As filed with the Securities and Exchange Commission on April 23, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
Frank's Nursery & Crafts, Inc.
(Exact name of Registrant as specified in its charter)
Michigan 5200 38-1561374
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number) organization)
_________________________
1175 West Long Lake Road
Troy, Michigan 48098
(248) 712-7000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
_________________________
Larry T. Lakin
Chief Financial Officer
Frank's Nursery & Crafts, Inc.
1175 West Long Lake Road
Troy, Michigan 48098
(248) 712-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_________________________
Copy to:
Vincent Pagano, Jr.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
_________________________
Approximate date of commencement of proposed sale of the securities
to the public: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. /__/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to be Price Per Offering Registration
Securities to be Registered Registered Unit Price<F1> Fee
- --------------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
10 1/4% Series B Senior
Subordinated Notes Due 2008 . . . . . . . . . $115,000,000 100% $115,000,000 $33,925
<FN>
<F1> Estimated solely for the purpose of calculating the registration fee.
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
Subject to completion, dated April 23, 1998
PROSPECTUS
[LOGO]
Frank's Nursery & Crafts, Inc.
Offer to Exchange up to $115,000,000 of its
10 1/4% Series B Senior Subordinated Notes due 2008
which have been Registered under the
Securities Act for any of its outstanding
10 1/4% Senior Subordinated Notes due 2008
_________________________
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________, 1998,
UNLESS EXTENDED.
_________________________
Frank's Nursery & Crafts, Inc., a Michigan corporation (the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange an aggregate of up to
$115,000,000 principal amount of its 10 1/4% Series B Senior Subordinated
Notes due 2008 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for an identical
principal amount of its outstanding 10 1/4% Senior Subordinated Notes due
2008 (the "Old Notes"; collectively with the Exchange Notes, the "Notes") of
the Company from the holders thereof. As of the date of this Prospectus,
$115,000,000 aggregate principal amount of the Old Notes is outstanding.
The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture (as defined herein) relating to the Old Notes. The
form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing
for registration rights and liquidated damages relating to the Old Notes
under certain circumstances described in the Registration Rights Agreement
(as defined herein), which provisions will terminate as to all the Notes upon
the consummation of the Exchange Offer. See "The Exchange Offer".
Interest on the Exchange Notes will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
<PAGE>
1998 (each, an "Interest Payment Date"). The Exchange Notes will be
redeemable at the option of the Company, in whole or in part, at any time on
or after March 1, 2003 at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon to the applicable redemption
date. Prior to March 1, 2001, up to 35% of the aggregate principal amount of
Exchange Notes originally issued will be redeemable at the option of the
Company, in whole or in part, at any time, on one or more occasions, from the
net proceeds of one or more public offerings of Capital Stock (as defined
herein) of (i) the Company or (ii) Holdings to the extent the net cash
proceeds thereof are (a) contributed to the Company as a capital contribution
to the common equity of the Company or (b) used to purchase Equity Interests
(as defined herein) of the Company (in either case, other than Disqualified
Stock (as defined herein)), at a price of 110.25% of the principal amount of
the Exchange Notes, together with accrued and unpaid interest, if any, to the
date of redemption; provided that at least 65% of the aggregate principal
amount of Exchange Notes remains outstanding immediately after the occurrence
of each such redemption. Upon the occurrence of a Change of Control (as
defined herein), each holder of Exchange Notes may require the Company to
repurchase all or a portion of such holder's Exchange Notes at a redemption
price of 101% of the principal amount of the Exchange Notes, together with
accrued and unpaid interest, if any, to the date of repurchase. See
"Description of Exchange Notes".
The Exchange Notes will be general, unsecured obligations of the
Company, subordinated in right of payment to all existing and future Senior
Debt (as defined herein) of the Company including all of the Company's
obligations under the Senior Credit Facility (as defined herein), will rank
pari passu with all future senior subordinated debt of the Company and will
rank senior in right of payment to all of the Company's future subordinated
debt. As of January 25, 1998, after giving pro forma effect to the
Transactions (as defined herein) and the Offering (as defined herein) and the
application of the proceeds therefrom, the aggregate amount of Senior Debt to
which the Exchange Notes would have been subordinated would have been $73.2
million. The Indenture will permit the Company to incur additional
Indebtedness, subject to certain limitations. See "Description of Exchange
Notes".
The Old Notes were issued and sold on February 26, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof (the "Offering"). In
general, the Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act. The Exchange Notes are being offered hereby
in order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other
<PAGE>
available exemption under the Securities Act or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is
acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. In the event that the Company's belief is
inaccurate, holders of Exchange Notes who transfer Exchange Notes in
violation of the prospectus delivery provisions of the Securities Act and
without an exemption from registration thereunder may incur liability under
the Securities Act. The Company does not assume or indemnify holders against
such liability. The Company has not sought, and does not intend to seek, its
own no-action letter, and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. Notwithstanding the foregoing, each broker-dealer that receives
Exchange Notes in exchange for Old Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by such broker-dealer in connection with resales of Exchange Notes where
such Exchange Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. The Company has agreed that, for a
period of 120 days after the consummation of the Exchange Offer, it will make
this Prospectus and any amendment or supplement to this Prospectus available
to any such broker-dealer for use in connection with any such resale. See
"Plan of Distribution".
The Old Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Accordingly, there can be no assurance as to the liquidity or development of
any market for the Exchange Notes.
Exchange Notes initially will be represented by one or more Exchange
Notes in registered, global form without interest coupons (collectively, the
"Global Exchange Notes"). The Global Exchange Notes will be deposited with
the Trustee (as defined herein) as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee, in each case, for credit to an account of a direct or indirect
participant in DTC. Ownership of beneficial interests in the Global Exchange
Note will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee or participants
therein.
<PAGE>
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. The date of
acceptance and exchange of the Old Notes (the "Exchange Date") will be the
third business day following the Expiration Date (as defined herein). Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. The Company will not receive any cash proceeds
from the Exchange Offer. The Company will pay all of the expenses incident to
the Exchange Offer. The Exchange Offer will expire 5:00 p.m., New York City
time, on __________ __, 1998 (the "Expiration Date"). The Company does not
currently intend to extend the Expiration Date.
_________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH
THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on
Form S-4 (herein referred to, together with all exhibits and schedules and
supplements thereto and any amendments thereto, as the "Exchange Offer
Registration Statement") under the Securities Act with respect to the
Exchange Notes offered hereby. This Prospectus, which forms a part of the
Exchange Offer Registration Statement, does not contain all of the
information set forth in the Exchange Offer Registration Statement, as
certain parts of the Exchange Offer Registration Statement are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Exchange Notes offered
hereby, reference is hereby made to the Exchange Offer Registration
Statement. Statements contained in this Prospectus as to the contents of
certain documents are not necessarily complete and, in each instance,
reference is hereby made to the copy of such document filed as an exhibit to
the Exchange Offer Registration Statement.
The Company is not currently subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Upon consummation of the Exchange Offer, the
Company will be subject to the information requirements of the Exchange Act
and, in accordance therewith, will file periodic reports and other
information with the Commission. In addition, pursuant to the Indenture, the
Company has agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, for so long as any of the Notes remain
outstanding, the Company will furnish to the holders of the Notes and file
with the Commission, if permitted, (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company was required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its consolidated subsidiaries
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
was required to file such reports. In addition, for so long as any of the Old
Notes remain outstanding, the Company has agreed to furnish to any
prospective purchaser of the Old Notes or beneficial owner of the Old Notes,
upon their request, the information required by Rule 144A(d)(4) under the
Securities Act.
Any reports or documents filed by the Company with the Commission
(including the Exchange Offer Registration Statement) may be inspected and
copied at the Public Reference Section of the Commission's office at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices in New York at Seven World Trade Center,
13th Floor, New York, New York 10048 and Chicago at Citicorp Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
reports or other documents may be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a Web site that
i
<PAGE>
contains reports and other information that is filed through the Commission's
Electronic Data Gathering Analysis and Retrieval System. The Web site can be
accessed at http://www.sec.gov.
