes. A holder of New Collateralized
Debentures generally will recognize gain or loss on the disposition of such
instruments equal to the difference between (i) the amount of cash plus the fair
market value of any property received upon such sale, exchange, redemption or
other taxable disposition of a New Collateralized Debenture (other than in
respect of accrued but unpaid QSI thereon) and (ii) the holder's adjusted tax
basis in such debt instrument. Except as described above regarding market
discount, or attributable to accrued but unpaid interest, such gain or loss will
be capital gain or loss, provided the New Collateralized Debentures are capital
assets in the hands of the holder disposing of such New Collateralized
Debentures. In addition, such capital gain will be taxed at a maximum rate of
28% if such holder held the New Collateralized Debenture for a period greater
than 12 months but 18 months or less as of the effective date of the disposition
and at a maximum rate of 20% if such holder held New Collateralized Debentures
for a period greater than 18 months as of the effective date of the disposition.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding and information reporting requirements may apply to
certain payments of principal and interest on an Existing Debenture or a New
Collateralized Debenture, and to proceeds of the sale or redemption of a New
Collateralized Debenture before maturity. The Company, its agent, a broker, the
Trustee or any paying agent, as the case may be, will be required to withhold
from any payment that is subject to backup withholding a tax equal to 31% of
such payment if the holder of an Existing Debentures or a New Collateralized
Debentures (i) fails to furnish his, her or its social security or other
taxpayer identification number ("TIN") within a reasonable time after the
request therefor, (ii) furnishes
46
<PAGE> 51
an incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
fails to provide a certified statement, signed under penalty of perjury, that
the TIN provided is his correct number and that he is not subject to backup
withholding. Any amount withheld from a payment to a holder under backup
withholding rules is allowable as a credit against such holder's federal income
tax liability, provided that the required information is furnished to the
Service. Holders of Existing Debentures and New Collateralized Debentures should
consult their tax advisors as to their qualification for exemption from
withholding and the procedure for obtaining such an exemption.
CERTAIN EFFECTS OF THE EXCHANGE OFFER TO THE COMPANY
Cancellation of Debt Income
In general, the acquisition of a debt obligation by the obligor at less
than its face amount (or, in the case of an obligation issued with OID, its
adjusted issue price) gives rise to cancellation of debt ("COD") income which,
absent an applicable exception, must be included in the obligor's gross income
for federal income tax purposes.
Under general rules governing COD income, the Company would realize COD
income on the Exchange Offer to the extent that the adjusted issue price of the
Existing Debentures exchanged, exceeds the issue price of the New Collateralized
Debentures. As noted above, the issue price of the New Collateralized Debentures
will likely be the fair market value of the New Collateralized Debentures,
assuming the New Collateralized Debentures are publicly traded. It is unclear
whether the fair market value of the New Collateralized Debentures will be
greater than the adjusted issue price of the Existing Debentures at the
Effective Date of the Exchange and, as such, whether the acquisition of Existing
Debentures by the Company pursuant to the Exchange Offer will result in COD
income to the Company. The Company, however, believes that the acquisition of
Existing Debentures pursuant to the Exchange Offer will not result in any COD
income to the Company. If any COD income were recognized, however, then such
income would be includable in the Company's gross income for the taxable year in
which the Exchange occurs.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER OF AN EXISTING DEBENTURE OR A NEW COLLATERALIZED
DEBENTURE SHOULD CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO SUCH HOLDER OF THE CONSUMMATION OF THE EXCHANGE OFFER, AND
THE OWNERSHIP AND DISPOSITION OF NEW COLLATERALIZED DEBENTURES, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME TAX.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission an application on Form T-3 under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), which application contains
additional information relating to the Company and the New Collateralized
Debentures, and will be subject to the informational reporting requirements of
the Trust Indenture Act. Such reports, proxy statements and other information
filed with the Commission, including the application on Form T-3 and the
exhibits thereto (including the form of New Indenture pursuant to which New
Collateralized Debentures are to be issued), are available for inspection at,
and copies may be obtainable upon payment of the fees prescribed therefor by the
rules and regulations of the Commission from the public reference of the
Commission at its principal offices located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at the Commission's Regional
Offices located at 7 World Trade Center, New York, New York 10048 and at the
Regional Offices of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. In addition, certain material
filed by the Company can be inspected at the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 and at the Commission site on the
Internet at http://www.sec.gov.
47
<PAGE> 52
THE HALLWOOD GROUP INCORPORATED
3710 Rawlins, Suite 1500
Dallas, Texas 75219
Telephone: (800) 225-0135
Attention: Mary Doyle
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
Two International Place
Boston, Massachusetts 02110
Attn: Jacqueline Bonhomme
Telephone: (617) 664-5419
Facsimile: (617) 664-5150
The Information Agent for the Exchange Offer is:
HALLWOOD PETROLEUM, INC.
4582 S. Ulster Street Parkway, Suite 1700
Denver, Colorado 80237
(800) 882-9225
The Old Indenture Trustee is: The New Indenture Trustee is:
NORWEST BANK MINNESOTA, BANK ONE, N.A.
NATIONAL ASSOCIATION 100 East Broad Street
Norwest Center Columbus, Ohio 43271-0181
Sixth & Marquette Attention: David Knox
Minneapolis, Minnesota 55479-0069 Telephone: (614) 248-6229
Attention: Raymond Haverstock Facsimile: (614) 248-5195
Telephone: (612) 667-7364
Facsimile: (612) 667-9825
48
<PAGE> 53
APPENDIX A
SECURITY POOL FOR EXISTING DEBENTURES
AND NEW COLLATERALIZED DEBENTURES
COMBINING BALANCE SHEETS
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BROOKWOOD
COMPANIES BROCK SUITE
INCORPORATED HALLWOOD HOTELS, INC. COMBINED
& SUBSIDIARIES HOTELS, INC. & SUBSIDIARIES TOTAL
-------------- ------------ -------------- --------
<S> <C> <C> <C> <C>
ASSETS
TEXTILE PRODUCTS
Inventories.......................... $19,681 $19,681
Receivables.......................... 17,514 17,514
Property, plant and equipment, net... 8,816 8,816
Other................................ 877 877
Cash and cash equivalents............ 48 48
-------- -------
46,936 46,936
HOTELS
Properties, net...................... $ 3,253 $10,856 14,109
Receivables and other assets......... 958 983 1,941
Intercompany advance (payable)....... 2,061 (78) 1,983
Restricted cash...................... 235 435 670
Cash and cash equivalents............ 46 (98) (52)
------- ------- -------
6,553 12,098 18,651
------- ------- -------
TOTAL............................. $ 46,936 $ 6,553 $12,098 $65,587
======== ======= ======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
TEXTILE PRODUCTS
Loan payable......................... $ 13,600 $13,600
Accounts payable and
accrued expenses.................. 11,996 11,996
-------- -------
25,596 25,596
HOTELS
Loans payable........................ $11,981 11,981
Accounts payable and
accrued expenses.................. $ 857 612 1,469
------- ------- -------
857 12,593 13,450
------- ------- -------
Total liabilities................. 25,596 857 12,593 39,046
STOCKHOLDERS' EQUITY
Common stock......................... 100 1 1 102
Preferred stock...................... 13,000 -- -- 13,000
Additional paid-in capital........... 4,342 11,999 999 17,340
Accumulated income (deficit)......... 3,898 (6,304) (1,495) (3,901)
-------- ------- ------- -------
Total stockholders' equity....... 21,340 5,696 (495) 26,541
-------- ------- ------- -------
TOTAL............................. $ 46,936 $ 6,553 $12,098 $65,587
======== ======= ======= =======
</TABLE>
See accompanying notes to combining financial statements.