UNTIL _____________, 1998, (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation, the discussions of the Company's
business strategy and expectations concerning the Company's position in the
industry and market share, future operations, margins, profitability,
liquidity and capital resources, as well as statements concerning increased
market penetration, geographic expansion and achievement of cost savings, may
constitute forward-looking statements. Although the Company believes that its
plans, intentions and expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such plans,
intentions or expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's forward-looking
statements are set forth below and elsewhere in this Prospectus. All
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements set forth below. See "Risk Factors".
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise
requires, references in this Prospectus to the "Issuer", "Frank's" or the
"Company" refer to Frank's Nursery & Crafts, Inc., a Michigan corporation,
and references to "Holdings" refer to the sole shareholder of Frank's, FNC
Holdings Inc. (formerly known as General Host Corporation), a New York
corporation. References in this Prospectus to "Cypress" refer to The Cypress
Group L.L.C. and its affiliates. All references in this Prospectus to a
fiscal year refer to the 52 or 53 weeks ended on the last Sunday in January
(e.g., fiscal 1997 refers to the fiscal year ended January 25, 1998).
The Company
The Company operates the largest chain in the United States of
specialty retail stores devoted to the sale of lawn and garden products. In
addition, the Company sells dried and artificial flowers and arrangements,
Christmas merchandise, crafts and pet supplies. As of January 25, 1998, the
Company operated 256 retail stores located in 15 states primarily in the East
and Midwest regions of the country under the name Frank's Nursery & Crafts
(Registered Trademark). The Company derives approximately 80% of its sales
from its core business lines, which include lawn and garden products, related
home decor merchandise such as dried and artificial flowers and Christmas
merchandise. For fiscal 1997, the Company generated sales and Adjusted EBITDA
(as defined herein) of $530.0 million and $36.5 million, respectively.
The Company was organized in 1957. Holdings acquired the Company in
1983 with the objective of developing the first national chain of lawn and
garden stores. At the time of the acquisition, Frank's had 95 stores
principally located in the Midwest. Since 1983, the Company has built, leased
or acquired a net of 161 stores in existing and new markets to become the
largest retail chain in the national lawn and garden industry. On
December 24, 1997, Holdings was acquired by Cypress and new senior management
with the strategic objective of positioning Frank's as the leading specialty
retailer in the lawn and garden arena. Frank's represents Holdings' sole
operating subsidiary.
The Company's principal executive offices are located at 1175 West
Long Lake Road, Troy, Michigan 48098 and its telephone number is
(248) 712-7000.
The Lawn and Garden Industry
According to Nursery Retailer, a leading national trade journal, the
overall retail market for lawn and garden products, defined to include green
goods, fertilizers, gardening accessories, lawn furniture, Christmas
merchandise and snow removal, power and watering equipment, was approximately
$71.2 billion in 1996 and approximately $76.5 billion in 1997, representing a
7.4% growth over 1996. Furthermore, between 1987 and 1997 the industry
experienced an 8.6% compound annual growth rate. Such industry-wide growth
1
<PAGE>
has been driven by several key factors, including the increasing popularity
of gardening as a leisure activity and positive demographic trends.
Highlighting such widespread popularity, the 1996-1997 National Gardening
Survey indicates that 64% of the approximately 101 million U.S. households
participated in some form of gardening activity in 1996.
The national lawn and garden market is seasonal, highly fragmented
and generally non-branded, consisting of thousands of local garden centers
and mass merchandisers who sell lawn and garden products as part of their
overall product lines. Due to the highly fragmented nature of the industry,
the top ten competitors accounted for approximately 10% of 1996 industry-wide
sales. The Company believes that the industry's popularity, steady and
consistent overall growth and fragmented nature represent a significant
opportunity for a well-established specialty retailer such as Frank's to
capture significant market share in the future through both increased market
penetration and geographic expansion.
Company Strengths
The Company believes that its main competitive strengths include its
experienced new management team, its well-positioned specialty retailing
concept, its strong competitive position and the increased liquidity provided
by its new capital structure.
New Management Team with Proven Track Record. The Company's new
management team is led by its new Chairman, Chief Executive Officer and
President, Joseph R. Baczko, who was formerly President and Chief Operating
Officer at Blockbuster Entertainment Corp. ("Blockbuster") (1991-1992) and
the initial President of the International Division of Toys "R" Us, Inc.
("Toys "R" Us International") (1983-1991). At Blockbuster, Mr. Baczko oversaw
system-wide revenue growth from approximately $1.1 billion to approximately
$2.0 billion, and during his eight years with Toys "R" Us International,
system-wide sales expanded to approximately $800 million. To assist him in
leading the Company, Mr. Baczko has re-assembled his senior management team
from Toys "R" Us International, including Adam Szopinski as Chief Operating
Officer and Larry T. Lakin as Chief Financial Officer, both of whom served in
their respective functions under Mr. Baczko while at Toys "R" Us
International. This new management team has worked successfully together in
the past and possesses, on average, 29 years of specialty retailing and
general management experience.
Well-Positioned to Capitalize on Favorable Industry Fundamentals.
The Company believes it has a strong existing operating base in a popular and
growing market segment. A recent study by the National Gardening Association
indicates that nearly two-thirds of all U.S. households participate in one or
more types of lawn and garden activities, ranking such leisure activities
among the most popular in the U.S. According to industry studies, adults
between the ages of 45 and 64 are the most frequent participants in the lawn
and garden market, and the U.S. Census Bureau expects the percentage of
Americans in this age bracket to increase from 19.9% in 1995 to 25.3% in
2005. In addition, management believes that Frank's merchandise selection is
characterized by relatively "high-maintenance" and low cost products with the
2
<PAGE>
capacity to generate a significant level of ancillary purchases and a
relatively low exposure to fashion risk. As the country's largest specialty
retailer dedicated to this category, the Company is well-positioned to
capitalize on these trends and characteristics.
Well-Established Competitive Position. New management believes that
the Company is well-positioned within the lawn and garden industry.
Competition in the lawn and garden retailing industry is comprised of
traditional nationwide "big box" retailing chains, on the one hand, and
local, often family-run, garden centers on the other. Unlike the price-driven
competitive model of the "big box" retailers, the Company's business model
focuses on a broad product offering, high quality merchandise, value-added
customer service and the convenience of shopping in a smaller format
specialty store. The Company believes that such differentiating factors
create a basis for successful competition with "big box" home centers. In
addition, as the nation's largest specialty lawn and garden retailer, the
Company believes it successfully takes advantage of the economies of scale
associated with purchasing, advertising, distribution and brand name to
compete with locally-owned garden centers.
Increased Liquidity. New management believes that the Company has
been subject to capital constraints that have significantly hindered its
growth and operating performance. As a result of the Transactions, the
Company's prior $20 million revolving credit facility was replaced with a new
$110 million revolving credit facility which provides significant added
liquidity to support the new management team's strategic objectives.
Additionally, Holdings was acquired with a cash equity investment of $166
million which represents approximately 45% of the sources of funds used in
the Transactions and the Offering.
Company Strategy
The Company plans to build on its core competencies in plants and
gardening and its current market position to become the leading national
specialty retailer of lawn and garden products. Management intends to
systematically accomplish this objective by: (i) rationalizing the Company's
current cost structure, (ii) implementing a store refurbishment program
covering all existing 256 stores, (iii) increasing overall inventory levels,
(iv) further focusing its merchandising strategy on its core lawn and garden
theme and (v) increasing market penetration and expanding geographically
through the selective opening and/or acquisition of new store locations.
Rationalize Cost Structure. Since closing the acquisition on
December 24, 1997, the Company's new management team has identified and
principally effected annual cost savings of approximately $13.1 million
through: (i) reduction of corporate overhead related to the closing of
Holdings' headquarters in Stamford, Connecticut, (ii) streamlining and
reduction of field supervision and store-level management, (iii) replacement
of the Company's insurance policies with new lower premium plans providing
for substantially similar coverages, (iv) elimination of expenditures
incurred by prior management to build and promote a new store concept,
(v) termination of the temporary mall-based Christmas stores and realization
3
<PAGE>
of savings from several previous and two additional store closings and
(vi) expense reductions associated with the consolidation of its distribution
facilities implemented in late fiscal 1996 and early fiscal 1997.