1
<PAGE> 54
SECURITY POOL FOR EXISTING DEBENTURES
AND NEW COLLATERALIZED DEBENTURES
COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BROOKWOOD
COMPANIES BROCK SUITE
INCORPORATED HALLWOOD HOTELS, INC. COMBINED
& SUBSIDIARIES HOTELS, INC. & SUBSIDIARIES TOTAL
-------------- ------------ -------------- --------
<S> <C> <C> <C> <C>
TEXTILE PRODUCTS
Sales ............................. $ 91,552 $91,552
Cost of sales....................... 79,473 79,473
Administrative and selling
expenses......................... 9,072 9,072
Interest............................ 1,030 1,030
-------- -------
89,575 89,575
-------- -------
Income from textile
products operations.......... 1,977 1,977
HOTELS
Sales ............................. $13,843 $ 7,195 $21,038
Operating expenses.................. 12,558 4,932 17,490 (A)
Depreciation and amortization....... 1,456 1,235 2,691 (B)
Interest............................ -- 1,444 1,444
------- ------- -------
14,014 7,611 21,625
------- ------- -------
Income (loss) from
hotel operations............. (171) (416) (587)
------- ------- -------
Income before income taxes
and extraordinary loss.............. 1,977 (171) (416) 1,390
Income taxes (benefit)................. 791 -- (18) 773 (C)
-------- ------- ------- -------
Income (loss) before extraordinary
loss ............................. 1,186 (171) (398) 617
Extraordinary loss from
extinguishment of debt.............. -- -- 677 677
-------- ------- ------- -------
NET INCOME (LOSS).......................... $ 1,186 $ (171) $(1,075) $ (60)
======== ======= ======= =======
</TABLE>
See accompanying notes to combining financial statements.
2
<PAGE> 55
SECURITY POOL FOR EXISTING DEBENTURES
AND NEW COLLATERALIZED DEBENTURES
COMBING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BROOKWOOD
COMPANIES BROCK SUITE
INCORPORATED HALLWOOD HOTELS, INC. COMBINED
& SUBSIDIARIES HOTELS, INC. & SUBSIDIARIES TOTAL
-------------- ------------ -------------- --------
<S> <C> <C> <C> <C>
TEXTILE PRODUCTS
Sales ............................. $ 23,315 $23,315
Cost of sales....................... 20,158 20,158
Administrative and selling
expenses......................... 2,263 2,263
Interest ........................... 269 269
-------- -------
22,690 22,690
-------- -------
Income from textile products
operations................... 625 625
HOTELS
Sales ............................. $ 3,291 $ 1,707 4,998
Operating expenses.................. 3,249 1,301 4,550 (A)
Depreciation and amortization....... 317 314 631 (B)
Interest............................ -- 252 252
------- ------- -------
3,566 1,867 5,433
------- ------- -------
Income (loss) from hotel
operations................... (275) (160) (435)
------- ------- -------
Income (loss) before income taxes 625 (275) (160) 190
Income taxes........................ 250 -- 1 251 (C)
------- ------- ------- -------
NET INCOME (LOSS)...................... $ 375 $ (275) $ (161) $ (61)
======= ======= ======= =======
</TABLE>
See accompanying notes to combining financial statements.
3
<PAGE> 56
SECURITY POOL FOR EXISTING DEBENTURES AND
NEW COLLATERALIZED DEBENTURES
NOTES TO COMBINING FINANCIAL STATEMENTS
A. Includes an intercompany management fee to The Hallwood Group
Incorporated of $500,000 for the year ended December 31, 1997 and
$125,000 for the three months ended March 31,1998. This represents an
annual fee of $100,000 for each of the five hotel properties
B. Excludes amortization of pre-operating costs in the amount of $38,000 and
$10,000 for the year ended December 31, 1997 and three months ended March
31, 1998, respectively, attributable to costs incurred by The Hallwood
Group Incorporated in connection with the development of its
condominium resort management business.
C. The Company has a Federal tax-sharing agreement with its Brookwood
Companies Incorporated subsidiary, which requires Brookwood to record
federal income taxes as if it filed a separate income tax return. Any
amounts due or recoverable are presented as a liability to, or receivable
from, the Company in lieu of federal income taxes. No such tax-sharing
agreement exists with the Hallwood Hotels, Inc. as Brock Suite Hotels,
Inc. subsidiaries.
4
<PAGE> 1
EXHIBIT 99.T3E.2
LETTER OF TRANSMITTAL
TO EXCHANGE 7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES DUE
JULY 31, 2000 OF
THE HALLWOOD GROUP INCORPORATED
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------
Principal Amount of DESCRIPTION OF EXISTING
7% Debentures Held in DEBENTURES TENDERED
this Account ----------------------------------------
Existing Debenture(s) Tendered
(Attach additional list if necessary)
========================================
Dollar Amount of Certificate
Debentures Enclosed Numbers
----------------------------------------
X
- - ------------------------------------------------------------- ----------------------------------------
(Name, Address and Taxpayer Identification Number of
Registered Bondholder)
- - ------------------------------------------------------------- ----------------------------------------
Please make any corrections to the above address and Tax
Identification Number or Social Security Number in ink. ----------------------------------------
----------------------------------------
</TABLE>
NOTE: PLEASE COMPLETE THE SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS ON PAGE 3
OF THIS LETTER OF TRANSMITTAL IF THE NAME ON THE CERTIFICATE PRESENTED
FOR TENDER DIFFERS FROM THAT OF THE SIGNER OF THE LETTER OF
TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby submits for exchange to The Hallwood Group
Incorporated, a Delaware corporation (the "Company"), the above-described 7%
Collateralized Senior Subordinated Debentures due July 31, 2000 (the "Existing
Debentures") of the Company, pursuant to the Company's offer to exchange (the
"Offer") up to a maximum of $20,555,443 of the outstanding Existing Debentures
for the Company's 8.5% Collateralized Subordinated Debentures due July 31, 2005
(the "New Collateralized Debentures") at the rate of $100 principal amount of
New Collateralized Debentures for each $100 principal amount of Existing
Debentures validly tendered and accepted in accordance herewith. Tendering
holders of Existing Debentures will be entitled to receive accrued interest on
Existing Debentures accepted by the Company for exchange from the date of the
last interest payment (i.e. April 30, 1998 or July 31, 1998). This exchange is
made upon the terms and subject to the conditions contained in (1) the Exchange
Offer Circular dated _____, __, 1998 (the"Exchange Offering Circular"), receipt
of which is hereby acknowledged, and (2) this Letter of Transmittal (together
with the Exchange Offering Circular (the "Offer"). Any capitalized terms used
herein and not specifically defined shall have the meanings given them in the
Exchange Offering Circular.
Upon the terms and subject to the conditions of the Offer, and
effective upon acceptance for exchange of the Existing Debentures tendered
herewith in accordance with the terms of the Offer (including if the Offer is
extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Company, all right, title and interest in and to all of the
Existing Debentures that are being tendered herewith, and any and all principal
or interest payments, distributions and rights in respect thereof on or after
the date of the Offer (collectively, "Distributions"). The undersigned
irrevocably appoints State Street Bank and Trust Company (the "Exchange Agent")
the true and lawful agent and attorney-in-fact of the undersigned with respect
to such Existing Debentures (and all such Distributions), with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver certificates for such Existing
Debentures or transfer ownership of such Existing Debentures (and all such
Distributions) on the account books maintained by a Book-Entry Transfer
Facility, together in any such case with all accompanying evidences of transfer
and authenticity, to or upon the order of the Company, (b) to receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Existing Debentures, all in accordance with the terms and the conditions of the
Offer.
By accepting the Offer through the exchange of Existing Debentures
pursuant to the Offer, the undersigned hereby agrees to release, and hereby
releases, all claims with respect to and in respect of the Existing Debentures
other than the right to receive New Collateralized Debentures, at the rate of
$100 principal amount of New Collateralized Debentures for each $100 principal
amount of Existing Debentures so tendered and cash payment of accrued interest
on such Existing Debentures and upon payment for the Existing Debentures, the
undersigned waives any right to attack, and will be barred from thereafter
attacking, in any legal proceeding the fairness of the consideration paid in the
Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Existing
Debentures tendered hereby and that when the same are accepted for exchange by
the Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges, encumbrances and
adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, sale, assignment, and transfer of the
Existing Debentures tendered herewith. In addition, the undersigned shall
promptly remit and transfer to the Exchange Agent for the account of the Company
any and all Distributions in respect of the Existing Debentures tendered
herewith, accompanied by appropriate documentation of transfer. Pending such
remittance or appropriate assurance thereof, the Company shall be entitled to
all rights and privileges as owner of Existing Debentures and may withhold the
entire amount of New Collateralized Debentures or deduct from the principal
amount of New Collateralized Debentures the amount or value thereof, as
determined by the Company in its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tenders of
Existing Debentures made pursuant to the Offer are irrevocable after the
Expiration Date of the Offer.
<PAGE> 2
The undersigned understands that exchange of Existing Debentures
pursuant to any one of the procedures described herein and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Issuance and Payment
Instructions," please return any certificates for Existing Debentures not
accepted for exchange in the name(s) of the registered holder(s) appearing under
"Description of Existing Debentures Tendered." The undersigned recognizes that
the Company has no obligation, pursuant to the Special Issuance and Payment
Instructions, to transfer any Existing Debentures from the name of the
registered holder thereof if the Company does not accept for exchange any of the
Existing Debentures so tendered.
ALL BONDHOLDERS MUST COMPLETE ALL SECTIONS MARKED WITH A RED X BELOW:
<TABLE>
<S> <C>
Please sign exactly as your name(s) appears PLEASE NOTE THAT YOUR SIGNATURE CERTIFIES
under "Description of Existing Debentures THAT YOU ARE NOT SUBJECT TO BACKUP
Tendered" above. Each joint owner must sign; WITHHOLDING OF 31%. IF YOU FAIL TO SIGN
if one or more owners are deceased, the BELOW, YOUR DOCUMENTATION WILL BE RETURNED
other(s) must sign and enclose the death TO YOU. IF YOUR DOCUMENTATION IS DEFICIENT
certificate. If you are signing for someone AS OF THE EXPIRATION DATE OF THE OFFER, YOUR
else, you must enclose documentation with TENDER WILL NOT BE ACCEPTED.
the Letter of Transmittal certifying your
authorization to sign, i.e., Death SUBSTITUTE W-9 CERTIFICATION
Certificate, Power of Attorney, Letters
Testamentary, etc. If your account is held Under penalties of perjury, I certify that:
as an IRA or a third party acts as the (1) The number shown on page 1 of this Letter of Transmittal is my correct
custodian on your account, the custodian Taxpayer Identification Number (or I am waiting for a number to be issued to me);
must also sign the Letter of Transmittal. If and
you have questions as to your authority to (2) I am not subject to backup withholding, either because I have not been
sign, please call Hallwood Petroleum, Inc. notified by the Internal Revenue Service (IRS) that I am subject to backup
toll-free nationwide at (800) 882-9225. withholding as a result of a failure to report all interest or dividends or the
IRS has notified me that I am no longer subject to backup withholding.
PLEASE FILL IN YOUR PHONE NUMBER HERE:
Certification instructions-- You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup withholding.
X ( )
----- ---------------------------------
Day or Work Telephone Number
PLEASE DATE AND SIGN HERE:
Date:
--------------------------------
X X
------------------------------------------ ----------------------------------------------
(Signature Guarantee, only if Special Payment (Owner)
Instructions have been completed.
See Instruction 5.) X
-----------------------------------------------
(Co-owner (custodian) signature, if applicable)
</TABLE>
<TABLE>
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
IMPORTANT INSTRUCTIONS FOR ACCEPTING THE OFFER:
(1) DO NOT SIGN YOUR EXISTING DEBENTURES CERTIFICATE(S).
(2) Complete each section above marked with a red X.
(3) Return this form along with your unsigned certificate(s) in the enclosed YELLOW return envelope via overnight courier to:
State Street Bank and Trust Company
Two International Place
4th Floor, Corporate Trust Department
Boston, Massachusetts 02110
Telephone Number (800) 531-0368
(Note) The method of delivery of your certificate(s) and the Letter of Transmittal is at your option and risk, but if the mail
is used, we recommend registered and insured mail.
(4) If you need assistance, please call toll-free nationwide (800) 882-9225.
(5) If you cannot locate your certificate(s), please sign and have the affidavit notarized on page 3.