Implement Store Refurbishment Program. Management expects to
refurbish all of Frank's existing 256 store locations. This refurbishment is
expected to occur over a three-year period by investing an average of $75,000
per store to improve overall store presentation, layout, signage and
fixturing. Management expects to implement this refurbishment program by
initially focusing on markets where the Company enjoys high market
penetration and brand awareness as well as stores where demographic
characteristics, traffic conditions and the competitive environment are
especially attractive.
Increase Overall Inventory Levels. Largely due to capital
constraints beginning in late fiscal 1995, the Company's purchases of new
inventory dropped by approximately 15.6% in fiscal 1996. Management believes
that this decrease contributed to the Company's significant decline in fiscal
1996 comparable store sales. During fiscal 1997, the Company's purchases of
inventory increased approximately 4.6% over fiscal 1996. New management
intends to raise overall inventory levels through a one-time increase of
approximately $50,000 per store, representing an increase of 14.5% versus
average inventory levels during the latest twelve months.
Focus Merchandising Strategy on Lawn and Garden Theme. The Company's
new merchandising strategy will build upon Frank's core lawn and garden
competencies. Management expects to (i) enhance and enlarge both indoor and
outdoor live plant categories and introduce more specialized assortments,
(ii) increase the variety of gardening tools, aids and accessories,
(iii) expand Frank's own private label program, (iv) provide ancillary
services such as in-store consultation and educational programs geared
towards the gardening enthusiast and (v) broaden and enhance the presentation
of the Company's dried and artificial flowers and arrangements and Christmas
trim-a-tree businesses. In addition, new management expects to re-merchandise
portions of the crafts and pet supplies product categories to make them more
complementary to the Company's core lawn and garden theme.
Pursue Increased Market Penetration and Geographic Expansion. The
Company intends to focus solely on improving the operations of its existing
store base in fiscal 1998. Management currently expects to selectively pursue
a new store opening program beginning in fiscal 1999. The Company believes
that increased penetration and expansion will result in significant sales
growth and allow the Company to further realize economies of scale associated
with advertising, distribution, operations and brand name recognition.
Additionally, management will selectively review acquisition opportunities of
local and regional operators to complement its store expansion strategy.
The Sponsor
As a result of the Transactions, Holdings is controlled by Cypress.
Cypress manages a $1.05 billion private equity fund which seeks to invest
alongside proven and successful management teams to achieve long-term capital
4
<PAGE>
appreciation. Since its founding, Cypress has made investments in Cinemark
USA, Inc., AMTROL Inc., Williams Scotsman, Inc. and Genesis ElderCare Corp.
Prior to founding Cypress, the Cypress professionals managed the 1989
merchant banking fund (the "1989 Fund") of Lehman Brothers Inc. Selected
investments of the 1989 Fund included Infinity Broadcasting Corporation, Lear
Corporation, Parisian, Inc. and Illinois Central Corporation.
The Transactions
In December 1997, Acquisition Corp. (as defined herein) acquired
approximately 91.6% of Holdings' common stock through an equity tender offer
and the purchase of treasury shares from Holdings, and Holdings redeemed a
majority in principal amount of Holdings' outstanding Senior Notes (as
defined herein) pursuant to a separate debt tender offer. In addition, in
December 1997, Holdings and the Company entered into a senior credit facility
for the Company providing for up to $195 million in borrowings. On January 7,
1998, following the merger (the "Merger") of Acquisition Corp. with and into
Holdings (with Holdings as the surviving corporation), Holdings became
wholly-owned by the Investors (as defined herein). The proceeds of the
initial draw under the senior credit facility, together with an equity
investment of $166 million by the Investors, were used, among other things,
to fund the equity and debt tender offers, to pay Merger Consideration (as
defined herein), to refinance certain indebtedness of Frank's and to pay fees
and expenses relating to the above transactions. See "The Transactions".
5
<PAGE>
The following table sets forth the sources and uses of funds in
connection with the Transactions and the Offering:
<TABLE>
<CAPTION>
Amount
---------------------------------
(in millions)
<S> <C>
Sources:
Senior Credit Facility<F1> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.2
Assumption of existing indebtedness<F2> . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.3
Offering of the Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.0
Equity contribution by the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166.0
Total Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $372.5
Uses:
Purchase of equity<F3> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136.7
Assumption of existing indebtedness<F2> . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.3
Retirement of existing indebtedness<F4> . . . . . . . . . . . . . . . . . . . . . . . . . . . 162.4
Estimated fees and expenses<F5> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1
Total Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $372.5
<FN>
<F1> The Senior Credit Facility originally consisted
of a $110 million Revolving Credit Facility (as
defined herein) and an $85 million Term Loan
Facility (as defined herein). In connection with
the Transactions, the Company borrowed $37.5
million under the Term Loan Facility and $10
million under the Revolving Credit Facility.
Approximately $17.2 million of the proceeds of
the Offering were used to pay down indebtedness
under the Term Loan Facility. In connection with
the Offering, the Company borrowed $19.9 million
under the Revolving Credit Facility.
Additionally, in connection with the Offering,
the Company permanently reduced the commitments
under the Term Loan Facility to $25 million from
$85 million. Loans obtained under the Revolving
Credit Facility mature in December 2003 and loans
obtained under the Term Loan Facility mature in
December 2004, subject to amortization and
mandatory prepayment. See "Other Indebtedness--
Senior Credit Facility".
<F2> Includes assumption of existing mortgages in the
amount of $29.7 million and assumption of
existing capital leases in the amount of $11.6
million. See "Other Indebtedness".
6
<PAGE>
<F3> Includes purchases made pursuant to the Tender
Offer and in connection with the Merger totalling
$134.3 million and retirement of stock options
totalling $2.4 million. See "The Transactions".
<F4> Includes $10.9 million used in the repayment of
certain mortgages; $58.0 million used to purchase
a portion of the Senior Notes tendered pursuant
to the Debt Tender; $26.5 million of proceeds of
the Offering were used to redeem the remaining
Senior Notes; and $67.0 million of proceeds of
the Offering were used to redeem the Convertible
Notes (as defined herein). All payments include
premium and accrued interest.
<F5> Includes amounts paid pursuant to the former
Chairman of Holdings' employment agreement,
financial advisory, consulting and other
professional fees and financing costs. See
"Certain Relationships and Related Transactions".
</TABLE>
7
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $115,000,000
aggregate principal amount of Old Notes for an equal aggregate principal
amount of Exchange Notes. The Exchange Notes are obligations of the Company
entitled to the benefits of the Indenture relating to the Old Notes. The form
and terms of the Exchange Notes are the same as the form and terms of the Old
Notes except that the Exchange Notes have been registered under the
Securities Act, and therefore will not bear legends restricting their
transfer and will not contain certain provisions providing for registration
rights and liquidated damages relating to the Old Notes under certain
circumstances described in the Registration Rights Agreement (the
"Registration Rights Agreement"), which provisions will terminate as to all
the Notes upon the consummation of the Exchange Offer.
The Exchange Offer . . . . . The Company is offering to exchange pursuant
to the Exchange Offer up to $115,000,000
aggregate principal amount of its Exchange
Notes for a like aggregate principal amount of
its Old Notes validly tendered pursuant to the
Exchange Offer. As of the date hereof,
$115,000,000 in aggregate principal amount of
Old Notes is outstanding. The Company will
issue the Exchange Notes to tendering holders
of Old Notes on or promptly after the
Expiration Date. Old Notes may be tendered
only in integral multiples of $1,000.
Interest Payments . . . . . . Interest on the Exchange Notes shall accrue
from the last Interest Payment Date on which
interest was paid on the Old Notes so
surrendered or, if no interest have been paid
on such Old Notes, from February 26, 1998, the
date of issuance of the Old Notes, payable
semi-annually in arrears on March 1 and
September 1 of each year, commencing on
September 1, 1998 at a rate of 10 1/4% per
annum.