(6) THIS OFFER EXPIRES ON ___________________, 1998, UNLESS EXTENDED. YOUR DOCUMENTATION MUST BE
COMPLETE, DULY EXECUTED AND RECEIVED BY THIS DATE TO BE ACCEPTED, UNLESS YOU HAVE PROPERLY
COMPLETED AND TENDERED THE "NOTICE OF GUARANTEED DELIVERY" FORM. WHEN MAILING, PLEASE ALLOW
SUFFICIENT TIME FOR THE POST OFFICE TO DELIVER THE MAIL.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
- - -------------------------------------------------------------------------------
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
- - -------------------------------------------------------------------------------
To be completed ONLY if the New Collateralized Debentures issued in
connection with the Offer or related payment of accrued interest are to be
issued in the name of someone other than the signer of the Letter of
Transmittal. See Instruction 4 on page 4.
Issue and mail to name:
-----------------------------------------------
(Please Print)
Social Security or
Identification No.
(see Instruction 2):
-----------------------------------------------
Address:
-----------------------------------------------
Zip
----------
- - -------------------------------------------------------------------------------
THIS SECTION TO BE COMPLETED AND NOTARIZED
ONLY IF YOU CANNOT LOCATE YOUR CERTIFICATE(S)
- - -------------------------------------------------------------------------------
AFFIDAVIT OF LOST OR DESTROYED EXISTING DEBENTURE CERTIFICATE(S)
(Bondholder Information)
STATE OF NAME AND ADDRESS
------------------------ -----------------------------
COUNTY OF CITY/STATE/ZIP
------------------------ -----------------------------
CERTIFICATE NUMBER(S)*________________, for $____________ Dollar Amount of
Existing Debentures(s) of The Hallwood Group Incorporated.
The undersigned person(s), being first duly sworn, deposes and says that:
I am the lawful owner of the above described certificate(s). The
certificate(s) has not been endorsed, cashed, negotiated, transferred, assigned
or otherwise disposed of. I have made a diligent search for the certificate(s)
and have been unable to find it, and make this affidavit for the purpose of
tendering the certificate(s) without surrender of the certificate(s), and hereby
agree to surrender the certificate(s) for cancellation should I, at any time,
find the certificate(s). I, in consideration of the issuance of a new
certificate for New Collateralized Debentures in exchange for the Existing
Debentures represented by the certificate(s), agree to completely indemnify,
protect and save harmless The Hallwood Group Incorporated, Hallwood Petroleum,
Inc., State Street Bank and Trust Company, and Seaboard Surety Company (the
"Obligees"), from and against all loss, costs and damages, including court costs
and attorneys' fees, which they may be subject to or liable for in respect of
the cancellation and replacement of the certificate(s), the tender and exchange
of Existing Debentures represented thereby and distribution of the new
certificate from the exchange of the certificate(s). The rights accruing to the
Obligees under the preceding sentences shall not be limited by the negligence,
inadvertence, accident, oversight or breach of any duty or obligation on the
part of the Obligees or their respective officers, employees and agents or their
failure to inquire into, contest or litigate any claim, whenever such
negligence, inadvertence, accident, oversight, breach or failure may occur or
have occurred. I agree that this affidavit is to be delivered to accompany an
indemnity underwritten by Seaboard Surety Company to protect the foregoing
parties.
Signed, sealed and delivered by Affiant this day of 1998
-------- ---------
PLEASE ALSO SIGN THE FRONT OF THE LETTER OF TRANSMITTAL ON PAGE ONE
Signature of Affiant
------------------------
Signature of Co-Affiant
------------------------
On this _________ day of ______________________ 1998, before me personally
appeared _______________________________ known to me to be the individual(s)
who executed the foregoing instrument, and, being duly sworn, did depose and say
that the statements contained therein are true.
(AFFIX NOTARY SEAL)
My commission expires Notary Public
---------------- ---------------------------
*If you do not have a record of your certificate number(s), leave line blank.
These numbers will be researched by the Exchange Agent or Information Agent.
3
<PAGE> 4
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
1. Delivery of Letter of Transmittal and Certificate. This Letter
of Transmittal must be used by bondholders (or their transferees) in connection
with the tender of certificate(s) ("Certificates"). In the case of bondholders
of record as of the effective time of the Offer, the Certificate(s), a properly
completed and duly executed Letter of Transmittal and any other documents
required by this Letter of Transmittal must be received by State Street Bank and
Trust Company at its address shown on page 2 of this Letter of Transmittal in
order to make an effective tender for exchange. If you are a transferee of a
bondholder of record, you must provide a Certificate(s) accompanied by
appropriate instruments of transfer, a properly completed and duly executed
Letter of Transmittal, with the Special Issuance and Payment Instructions
completed, and any other documents required hereunder to the Exchange Agent at
its address shown on page 2 of this Letter of Transmittal in order to make an
effective tender.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE
CERTIFICATE(S) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
BONDHOLDER (OR HIS/HER TRANSFEREE) AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT . IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
PLEASE RESPOND PROMPTLY, SO THAT THE POST OFFICE HAS SUFFICIENT TIME PRIOR TO
THE EXPIRATION OF THE OFFER TO DELIVER YOUR DOCUMENTATION TO THE EXCHANGE AGENT.
No alternative, conditional or contingent tenders will be accepted. By
execution of this Letter of Transmittal (or facsimile thereof), a bondholder
waives any right to receive any notice of the acceptance of the Existing
Debentures for exchange.
2. Verification of Information and TIN. Please verify the
information in the box on the front side of this Letter of Transmittal. Please
mark corrections if any are necessary. If the space provided for corrections is
inadequate, the information should be listed on a separate, signed schedule
attached to this Letter of Transmittal. Federal income tax law requires a
bondholder to provide his or her correct taxpayer identification number ("TIN")
and to certify that such TIN is correct under penalties of perjury. Failure to
furnish the correct TIN may subject the bondholder to a penalty imposed by the
Internal Revenue Service, and any payment to such bondholder may be subject to
backup withholding of 31%. The TIN is that of the registered holder of the
certificate(s) or the last transferee appearing on the transfers attached to or
endorsed on the certificate(s). The TIN for an individual is his or her social
security number. Exempt persons (including, among others, all corporations) are
not subject to backup withholding.
3. Lost Certificates. If the Certificate(s) which a registered
holder (or his/her transferee) is required to tender has been lost or destroyed,
please properly complete, and duly execute and have notarized the Affidavit of
Lost or Destroyed Existing Debenture Certificate on page 3 and deliver it to the
Exchange Agent.
4. Special Issuance and Payment Instructions. The box on the third
page of this Letter of Transmittal should be completed (1) if the new debenture
certificate is to be issued or interest payment to be made in the name of a
person other than the record holder of the Certificate(s) tendered with this
Letter of Transmittal or (2) if the new debenture certificate or interest
payment check is to be sent to an address other than that shown in the name and
address block on the front page.
5. Guarantee of Signatures. Signature guarantees are unnecessary
unless (a) a Certificate is registered in a name other than the name of the
person tendering the Certificate, or (b) the registered holder of the
certificate completed the Special Payment Instructions section of this Letter of
Transmittal. When a signature guarantee is required, the signature on the Letter
of Transmittal must guaranteed by a financial institution that is a member of
the Stock Transfer Association's approved medallion program (such as STAMP,
SEMP, or MSP), unless tendered on behalf of such institution.
6. Signatures on Letter of Transmittal, Stock Powers and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the Certificate(s) tendered herewith, the signature(s) must
correspond exactly with the name(s) as written on the face of the Certificate(s)
without alterations, enlargement or any change whatsoever. If any of the
Certificate(s) tendered with this Letter of Transmittal are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If any Certificates are registered in different names, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificate(s) or stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Exchange Agent for such person's authority so to act must be
submitted.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Certificate(s) listed, the Special Issuance and
Payment Instructions must be completed and the signature must be guaranteed.
(See Instruction 5.)
7. Inquiries. All inquiries with respect to this Letter of
Transmittal and requests for additional copies of this Letter of Transmittal
should be made to Hallwood Petroleum, Inc., 4582 S. Ulster Street Parkway Suite
1700,Denver, Colorado, 80237 at (800) 882-9225.
8. Waiver of Conditions. Subject to the terms of the Offer, the
Purchaser reserves the right to waive any of the specified conditions to the
Offer, in whole or in part, in the case of any Existing Debentures tendered.
4
<PAGE> 1
EXHIBIT 99.T3E.3
THE HALLWOOD GROUP INCORPORATED
--------------------
OFFER TO EXCHANGE
8.5% COLLATERALIZED SUBORDINATED DEBENTURES
DUE JULY 31, 2005
FOR
7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES
DUE JULY 31, 2000
--------------------
PURSUANT TO THE EXCHANGE OFFER CIRCULAR
DATED , 1998.
------------ --
=================================================================
THE EXCHANGE OFFER EXPIRES AT 5:00 P.M., BOSTON, MASSACHUSETTS
TIME, ON ___________ ___, 1998, UNLESS EXTENDED (THE "EXPIRATION
DATE").
=================================================================
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We are enclosing herewith the material listed below relating to (i) the
Exchange Offer Circular (the "Exchange Offering Circular") of The Hallwood Group
Incorporated, a Delaware corporation (the "Company"), offering to exchange (the
"Exchange Offer") up to $20,555,443 aggregate principal amount of its 8.5%
Collateralized Subordinated Debentures due July 31, 2005 (the "New
Collateralized Debentures") for all of its 7% Collateralized Senior Subordinated
Debentures due July 31, 2000 ("Existing Debentures") held by registered holders
(as reflected on the books and records of the Old Indenture Trustee), (as
defined in the Exchange Offering Circular). Capitalized terms used herein
without definition are used as defined in the Exchange Offering Circular.
Any registered holder (as such term is used in the Exchange Offering
Circular) who is not the beneficial owner of Existing Debentures is requested to
deliver the Exchange Offering Circular and related materials to the beneficial
owner of such Existing Debentures so as to afford such beneficial owner an
opportunity to consider the Exchange Offer and make arrangements to tender
Existing Debentures for exchange.
Holders who tender their Existing Debentures for exchange, pursuant to
the Exchange Offer also will be deemed to have waived any defaults and their
consequences under the indenture governing the Existing Debentures (the "Old
Indenture") or the Existing Debentures, except for a default in the payment of
principal of, or interest on, any Existing Debentures tendered and accepted for
exchange. No such waiver or other action shall impair the rights of any holder
of any Existing Debentures not tendered or accepted for exchange.
You will not be paid a fee for soliciting tenders from clients for
whose account you hold Existing Debentures registered in your name or in the
name of a nominee. However, you will be reimbursed by the Company for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients.
1
<PAGE> 2
For your information and for forwarding to each of your clients for
whose account you hold Existing Debentures, we are enclosing the following
documents:
1. The Exchange Offering Circular dated ______________ ___, 1998.
2. A Letter of Transmittal to be used by registered holders of
Existing Debentures who elect to exchange all or part of their Existing
Debentures (the YELLOW document included herewith).
3. A Notice of Guaranteed Delivery to be used to accept the
Exchange Offer if certificates for Existing Debentures to be tendered are not
immediately available but are not lost and in the circumstances described below
(the BLUE document included herewith).
4. A printed form of a letter which may be sent by you to your
clients with space provided for obtaining such clients' instructions with regard
to the Exchange Offer (the GREEN document included herewith).
WE URGE YOU TO CONTACT YOUR CLIENTS AS SOON AS POSSIBLE.
THE EXCHANGE OFFER CIRCULAR WILL EXPIRE AT 5:00 P.M., BOSTON,
MASSACHUSETTS TIME, ON _________ ___, 1998, UNLESS EXTENDED. SUBJECT TO THE
TERMS OF THE EXCHANGE OFFER EXISTING DEBENTURES TENDERED FOR EXCHANGE MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
In order to take advantage of the Exchange Offer, a duly
executed and a properly completed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees, certificates representing the Existing
Debentures tendered for exchange and any other required documents must be
delivered to and received by the Exchange Agent at its address set forth on the
back cover of the Exchange Offering Circular on or prior the Expiration Date,
all in accordance with the instructions set forth in the Exchange Offering
Circular and the Letter of Transmittal.
Holders who wish to tender their Existing Debentures for
exchange and (i) whose certificates for the Existing Debentures are not
immediately available but are not lost or (ii) time will not permit delivery of
such certificates or other required documents to the Exchange Agent by the
Expiration Date may tender their Existing Debentures for exchange according to
the guaranteed delivery procedures set forth in the Exchange Offering Circular
under "THE OFFER--Exchange and Tender Procedures--Notice of Guaranteed Delivery.
If a holder is unable to locate certificates for the Existing
Debentures to be tendered, such holder should telephone the Information Agent or
Exchange Agent about procedures for tendering such Existing Debentures (which
include delivery of duly executed Letter of Transmittal together with a duly
executed (and notarized) Affidavit of Loss and Indemnity Bond).
Any inquiries you may have with respect to the Exchange Offer
should be addressed to, and additional copies of the enclosed materials may be
obtained from, the Information Agent at its address and telephone number set
forth on the back cover page of the Exchange Offering Circular.