Resale of the Exchange Notes Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any holder thereof (other than
(i) a broker-dealer who purchased such Old
Notes directly from the Company for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company
within the meaning of Rule 405 promulgated
8
<PAGE>
under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided
that the holder is acquiring the Exchange
Notes in its ordinary course of business and
is not participating, and has no arrangement
or understanding with any person to
participate, in the distribution of the
Exchange Notes. In the event that the
Company's belief is inaccurate, holders of
Exchange Notes who transfer Exchange Notes in
violation of the prospectus delivery
provisions of the Securities Act and without
an exemption from registration thereunder may
incur liability under the Securities Act. The
Company does not assume or indemnify holders
against such liability. The Company has not
sought, and does not intend to seek, its own
no-action letter, and there can be no
assurance that the staff of the Commission
would make a similar determination with
respect to the Exchange Offer. Notwithstanding
the foregoing, each broker-dealer that
receives Exchange Notes in exchange for Old
Notes held for its own account, as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging
and by delivering a prospectus, such
broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by such broker-dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes. The
Company has agreed that for a period of 120
days after the consummation of the Exchange
Offer it will make this Prospectus and any
amendment or supplement to this Prospectus
available to any such broker-dealer for use in
connection with any such resales. See "Plan of
Distribution".
This Exchange Offer is not being made to, nor
will the Company accept surrenders for
exchange from, holders of Old Notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
9
<PAGE>
compliance with the securities or blue sky
laws of such jurisdiction.
Expiration of Exchange Offer The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ________, 1998, unless
the Exchange Offer is extended, in which case
the Expiration Date will be the latest date
and time to which the Exchange Offer is
extended. The Company does not currently
intend to extend the Expiration Date. See
"The Exchange Offer--Expiration Date;
Extensions; Amendments".
Exchange Date . . . . . . . . The date of acceptance and exchange of the Old
Notes will be the third business day following
the Expiration Date.
Conditions to the Exchange
Offer . . . . . . . . . . . The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. The Company may terminate or
amend the Exchange Offer at any time prior to
the Expiration Date upon the failure to
satisfy any such conditions. The Exchange
Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being
tendered for exchange. Holders of Old Notes
will have certain rights against the Company
under the Registration Rights Agreement should
the Company fail to consummate the Exchange
Offer. See "The Exchange Offer--General" and
"--Termination".
Procedures for Tendering Old
Notes . . . . . . . . . . . Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with any other
required documentation, to the Exchange Agent
(as defined herein) at the address set forth
herein and therein. See "The Exchange Offer--
Procedures for Tendering".
By executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such Exchange
10
<PAGE>
Notes, whether or not such person is the
holder, (ii) neither the holder nor any such
other person has an arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes and
(iii) neither the holder nor any such other
person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company
or, if an affiliate, such holder will comply
with the registration and prospectus delivery
requirements of the Securities Act to the
extent applicable.
Special Procedures for
Beneficial Holders . . . . Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial holder's
behalf. If such beneficial holder wishes to
tender on such beneficial holder's own behalf,
such beneficial holder must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial holder's name or obtain a properly
competed bond power from the registered
holder. The transfer of record ownership may
take considerable time. See "The Exchange
Offer--Procedures for Tendering".
Guaranteed Delivery
Procedures . . . . . . . . Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes (or who cannot complete the
procedure for book-entry transfer on a timely
basis) and a properly completed Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures".
Withdrawal Rights . . . . . . Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders".
11
<PAGE>
Acceptance of Old Notes and
Delivery of Exchange Notes Subject to certain conditions (as described
under "The Exchange Offer--Termination"), the
Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer and not validly withdrawn prior
to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--General".
Effect on Holders of Old
Notes . . . . . . . . . . . Holders of the Old Notes who do not tender
their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be
entitled to all the rights and limitations
applicable thereto under the Indenture dated
as of February 26, 1998 between the Company
and Bankers Trust Company relating to the Old
Notes and the Exchange Notes (the
"Indenture"), except for any such rights under
the Registration Rights Agreement that by
their terms terminate or cease to have further
effectiveness as a result of the making of,
and the acceptance for exchange of all validly
tendered Old Notes pursuant to, the Exchange
Offer. All untendered Old Notes will continue
to be subject to the restrictions on transfer
provided for in the Old Notes and in the
Indenture and will have no further
registration rights under the Registration
Rights Agreement. To the extent that Old Notes
are tendered and accepted in the Exchange
Offer, the trading market for untendered Old
Notes could be adversely affected.
Consequences of Failure to
Exchange . . . . . . . . . Holders of Old Notes who do not exchange their
Old Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes
as set forth in the legend thereon. In
general, the Old Notes may not be offered or
sold, unless registered under the Securities
Act, except pursuant to an exemption from, or
in a transaction not subject to, the
Securities Act and applicable state securities
laws. The Company does not currently
anticipate that it will register the Old Notes
under the Securities Act.
12
<PAGE>
Certain Tax Considerations . The exchange pursuant to the Exchange Offer
will not be a taxable event for federal income
tax purposes. See "Certain United States
Federal Income Tax Consequences of the
Exchange".
Exchange Agent . . . . . . . Bankers Trust Company, the Trustee under the
Indenture, is serving as exchange agent (the
"Exchange Agent") in connection with the
Exchange Offer. The address of the Exchange
Agent is: Bankers Trust Company, Four Albany
Street, Fourth Floor, New York, New York
10006, Attention: Corporate Trust & Agency
Group. For information with respect to the
Exchange Offer, the telephone number for the
Exchange Agent is (800) 735-7777 and the
facsimile number for the Exchange Agent is
(615) 835-3701.
Use of Proceeds . . . . . . . There will be no cash proceeds payable to the
Company from issuance of the Exchange Notes
pursuant to the Exchange Offer.
THE EXCHANGE NOTES
Issuer . . . . . . . . . . . Frank's Nursery & Crafts, Inc.
Securities Offered . . . . . $115,000,000 in aggregate principal amount of
10 1/4% Series B Senior Subordinated Notes due
2008.
Maturity Date . . . . . . . . March 1, 2008.
Interest Payment Dates . . . March 1 and September 1 of each year,
commencing on September 1, 1998.
Optional Redemption . . . . . Except as described below, the Exchange Notes
are not redeemable at the Company's option
prior to March 1, 2003. From and after
March 1, 2003, the Exchange Notes will be
subject to redemption at the option of the
Company, in whole or in part, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon
to the applicable redemption date. In
addition, prior to March 1, 2001, up to 35% of
the aggregate principal amount of Exchange
Notes will be redeemable at the option of the
Company, in whole or in part, on one or more
occasions, from the net proceeds of one or
more public offerings of Capital Stock of (i)
13
<PAGE>
the Company or (ii) Holdings to the extent the
net cash proceeds thereof are (a) contributed
to the Company as a capital contribution to
the common equity of the Company or (b) used
to purchase Equity Interests of the Company
(in either case, other than Disqualified
Stock), at a price of 110.25% of the principal
amount of the Exchange Notes, together with
accrued and unpaid interest, if any, to the
date of the redemption; provided that at least
65% of the aggregate principal amount of
Exchange Notes remains outstanding immediately
after the occurrence of each such redemption.
See "Description of Exchange Notes--Optional
Redemption".
Change of Control . . . . . . In the event of a Change of Control, holders
of the Exchange Notes will have the right to
require the Company to repurchase their
Exchange Notes, in whole or in part, at a
price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
The Indenture will require that prior to such
a repurchase, the Company must either repay
all outstanding indebtedness under the Senior
Credit Facility or obtain any required consent
to such repurchase. See "Description of
Exchange Notes--Repurchase at Option of
Holders--Change of Control".
Ranking . . . . . . . . . . . The Exchange Notes will be general, unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Debt of the
Company, will rank pari passu with all future
senior subordinated indebtedness of the
Company and will rank senior in right of
payment to all future subordinated
indebtedness of the Company. As of January 25,
1998, after giving pro forma effect to the
Transactions and the Offering and the
application of the proceeds therefrom, the
aggregate amount of Senior Debt to which the
Exchange Notes would have been subordinated
would have been approximately $73.2 million.