===============================================================================
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF THE COMPANY, ANY AFFILIATE OF THE COMPANY OR THE EXCHANGE AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER CIRCULAR OTHER THAN
THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
===============================================================================
2
<PAGE> 1
EXHIBIT 99.T3E.4
THE HALLWOOD GROUP INCORPORATED
--------------------
OFFER TO EXCHANGE
8.5% COLLATERALIZED SUBORDINATED DEBENTURES
DUE JULY 31, 2005
FOR
7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES
DUE JULY 31, 2000
--------------------
PURSUANT TO THE EXCHANGE OFFER CIRCULAR
DATED _____________ ___, 1998.
- - -------------------------------------------------------------------------------
THE EXCHANGE OFFER, WILL EXPIRE AT 5:00 P.M., BOSTON, MASSACHUSETTS TIME, ON
________________ ___,1998, UNLESS EXTENDED THE "EXPIRATION DATE").
- - -------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is the Exchange Offer Circular Dated
________, 1998 (the "Exchange Offering Circular") of The Hallwood Group
Incorporated, a Delaware corporation (the "Company"), and the related Letter of
Transmittal (the "Letter of Transmittal"), as each may be supplemented or
amended from time to time (which, collectively, constitute the "Exchange
Offer"), pursuant to which the Company is (i) offering to exchange up to
$20,555,443 aggregate principal amount of its 8.5% Collateralized Subordinated
Debentures due July 31, 2005 (the "New Collateralized Debentures") for its 7%
Collateralized Senior Subordinated Debentures due July 31, 2000 (the "Existing
Debentures") held by registered holders (as reflected on the books and records
of the Old Indenture Trustee, as defined in the Exchange Offering Circular).
Capitalized terms used herein without definition are used as defined in the
Exchange Offering Circular.
We are the registered holder of Existing Debentures held for your
account. A tender of such Existing Debentures for exchange may be made only by
us as the registered holder thereof pursuant to the terms of the Exchange Offer,
and then, only pursuant to your instructions. The Letter of Transmittal (THE
YELLOW Documents included herewith) are furnished to you for your information
only and cannot be used by you to tender Existing Debentures held by us for your
account. Alternatively, you may request that we effect a transfer of registered
ownership to you of the Existing Debentures held by us for your account so that
you may directly tender such debentures for exchange, which will take time.
Should you not wish us to effect a transfer, we request your instructions as to
whether you wish us to tender the Existing Debentures held by us for your
account upon the terms and subject to the conditions set forth in the Exchange
Offering Circular and the Letter of Transmittal. WE URGE YOU TO READ THESE
DOCUMENTS CAREFULLY BEFORE CONVEYING YOUR INSTRUCTIONS TO US. Your instructions
to us should be forwarded as promptly as possible in order to permit us to
tender any or all of your Existing Debentures on your behalf by the Expiration
Date and otherwise in accordance with the provisions of the Exchange Offer.
Tendering holders of Existing Debentures will be entitled to
receive accrued interest on Existing Debentures tendered and accepted for
exchange from the date of the last interest payment (i.e.,April 30, 1998 or
July 31, 1998).
1
<PAGE> 2
Holders who tender their Existing Debentures for exchange also will be
deemed to have waived any defaults and their consequences under the indenture
governing the Existing Debentures or Existing Debentures, except for a default
in the payment of the principal of, or interest on, any Existing Debentures
tendered and accepted for exchange. No such waiver or other action shall impair
the rights of any holder of any Existing Debentures not tendered or accepted for
exchange.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON, MASSACHUSETTS
TIME, ON _____________ ___, 1998, UNLESS EXTENDED. SUBJECT TO THE TERMS OF THE
EXCHANGE OFFER, EXISTING DEBENTURES TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
If you wish to have us tender any or all of your Existing Debentures
for exchange, please so instruct us by completing, detaching and returning to us
the instruction form set forth below. In completing the instruction form, you
must, at a minimum, complete the appropriate column (1) thereof and sign where
indicated. If only that column is completed, we will tender all Existing
Debentures listed in column (1) on your behalf. If you wish to tender less than
all of such Existing Debentures for exchange, the appropriate column (2) must be
completed. An envelope to return your instructions is enclosed. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf prior to the Expiration Date.
INSTRUCTION FORM
The undersigned acknowledges(s) receipt of your letter, the enclosed
Exchange Offering Circular and the related Letter of Transmittal in connection
with the Exchange Offer. In order for you to make certain representations,
warranties and acknowledgments to the Company as set forth in the Letter of
Transmittal, the undersigned hereby represents, warrants and acknowledges to you
that the representations, warranties and acknowledgments set forth in the Letter
of Transmittal are true and correct with respect to the undersigned.
This will instruct you to tender the Existing Debentures indicated
below for exchange or purchase for the account of the undersigned.
<TABLE>
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------------------
Existing Debentures that are to be
tendered for exchange:
- - ----------------------------------------------------------------
(1) (2) SIGN HERE
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT ---------------------------------
AMOUNT TENDERED Signature(s)
---------------------------------
$ $ Name (Please Print)
------------------------ ------------------------
---------------------------------
Name (if more than one holder)
---------------------------------
Address
---------------------------------
Zip Code
---------------------------------
Area Code and Telephone No.
Dated:
---------------------------------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
THIS FORM MUST BE SENT TO YOUR NOMINEE.
DO NOT SEND THIS FORM TO THE EXCHANGE AGENT, THE COMPANY, THE INFORMATION
AGENT, THE OLD INDENTURE TRUSTEE OR THE NEW INDENTURE TRUSTEE.
2
<PAGE> 1
EXHIBIT 99.T3E.5
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES DUE JULY 31, 2000 AND
IN EXCHANGE FOR
8.5% COLLATERALIZED SUBORDINATED DEBENTURES DUE JULY 31, 2005
OF
THE HALLWOOD GROUP INCORPORATED
Registered holders of outstanding 7% Collateralized Senior Subordinated
Notes Due July 31, 2000 (the "Existing Debentures") who wish to tender their
Existing Debentures in exchange for a like principal amount of 8.5%
Collateralized Subordinated Debentures Due July 31, 2005 (the "New
Collateralized Debentures") of The Hallwood Group Incorporated, a Delaware
corporation (the "Company") and whose Existing Debentures are not immediately
available or who cannot deliver their Existing Debentures and Letter of
Transmittal (and any other documents required by the Letter of Transmittal) to
State Street Bank and Trust Company (the "Exchange Agent") prior to the
Expiration Date, may use this Notice of Guaranteed Delivery. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) or letter to the Exchange Agent. See "THE EXCHANGE
OFFER--Procedures for Tendering Existing Debentures" in the Exchange Offer
Circular.
THE MAILING ADDRESS, FACSIMILE NUMBER AND TELEPHONE NUMBER OF THE
EXCHANGE AGENT ARE AS FOLLOWS:
BY REGISTERED OR CERTIFIED
MAIL, HAND DELIVERY OR OVERNIGHT DELIVERY:
STATE STREET BANK AND TRUST COMPANY
CORPORATE TRUST DEPARTMENT
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
BY FACSIMILE:
(617) 664-5150
1
<PAGE> 2
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN THE EXCHANGE OFFER
CIRCULAR), SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED
ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
Ladies and Gentleman:
The undersigned hereby tenders the principal amount of Existing
Debentures indicated below, upon the terms and subject to the conditions
contained in the Exchange Offer Circular dated ______________, 1998 of The
Hallwood Group Incorporated, receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES DUE JULY 31, 2000
<TABLE>
<CAPTION>
Names and addresses of registered Certificate number(s) Aggregate Principal Principal Amount of
holder as it appears on the Existing of Existing Debentures Amount Represented by Existing Debentures
Debentures tendered Existing Debentures tendered
(Please Print)
<S> <C> <C> <C>
- - ------------------------------------ ---------------------- ---------------------- ---------------------
- - ------------------------------------ ---------------------- ---------------------- ---------------------
- - ------------------------------------ ---------------------- ---------------------- ---------------------
- - ------------------------------------ ---------------------- ---------------------- ---------------------
- - ------------------------------------ ---------------------- ---------------------- ---------------------
</TABLE>
If Existing Debentures will be delivered by book-entry transfer to The
Depositary Trust Company, provide account number.
Account Number
---------------------------
2
<PAGE> 3
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is 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, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at the address set forth above, the certificates representing
the Existing Debentures, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal within
three New York Stock Exchange, Inc. trading days after the date of execution of
this Notice of Guaranteed Delivery.
Name of Firm:
---------------------------- --------------------------------
(Authorized Signature)
Address: ---------------------------- Title:
--------------------------
---------------------------- Name:
--------------------------
---------------------------- (Please Type or Print)
(Zip Code)
Area Code
and Telephone Number: Date:
------------------- --------------------------
NOTE: DO NOT SEND EXISTING DEBENTURES WITH THIS NOTICE OF GUARANTEED
DELIVERY. EXISTING DEBENTURES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
------------------------
*/ Must be in denominations of $100 and any integral multiple thereof.
3
<PAGE> 4
ALL 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
- - -------------------------------------------
- - -------------------------------------------- ------------------------------
Signature(s) of Owner(s) or Authorized Date Signatory
Area Code
and Telephone Number:
-----------------------
Must be signed by the holder(s) of Existing Debentures as their name(s)
appear(s) on certificates for Existing Debentures or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a 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):
-----------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
4
<PAGE> 1
EXHIBIT 99.T3E.6
THE HALLWOOD GROUP INCORPORATED
A COMMISSION-FREE EXCHANGE PROGRAM FOR
HOLDERS OF THE HALLWOOD GROUP INCORPORATED'S
7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES
DUE JULY 31, 2000
THIS OFFER WILL EXPIRE ON _____ ____, 1998
UNLESS EXTENDED
Dear Bondholders:
I am pleased to inform you that The Hallwood Group Incorporated (the
"Company") has decided to offer to exchange (the "Exchange Offer") its 7%
Collateralized Senior Subordinated Debentures due July 31, 2000 (the "7%
Debentures") for 8.5% Collateralized Subordinated Debentures due July 31, 2005
(the "8.5% Debentures"), as described in the enclosed Exchange Offer Circular
(the "Exchange Offering Circular"). The Exchange Offer provides that the Company
will exchange (the "Exchange") up to a maximum of $20,555,443 (the total
outstanding amount of 7% Debentures) aggregate principal amount of its 7%
Debentures in the ratio of $100 principal amount of 8.5% Debentures for each
$100 principal amount of 7% Debentures.
Management regards the Exchange as an opportunity to enhance the
Company's liquidity and improve its financial ability to achieve its business
plan, by deferring the time at which the Company is required to pay in full the
7% Debentures, and as being consistent with the long term goal of increasing
stockholder value.
Accompanying this letter is the Exchange Offering Circular and related
materials, including a Letter of Transmittal to be used for exchanging your 7%
Debentures. These documents set forth the terms and conditions of the Exchange
Offer and provide instructions for you regarding the procedures for exchanging
your 7% Debentures. On the reverse side of this letter you will find commonly
asked questions and answers about the Exchange Offer. I urge you to read the
materials carefully before making your decision.
Sincerely,
Melvin J. Melle,
Vice President, Chief Financial Officer
and Secretary
Please see the reverse side of this letter for "Questions and Answers
about the Exchange Offer."
<PAGE> 2
<TABLE>
<CAPTION>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
<S> <C>
1. What will I receive in exchange for my 7% Debentures? accordance with the terms of the indenture pursuant to which
the 7% Debentures were issued. Any such redemption requires
Your 7% Debentures will be exchanged at a ratio of $100 the Company to pay all unpaid principal and accrued interest
principal amount of 8.5% Debentures for each $100 principal as well as the purchase price for such redeemed 7%
amount of 7% Debentures and you will receive a check for Debentures. If a substantial amount of 7% Debentures are
accrued and outstanding interest payable from the date of exchanged in the Exchange Offer, the aggregate principal
the last interest payment (i.e. April 30, 1998 or July 31, amount of all 7% Debentures being traded publicly would be
1998). reduced, which could adversely affect the liquidity and
market value of the remaining 7% Debentures held by the
2. What is the security for the New 8.5% Debentures? public.
The 8.5% Debentures will be secured by a first and 7. What should I do if my 7% Debentures are held by my
senior lien on the capital stock of Brock Suite Hotels, broker?
Inc., ("BSH") which owns two operating hotels, a Residence
Inn by Marriott hotel in Tulsa, Oklahoma and a Residence Inn If you wish to tender, and your 7% Debentures are held
by Marriott hotel in Greenville, South Carolina and leases a in a brokerage account, you must contact your broker.
Residence Inn by Marriott hotel in Huntsville, Alabama.
The 8.5% Debentures are also secured by a subordinate and 8. What are the tax consequences if I participate in the
junior lien on the capital stock of Brookwood Companies Exchange Offer?
Incorporated ("BCI") and its subsidiaries, which are engaged
in the textile business, and the issued and outstanding We do not make any representations as to the tax
capital stock of Hallwood Hotels, Inc., ("HHI") an indirect, consequences of the transaction. You should consult your own
wholly-owned subsidiary of the Company that owns leasehold financial and tax advisors to assess the desirability of
interests in the Longboat Key Holiday Inn hotel in Sarasota, participating in the Exchange Offer.
Florida, and the Airport Embassy Suites hotel in Oklahoma
City, Oklahoma BSH, BCI, and HHI are indirect wholly-owned 9. Why do I have to certify that I am not subject to backup
subsidiaries of the Company. withholding?