See "Description of Exchange Notes--
Subordination".
Restrictive Covenants . . . . The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
14
<PAGE>
defined herein) to incur additional
indebtedness and issue preferred stock, pay
dividends or distributions or make investments
or make certain other Restricted Payments (as
defined herein), enter into certain
transactions with affiliates, dispose of
certain assets, incur liens and engage in
mergers and consolidations. See "Description
of Exchange Notes".
Use of Proceeds . . . . . . . There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Absence Of Public Market
There is no public market for the Exchange Notes, and the Exchange
Notes will not be listed on any securities exchange. If an active public
market does not develop, the market price and liquidity of the Exchange Notes
may be adversely affected.
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by holders of Old Notes prior to tendering Old Notes in the
Exchange Offer.
Additional Information
For additional information regarding the Exchange Notes, see
"Description of Exchange Notes" and "Certain United States Federal Income Tax
Consequences of the Exchange".
15
<PAGE>
Summary Historical and Unaudited Pro Forma Financial Information
Set forth below is summary historical financial information of the
Company for the forty-eight week period ending December 28, 1997, the four-
week period ending January 25, 1998 and for each of the two fiscal years in
the period ended January 26, 1997 which are derived from the audited
financial statements included elsewhere herein. Because of the Transactions,
the summary financial data for fiscal 1997 represents the results of
operations for the forty-eight week period prior to the Transactions and the
four-week period subsequent to the Transactions. The post-Transactions period
has been presented on the purchase basis of accounting, and is therefore not
comparable to the historical financial information presented for the forty-
eight week pre-Transactions period. The unaudited pro forma financial
information has been derived from the Unaudited Pro Forma Financial Data and
the related notes thereto included elsewhere herein. The unaudited pro forma
financial information does not purport to represent what the Company's
results actually would have been if the Transactions and the Offering and the
application of the proceeds therefrom had occurred on the dates indicated,
nor does such information purport to project the results of the Company for
future periods. The summary financial information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Unaudited Pro Forma Financial Data", "Selected
Historical Financial and Other Data" and the financial statements and notes
thereto included elsewhere herein.
16
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended Forty-Eight Four-Weeks Unaudited
----------------------------- Weeks Ended Ended Pro Forma
January 28, January 26, December 28, January 25, January 25,
1996 1997 1997 1998 1998
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . $ 593,270 $ 530,752 $ 515,204 $ 14,814 $ 530,018
Cost of sales, including buying and
occupancy . . . . . . . . . . . . . . . 429,181 383,099 367,008 17,532 384,540
--------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . 164,089 147,653 148,196 (2,718) 145,478
Selling, general and administrative
expenses . . . . . . . . . . . . . . 148,502 138,355 137,872 7,318 143,926
Impairment loss . . . . . . . . . . . . -- -- 1,720 -- 1,720
Provision for store closings and
other cost . . . . . . . . . . . . . -- -- 6,677 -- 6,677
--------- --------- --------- --------- ---------
Operating income (loss) . . . . . . . . 15,587 9,298 1,927 (10,036) (6,845)
Interest expense . . . . . . . . . . . 23,845 20,863 19,632 1,601 20,490
Other income (expense) . . . . . . . . 507 (226) (2,010) (17) (2,027)
--------- --------- --------- --------- ---------
Income (loss) before income taxes . . . (7,751) (11,791) (19,715) (11,654) (29,362)
Income tax expense (credit) . . . . . . -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . $ (7,751) $ (11,791) $ (19,715) $ (11,654) $ (29,362)
========= ========= ========= ========= =========
Other Data:
Adjusted EBITDA<F2> . . . . . . . . . . -- -- $ 45,704 $ (9,325) $ 36,484
Adjusted EBITDA margin<F3> . . . . . . -- -- 9.0% -- 7.0%
Merchandise margin . . . . . . . . . . 40.8% 42.2% 42.2% 13.7% 41.4%
Depreciation and amortization<F1> . . . $ 22,888 $ 22,377 $ 21,835 $ 1,500 $ 22,071
Capital expenditures . . . . . . . . . 5,497 4,371 12,472 (34) 12,438
Number of stores at the end of period . 264 262 258 258 256
Ratio of Adjusted EBITDA to interest
expense . . . . . . . . . . . . . . -- -- -- -- 1.8x
Ratio of long term debt to Adjusted
EBITDA<F4> . . . . . . . . . . . . . -- -- -- -- 4.8x
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
Unaudited
Pro Forma
January 25, January 25,
1998 1998
---------------------- ----------------------
<S> <C> <C>
Balance Sheet Data (at end of period):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,100 $ 13,427
Working capital<F5> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,347 8,360
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 217,880 217,880
Total debt, including current maturities . . . . . . . . . . . . . . . . . . . . 178,969 186,515
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,653 148,597
____________________
<FN>
<F1> Includes amortization of debt issuance cost of, $1,671 for fiscal 1995, $889 for fiscal 1996, $676 for the forty-eight weeks
ended December 28, 1997, $56 for the four weeks ended January 25, 1998 and $627 for pro forma fiscal 1997 and includes $1,720
for the write-down to fair value of property, plant and equipment in accordance with FAS-121 "Impairment of Long-Lived
Assets" for the forty-eight weeks ended December 28, 1997 and pro forma 1997.
<F2> Adjusted EBITDA represents EBITDA (as described below) adjusted for management's estimate of cost savings shown below:
</TABLE>
<TABLE>
<CAPTION>
Forty-eight Four weeks Unaudited
weeks ended ended Pro Forma
December 28, January 25, January 25,
1997 1998 1998
--------------- -------------- ---------------
(in thousands)
<S> <C> <C> <C>
EBITDA<F1> . . . . . . . . . . . . . . . . . . . . . . $31,891 $(8,592) $23,404
Reduction in corporate overhead<F2> . . . . . . . . . . 3,789 (1,278) 2,511
Store and field management payroll savings<F3> . . . . 4,615 385 5,000
Insurance savings<F4> . . . . . . . . . . . . . . . . . 1,108 92 1,200
Cost associated with development of a new store concept 2,125 68 2,193
Effect of closed stores<F5> . . . . . . . . . . . . . . 1,388 -- 1,388
Distribution center consolidation<F6> . . . . . . . . . 788 -- 788
-------- -------- --------
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . $45,704 $(9,325) $36,484
======== ======== ========
____________________
<FN>
<F1> EBITDA represents earnings before interest expense (which
includes amortization of debt issuance cost), other income
18
<PAGE>
(expense), income tax expense, depreciation and amortization
(excluding amortization of debt issuance cost), nonrecurring
charges of $6,677 for store closing costs and $1,249 of loan
forgiveness associated with the former Chairman for the forty-
eight weeks ended December 28, 1997 and pro forma fiscal 1997
and $879 of amortization of capitalized cost associated with the
consolidation of the Company's distribution centers, for the
forty-eight weeks ended December 28, 1997 and pro forma fiscal
1997. EBITDA is a widely accepted financial indicator of a
company's ability to service or incur debt. Adjusted EBITDA is
not a measurement of operating performance calculated in
accordance with U.S. generally accepted accounting principles
and should not be considered as a substitute for operating
income, net income, cash flows from operating activities or
other statement of operations or cash flow data prepared in
accordance with U.S. generally accepted accounting principles,
or as a measure of profitability or liquidity. Adjusted EBITDA
may not be indicative of the historical operating results of the
Company; nor is it meant to be predictive of potential future
results.
Although the Company believes it will be able to realize
substantial cost savings in the areas described above without
any loss of revenues (except in connection with store closings),
there can be no assurance that all such cost savings will be
realized or as to the time table over which such savings will
begin to affect operating results. The Company also expects to
take certain non-recurring charges in connection with the
streamlining of its operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Anticipated Cost Savings".
<F2> Reflects reduction in corporate overhead included in the
historical results of the Company as a result of the planned
closure of the Stamford, Connecticut corporate office including
staff reductions and the elimination of certain expenses.
<F3> Reflects reduction in store and field management as a result of
elimination of certain store and field administration positions.
Reserves for severance have been included in the pro forma
adjustments to accrued liabilities in the Unaudited Pro Forma
Balance Sheet.
<F4> Insurance savings reflect the changes in insurance coverage from
(1) a self-insured, large deductible plan and (2) an incurred
deductible plan to a first dollar guaranteed premium program at
substantial cost savings for similar or better coverage.
<F5> Reflects the historical results of stores which have been
closed.
<F6> Reflects the savings attributable to the closing of two
distribution centers, located in Detroit and Chicago, in fiscal
1996 and 1997 and the opening of one new distribution center in
Howe, Indiana.
<F3> Adjusted EBITDA margin is calculated by reducing sales for the effect
of closed stores by $9,701 for the forty-eight weeks ended December
28, 1997 and pro forma fiscal 1997.
19
<PAGE>
<F4> Total long term debt (including current portion) excludes the
outstanding balance under the Revolving Credit Facility. The Revolving
Credit Facility must have no borrowings outstanding for a consecutive
30-day period during each fiscal year.
<F5> Reflects total current assets (excluding cash) less total current
liabilities (excluding current maturities of long-term debt, notes
payable to banks and the Revolving Credit Facility).
</TABLE>
20
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following
factors, as well as the other information and data included in this
Prospectus, before tendering Old Notes in exchange for the Exchange Notes
offered hereby. The risk factors set forth below are generally applicable to
the Old Notes as well as the Exchange Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the offer or sale of the Old Notes pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Notes
under the Securities Act or any state securities laws. Based on
interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold or otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holders' business and such holders have no arrangement with any person
to participate in the distribution of such Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Old Notes,
where such Exchange Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The interpretations by the staff of the Commission on which the
Company has relied were based on no-action letters issued by the staff of the
Commission to third parties. The Company has not sought, and does not intend
to seek, its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to
the Exchange Offer. See "Plan of Distribution".
Substantial Leverage
As a result of the Transactions and the Offering and the application
of the proceeds therefrom, the Company is highly leveraged. As of January 25,
1998, after giving pro forma effect to the Transactions and the Offering and
the application of the proceeds therefrom, the Company would have had
outstanding indebtedness of $186.5 million and its shareholder's equity would
have been $148.6 million. In addition, the Company would have had available
borrowings of up to $98.3 million under the Revolving Credit Facility. In
addition, subject to restrictions in the Senior Credit Facility and the
Indenture, the Company may incur additional indebtedness. For fiscal 1997,
21
<PAGE>
after giving pro forma effect to the Transactions and the Offering and the
application of the proceeds therefrom, the Company's ratio of earnings to
fixed charges would have been (0.1) to 1.0. Pro forma earnings would have
been insufficient to cover pro forma fixed charges by $29.3 million for
fiscal year ended January 25, 1998.
The Company's ability to make scheduled payments of principal of, or
to pay the interest, if any, on, or to refinance, its indebtedness (including
the Notes), or to fund planned capital expenditures will depend on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. Based upon the current level of operations and
anticipated revenue growth and operating improvements, management believes
that cash flow from operations and available cash, together with available
borrowings under the Senior Credit Facility, will be adequate to meet the
Company's future liquidity needs for at least the next several years. The
Company, however, may need to refinance all or a portion of the principal of
the Notes on or prior to maturity. There can be no assurance that the Company
will be able to effect any such refinancing on commercially reasonable terms
or at all. In addition, there can be no assurance that the Company's business
will generate sufficient cash flow from operations, that anticipated revenue
growth and operating improvements will be realized or that future borrowings
will be available under the Senior Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including the Notes, or to
fund its other liquidity needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources".
The Company's high degree of leverage could have important
consequences to holders of the Notes, including, but not limited to:
(i) making it more difficult for the Company to satisfy its obligations with
respect to the Notes; (ii) increasing the Company's vulnerability to general
adverse economic and industry conditions; (iii) limiting the Company's
ability to obtain additional financing to fund future working capital,
capital expenditures and other general corporate requirements; (iv) requiring
the dedication of a substantial portion of the Company's cash flow from
operations to the payment of principal of, and interest on, its indebtedness,
thereby reducing the availability of such cash flow to fund working capital,
capital expenditures or other general corporate purposes; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its
business and the industry; and (vi) placing the Company at a competitive
disadvantage relative to less leveraged competitors. In addition, the
Indenture and the Senior Credit Facility contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company's financial condition or
results of operations. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing all of the Notes tendered to it
upon the occurrence of a Change of Control. See "Description of Exchange
Notes--Repurchase at Option of Holders--Change of Control" and "Other
Indebtedness".
22
<PAGE>
Subordination of Notes
The Notes are contractually subordinated to all Senior Debt including
all obligations under the Senior Credit Facility. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, the holders of Senior Debt will be
entitled to be paid in full in cash before any payment may be made with
respect to the Notes. In addition, the subordination provisions of the
Indenture provide that payments with respect to the Notes will be blocked in
the event of a payment default on Senior Debt. In the event of a bankruptcy,
liquidation or reorganization of the Company, holders of the Notes will
participate ratably in the remaining assets of the Company with all holders
of subordinated indebtedness of the Company that is deemed to be of the same
class as the Notes, and potentially with all other general creditors of the
Company, based upon the respective amounts owed to each holder or creditor.
In any of the foregoing events, there can be no assurance that there would be
sufficient assets to pay amounts due on the Notes. As a result, holders of
Notes may receive less, ratably, than the holders of Senior Debt. At January
25, 1998, after giving pro forma effect to the Transactions and the Offering
and the application of the proceeds therefrom, the aggregate amount of Senior
Debt to which the Notes would have been subordinated would have been
approximately $73.2 million, consisting of secured borrowings under the
Senior Credit Facility, the Company's mortgages and the capital leases. In
addition, the Company would have had available additional borrowings of up to
$98.3 million under the Revolving Credit Facility, all of which would
constitute Senior Debt. Subject to certain limitations, the Indenture permits
the Company to incur additional indebtedness, including Senior Debt. See "The
Transactions" and "Description of Exchange Notes". Substantially all of the
assets of the Company have been pledged to secure other indebtedness of the
Company. See "Other Indebtedness".
Restrictions Imposed by the Senior Credit Facility and the Indenture
Among other obligations, the Senior Credit Facility requires the
Company to satisfy certain tests and maintain specified financial ratios,
including a minimum interest coverage ratio and a maximum leverage ratio. In
addition, the Senior Credit Facility restricts, among other things, the
Company's ability to incur additional indebtedness and to make acquisitions,
investments and capital expenditures beyond a certain level. A failure to
comply with the restrictions contained in the Senior Credit Facility could
lead to an event of default thereunder which could result in an acceleration
of such indebtedness. Such an acceleration would constitute an event of
default under the Indenture relating to the Notes. In addition, the Indenture
restricts, among other things, the Company's ability to incur additional
indebtedness, make investments, sell assets, make certain payments and
dividends or merge or consolidate. A failure to comply with the restrictions
in the Indenture could result in an event of default under the Indenture. If,
as a result thereof, a default occurs with respect to Senior Debt, the
subordination provisions of the Indenture would likely restrict payments to
holders of the Notes. See "Other Indebtedness" and "Description of Exchange
Notes--Subordination".
23
<PAGE>
Encumbrances on Assets to Secure Credit Facilities and Mortgages
In addition to being subordinated to all existing and future Senior
Debt of the Company, the Notes are not secured by any of the Company's
assets. The Company's obligations under the Senior Credit Facility are
secured by a first priority pledge of and security interest in the common
stock of the Company and the Company's subsidiaries and in substantially all
of the Company's personal property (including inventory) and real property
(other than real property encumbered by certain existing mortgages). If the
Company becomes insolvent or is liquidated, or if payment under the Senior
Credit Facility is accelerated, the lenders under the Senior Credit Facility
will be entitled to exercise the remedies available to a secured lender under
applicable law. In addition, the Company's obligations under its mortgage
loans are secured by the respective store properties subject to such mortgage
loans. See "Other Indebtedness--Senior Credit Facility" and "Description of
Exchange Notes".