3. How many 7% Debentures will the Company exchange? Internal Revenue Service regulations require you to
certify that you are not subject to such withholding and
The Company will exchange up to $20,555,443 aggregate have provided your Social Security Number or Employer
principal amount of the 8.5% Debentures for all of its 7% Identification Number. Otherwise, the Internal Revenue
Debentures currently outstanding. The Exchange is not Service requires us to withhold 31% from your proceeds.
conditional upon the tender of all the 7% Debentures. The
Company may, however, withdraw the Exchange Offer, if in the 11. How much time do I have to decide?
Company's discretion, a sufficient number of holders of 7%
Debentures do not tender their 7% Debentures. The certificate(s) for your 7% Debentures and Letter
of Transmittal must be in good order and received no later
4. Why is the Company making the Exchange Offer? than the Expiration Date, _______, 1998, unless you have
properly completed and tendered the "Notice of
The Company believes it to be in its best interests Guaranteed Delivery" form. When mailing your documents,
to do so in light of numerous factors, including enhancing please allow sufficient time for the post office
the Company's liquidity and improving its financial ability to deliver the mail. If your 7% Debentures are received
to achieve its business plan by deferring the time at which after the expiration of the Exchange Offer, your documents
the Company is required to pay the 7% Debentures in full. and 7% Debentures will be returned to you promptly.
5. What should I do if my certificate(s) for 7% Debentures 12. How do I know the outstanding principal amount of 7%
have been lost or destroyed? Debentures I own?
In the Letter of Transmittal, you will find The outstanding principal amount of 7% Debentures that
instructions for what to do if your certificate(s) have been you own is set forth under "Principal Amount of 7%
lost or destroyed. Debentures Held in this Account" on the front of the Letter
of Transmittal, above and to the right of your name and
6. Should I Exchange my 7% Debentures? What options do I address.
have if I don't want to exchange my 7% Debentures?
IF YOU NEED FURTHER INFORMATION, PLEASE CALL HALLWOOD
You should consult your own financial and tax advisors PETROLEUM, INC. TOLL-FREE NATIONWIDE, AT (800) 882-9225.
to consider whether you wish to exchange your 7% Debentures
in the Exchange Offer. If you do not exchange your 7%
Debentures, you will continue to have all rights you
currently have as a bondholder, including the right to be
paid interest and principal in accordance with the terms of
the 7% Debentures. In the future, the Company may choose to
redeem some or all of the 7% Debentures in
</TABLE>
<PAGE> 1
EXHIBIT T3E.7
LETTER OF TRANSMITTAL
(FOR BROKERS, BANKS AND OTHER NOMINEES)
Pursuant to instructions received from certain beneficial owners of The
Hallwood Group Incorporated's 7% Collateralized Senior Subordinated Debentures
due July 31, 2000 (the "Existing Debentures"), we herewith deliver to you the
below described Existing Debentures. These Existing Debentures are being
delivered pursuant to The Hallwood Group Incorporated's offer to exchange (the
"Exchange Offer") up to $20,555,443 of the Company's 8.5% Collateralized
Debentures due July 31, 2005 (the "New Collateralized Debentures") for all of
its outstanding Existing Debentures in accordance with the terms and conditions
contained in the Exchange Offer. We shall retain in our files a copy of the
instructions received from such beneficial owners.
The undersigned hereby warrants that (i) it has transmitted to each
beneficial owner it represents the materials provided regarding the Exchange
Offer and (ii) it is currently submitting for sale a total of:
<TABLE>
<CAPTION>
Cusip Number Quantity of Bonds Presented Number of Accounts Represented
- - ------------ --------------------------- ------------------------------
<S> <C> <C>
406364 AE 9 ______ Bonds representing _______ Beneficial Bondholder Accounts
</TABLE>
CERTIFICATE OF BROKER, BANK OR OTHER NOMINEE
(IF YOU HAVE ADDITIONAL ACCOUNTS TO LIST, PLEASE ATTACH THAT LIST TO THIS FORM)
<TABLE>
<CAPTION>
Bondholder Name Social Security Number Internal Acct. Number Bond Amount
<S> <C> <C> <C>
- - -------------------- ------------------------- ----------------------- ---------------------
- - -------------------- ------------------------- ----------------------- ---------------------
- - -------------------- ------------------------- ----------------------- ---------------------
- - -------------------- ------------------------- ----------------------- ---------------------
- - -------------------- ------------------------- ----------------------- ---------------------
</TABLE>
We hereby attest that the above list and any attached list of
bondholder names, social security numbers, account numbers and corresponding
holdings of Existing Debentures sets forth a complete list of such information,
by clients of our firm who are tendering pursuant to the Exchange Offer at this
time.
Signed: Dated:
-------------------------------------------- -------------------
By:
---------------------------------------------
(Please print name)
Name, Address and Telephone Number of Broker, Bank or Nominee:
Tax I.D. Number:
Any questions or requests for assistance may be directed to:
HALLWOOD PETROLEUM, INC.
Toll-Free Nationwide
(800) 882-9225
THIS COMPLETED FORM MUST BE RECEIVED ON OR BEFORE _______, ____ __, 1998
<PAGE> 1
EXHIBIT 99.T3F
Cross-References between Trust Indenture Act of 1939
and the Indenture
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- - --------------------------- -----------------
<S> <C>
ss. 310 (a) (1).................................... 609
(a) (2).................................... 609
(a) (3).................................... Not Applicable
(a) (4).................................... Not Applicable
(b) ....................................... 608, 610
ss.311 (a) ....................................... 613 (a)
(b) ....................................... 613 (b)
(b) (2).................................... 703 (a) (2), 703 (b)
ss.312 (a) ....................................... 701, 702 (a)
(b) ....................................... 702 (b)
(c) ....................................... 702 (c)
ss.313 (a) ....................................... 703 (a)
(b) ....................................... 703 (b)
(c) ....................................... 703 (a), 703 (b)
(d) ....................................... 703 (c)
ss.314 (a) ....................................... 704
(b) ....................................... 1002
(c) (1).................................... 102
(c) (2).................................... 102
(c) (3).................................... Not Applicable
(d) ....................................... 1001, 1002, 1005
(e) ....................................... 102
ss.315 (a) ....................................... 601 (a)
(b) ....................................... 602, 703 (a) (6)
(c) ....................................... 601 (b)
(d) ....................................... 601
(d) (1).................................... 601 (a)
(d) (2).................................... 601 (c) (2)
(d) (3).................................... 601 (c) (3)
(e) ....................................... 514
ss.316 (a) ....................................... 101
(a) (1) (A)................................ 502, 512
(a) (1) (B)................................ 513
(a) (2).................................... Not Applicable
(b) ....................................... 508
ss.317 (a) (1).................................... 503
(a) (2).................................... 504
(b) ....................................... 1103
ss.318 (a) ....................................... 107
</TABLE>
1