Competition; Business Factors; History of Net Losses
The national lawn and garden market is highly fragmented and
competitive, consisting of thousands of local garden centers and mass
merchandisers who sell lawn and garden products as part of their overall
product lines. The Company encounters competition from many retailers and
mass merchandisers with respect to certain of the Company's lines of
business. Certain of the Company's principal competitors are less
highly-leveraged than the Company and may be better able to withstand market
conditions. Additionally, there can be no assurance that the Company will not
encounter increased future competition, which could have a material adverse
effect on the Company's financial condition or results of operations. See
"Business--Industry Overview--Competition".
The success of the Company's operations depends upon a number of
factors relating to consumer spending, including future economic conditions
affecting disposable consumer income such as employment, business conditions,
interest rates and taxation. If existing economic conditions deteriorate,
consumer spending may decline. There can be no assurance that any prolonged
economic downturn would not have a material adverse affect on the Company.
More specifically, growth in the lawn and garden industry is driven
by several key factors including the increasing popularity of gardening as a
leisure activity and positive demographic trends. No assurance can be made
that the absence of any of these key factors would not have a material
adverse effect on the Company.
The financial results of the Company in recent years have been
significantly affected by management turnover, capital constraints and
general economic conditions. For fiscal years 1995, 1996 and 1997, the
Company had net losses of $7.8 million, $11.8 million and $31.4 million,
respectively. There can be no assurance that the Company will not incur
additional losses in the future.
24
<PAGE>
Seasonal Earnings; Effect of Weather Conditions
The Company's business is highly seasonal and subject to the impact
of weather conditions, which may affect consumer purchasing patterns.
Historically, the spring season, which runs from late March to mid-June, is
the Company's most profitable and has accounted for approximately 40% of the
Company's sales and the Christmas season, which runs from November to late
December, is the Company's second most profitable and has accounted for
approximately 25% of the Company's sales. Losses are usually experienced
during the other periods of the year.
A significant portion of the Company's products consists of live
nursery goods which have limited shelf lives in some cases. Adverse weather
conditions may cause delays in the purchase of live nursery goods by
customers and may result in such goods remaining unsold past their shelf life
and require markdowns or disposal. See "Management's Discussions and Analysis
of Financial Condition and Results of Operations".
Year 2000 Issue; Computer System Upgrade
The Company has begun installing a new Management Information System
("MIS") to address the widely-known dating flaw inherent in most operating
systems (the "Year 2000 Issue"). While the new MIS being installed is
expected to be operational by the end of fiscal 1998, there can be no
assurance that the new MIS will be installed in time to remedy the Year 2000
Issue or that the Company's computer operating systems will not be disrupted
in the year 2000. Any such disruption, whether caused by the Company's
systems or those of any of its vendors, could have a material adverse effect
on the Company's financial condition or results of operations. In addition,
there can be no assurance that the Company will not experience significant
cost overruns or delays in connection with the upgrade of its existing
computer system. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Management Information System".
Dependence on Key Personnel
The Company is dependent on the continued services of its new senior
management team. Although the Company intends to enter into employment
agreements with its new Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer, it currently has no employment agreement with any
members of its new senior management team. There can be no assurance that
these and other key personnel will continue to be employed by the Company or
that the Company will be able to attract and retain qualified personnel in
the future. Although the Company believes that it could replace key employees
in an orderly fashion should the need arise, the loss of such key personnel
could have a material adverse effect on the Company's financial condition or
results of operations. The Company does not currently maintain key-man life
insurance policies on any of its executive officers. See "Management--
Executive Officers and Directors".
25
<PAGE>
Anticipated Cost Savings
Since closing the acquisition on December 24, 1997, the Company's new
management team has identified and principally effected annual cost savings
of approximately $13.1 million through: (i) reduction of corporate overhead
related to the closing of Holdings' headquarters in Stamford, Connecticut,
(ii) streamlining and reduction of field supervision and store-level
management, (iii) replacement of the Company's insurance policies with new
lower premium plans providing for substantially similar coverages,
(iv) elimination of expenditures incurred by prior management to build and
promote a new store concept, (v) termination of the temporary mall-based
Christmas stores and realization of savings from several previous and two
additional store closings and (vi) expense reductions associated with the
consolidation of its distribution facilities implemented in late fiscal 1996
and early fiscal 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General", "Business--Overview" and
"Business--Company Strategy".
These cost savings estimates were prepared solely by members of the
management of the Company. All of these statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict. There can be
no assurance that the savings anticipated in these statements will be
achieved. In addition, there can be no assurance that unforeseen costs and
expenses or other factors will not offset the estimated cost savings or other
components of the Company's operating plan in whole or in part.
Ability to Implement the Company's Operating Strategy
The growth and success of the Company is dependent, in large part,
upon the Company's ability to successfully execute its focused operating
strategy aimed at substantially improving the Company's cost structure,
refurbishing existing stores, improving inventory levels, re-merchandising
its stores and enhancing its geographic footprint through the pursuit of new
store growth. The success of the Company's new store opening plan will depend
on, among other things, the identification of suitable markets and sites for
new stores, the ability to penetrate such markets and the negotiation of
leases on acceptable terms. In addition, the Company must be able to hire,
train and retain competent managers and personnel and manage the operational
components of its growth. The failure of the Company to open new stores on a
timely basis, obtain acceptance in markets in which it currently has limited
or no presence, attract qualified management and personnel and appropriately
adjust operational systems and procedures could adversely affect the
Company's future operating results. There can be no assurance that the
Company will be able to locate suitable store sites or enter into suitable
lease agreements. In addition, no assurances can be given that the Company or
its management team will be able to implement successfully the other aspects
of the operating strategy described herein. The ability of the Company to
implement its operating strategy may require significant additional debt
and/or equity capital, and no assurance can be given as to whether, and on
what terms, such additional debt and/or equity capital will be available. See
"Business--Company Strategy".
26
<PAGE>
Controlling Shareholders
The Cypress Funds beneficially own approximately 99% of the
outstanding common stock of Holdings, the sole shareholder of the Company,
and can effectively control the affairs and policies of the Company.
Circumstances may occur in which the interests of these shareholders conflict
with the interests of the holders of the Notes. In addition, these
shareholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, enhance their equity investment,
even though such transactions might involve risks to the holders of the
Notes. See "Security Ownership of Certain Beneficial Owners and Management".
Limitations on Change of Control
In the event of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
repurchase date. A Change of Control will result in an event of default under
the Senior Credit Facility and may result in a default under other
indebtedness of the Company that may be incurred in the future. The Senior
Credit Facility prohibits the purchase of outstanding Notes prior to
repayment of the borrowings under the Senior Credit Facility and any exercise
by the holders of the Notes of their right to require the Company to
repurchase the Notes will cause an event of default under the Senior Credit
Facility. Finally, there can be no assurance that the Company will have the
financial resources necessary to repurchase the Notes upon a Change of
Control. See "Description of Exchange Notes--Repurchase at the Option of
Holders--Change of Control".
Risk of Fraudulent Transfer
A significant portion of the net proceeds of the Offering were paid
as a dividend to Holdings and used to redeem the outstanding Holdings Notes
(as defined herein). Under applicable provisions of the U.S. Bankruptcy Code
or comparable provisions of state fraudulent transfer or conveyance laws, if
the Company, at the time it issued the Notes (i) incurred such indebtedness
with the intent to hinder, delay or defraud creditors, or (ii) (a) received
less than reasonably equivalent value or fair consideration for incurring
such indebtedness and (b) (1) was insolvent at the time of incurrence,
(2) was rendered insolvent by reason of such incurrence (and the application
of the proceeds thereof), (3) was engaged or was about to engage in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital to carry on its businesses, or
(4) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature, then, in each case, a court of
competent jurisdiction could void, in whole or in part, the Notes, or, in the
alternative, subordinate the Notes to existing and future indebtedness of the
Company. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Company
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would
27
<PAGE>
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature. Management
believes that, for purposes of all such insolvency, bankruptcy and fraudulent
transfer or conveyance laws, the Notes were issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in good faith
and that the Company, after the issuance of the Notes and the application of
the proceeds thereof, was solvent, had sufficient capital for carrying on its
business and was able to pay its debts as they mature. There can be no
assurance, however, that a court passing on such questions would agree with
management's view.
Environmental Matters
National, state and/or local laws and regulations relating to
pollution and environmental protection impose limitations and prohibitions on
the discharge and emission of, and establish standards for the use, disposal,
and management of, certain materials and waste, and impose liability for the
costs of investigating and cleaning up, and certain damages resulting from,
present and past spills, disposals, or other releases of hazardous substances
or materials (collectively, "Environmental Laws"). As an owner/lessor or
former owner/lessor of numerous properties, as well as a seller of certain
environmentally sensitive products such as herbicides and pesticides, the
Company has an inherent risk of liability under Environmental Laws,
including, for example, contamination that may have occurred in the past on
its current or formerly owned/leased properties or as a result of its
operations. There can be no assurance that the costs of complying with
Environmental Laws, any claims concerning noncompliance, or liability with
respect to contamination will not have a material adverse effect on the
Company's operations in the future.
The Company may also be affected by Holdings' liabilities and
potential liabilities with respect to Environmental Laws. Holdings'
subsidiaries in the past have included corporations involved in
manufacturing, such as food processing, salt-mining and refining, tanning and
retail operations such as convenience stores that sell gasoline, as well as
retail operations such as those of the Company. Such manufacturing and other
retail operations have in some instances resulted in contamination at
facilities currently or formerly owned or leased by Holdings or its
subsidiaries and/or at sites where wastes have allegedly been disposed of by
a subsidiary. Holdings has incurred substantial liabilities under the
Environmental Laws for such contamination, and has also from time to time
contracted to indemnify purchasers of subsidiaries or properties for
environmental liabilities. There can be no assurance that Holdings will not
be called upon to discharge additional liabilities with respect to the
Environmental Laws that may arise from its operations/properties or those of
its present or former subsidiaries, or that such liabilities will not be
significant. Holdings' ability to satisfy any obligations under the
Environmental Laws (and any other obligations) it may have will depend upon
dividends from the Company, which will be limited by certain covenants in the
Indenture and the Senior Credit Facility. Additionally, there can be no
assurance that parties will not attempt to impose upon the Company
liabilities arising or allegedly arising out of the operations or properties
28
<PAGE>
of Holdings and/or its present or former subsidiaries, or that such attempts
if undertaken would not adversely affect the Company in a manner that could
be material. See "Business--Environmental Matters".
Government Regulation
The Company's stores and products are subject to regulation by
numerous governmental authorities, including, without limitation, federal,
state and local laws and regulations governing health, sanitation, safety and
hiring and employment practices, including laws, such as the Fair Labor
Standards Act, governing such matters as minimum wages, overtime and other
working conditions. The failure to obtain or retain the required licenses or
to be in compliance with applicable governmental regulations, or any increase
in the minimum wage, rate, employee benefit costs or other costs associated
with employees, could adversely affect the business, financial condition or
results of operations of the Company. Even if such regulatory approval is
obtained, the stores are subject to periodic inspection and discovery of
problems or regulatory noncompliance may have a material adverse effect on
the Company's operations.
Lack of Public Market for the Exchange Notes
The Exchange Notes are being offered to holders of the Old Notes. The
Old Notes were offered and sold in February 1998 to a small number of
institutional investors and are eligible for trading in the PORTAL market.
The Exchange Notes are a new issue of securities for which there is currently
no trading market. If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their initial offering price
depending upon prevailing interest rates, the market for similar securities
and other factors, including general economic conditions and the financial
condition and performance of, and prospects for, the Company. The Company
does not intend to apply for a listing of the Exchange Notes on any
securities exchange. See "Description of Exchange Notes".
29
<PAGE>
THE TRANSACTIONS
On November 25, 1997, pursuant to an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of November 22, 1997, between Holdings and
Cyrus Acquisition Corp., a New York corporation ("Acquisition Corp.") formed
by Cypress, Acquisition Corp. commenced a tender offer (the "Tender Offer")
to purchase all of the then-outstanding shares (the "Former Shares") of
common stock of Holdings, $1.00 par value per share ("Holdings Common
Stock"). Also pursuant to the Merger Agreement, contemporaneously with the
Tender Offer, Holdings began a debt tender offer and consent solicitation
(the "Debt Tender") for at least a majority in principal amount of Holdings'
Senior Notes.
On December 23, 1997, Cypress Merchant Banking Partners L.P. ("CMBP")
and Cypress Offshore Partners L.P. ("Cypress Offshore" and, together with
CMBP, the "Cypress Funds"), invested $165 million in Acquisition Corp. and
Joseph R. Baczko, the new Chairman, President and Chief Executive Officer of
Holdings and the Company (together with the Cypress Funds, the "Investors"),
invested $1 million in Acquisition Corp. The total investment made in
Acquisition Corp. by the Investors is referred to herein as the "Investment".
On December 24, 1997, following the acquisition of 22.0 million
Former Shares tendered in the Tender Offer and the purchase of approximately
4.8 million treasury shares of Holdings Common Stock pursuant to the Merger
Agreement, in each case at a price of $5.50 in cash per share, Acquisition
Corp. owned approximately 91.6% of the outstanding Former Shares. In
addition, Holdings acquired $52.8 million of the $78 million then-outstanding
aggregate principal amount of the Senior Notes pursuant to the Debt Tender.
Also on December 24, 1997, Holdings and the Company entered into a
senior secured credit facility with affiliates of the Purchasers (the "Senior
Credit Facility") for the Company providing for (i) a term loan facility of
up to $85 million (the "Term Loan Facility") and (ii) a revolving credit
facility of up to $110 million (the "Revolving Credit Facility"). The
Company's initial borrowing under the Senior Credit Facility consisted of
$37.5 million in term loans and $10 million of revolving credit loans.
On January 7, 1998, pursuant to the Merger Agreement, Acquisition
Corp. was merged (the "Merger") with and into Holdings with Holdings as the
surviving corporation of the Merger. In the Merger, each Former Share not
purchased in the Tender Offer (other than Former Shares held by Acquisition
Corp., Holdings or its subsidiaries or dissenting shareholders) was converted
into the right to receive $5.50 in cash (the "Merger Consideration"), and
each share of Acquisition Corp. common stock was converted into one share of
Holdings Common Stock; accordingly, Holdings became wholly owned by the
Investors.
The proceeds of the initial $47.5 million borrowing under the Senior
Credit Facility, together with the proceeds of the Investment were used,
among other things, to fund the Debt Tender and the Tender Offer, to pay
30
<PAGE>
Merger Consideration, to refinance certain indebtedness of Frank's and to pay
fees and expenses relating to the transactions discussed above.
In connection with the Transactions, Holdings contributed its
available cash on-hand to Frank's and converted all intercompany borrowings
with Frank's to equity of Frank's.
The Tender Offer, the Debt Tender, the Investment, the Merger, the
consummation of the Senior Credit Facility and the other transactions
described or referred to above are collectively referred to herein as the
"Transactions".
The following table sets forth the sources and uses of funds in
connection with the Transactions and the Offering:
<TABLE>
<CAPTION>
Amount
------------------------------
(in millions)
<S> <C>
Sources:
Senior Credit Facility<F1>:
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29.9
Term Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3
Assumption of existing mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.7
Assumption of existing capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6
Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.0
Equity contribution by the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166.0
-------
Total Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $372.5
=======
Uses:
Purchase of equity<F2> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136.7
Assumption of existing mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.7
Assumption of existing capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6
Repayment of certain mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9
11 1/2% Senior Notes due 2002:
Purchased pursuant to Debt Tender<F3> . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.0
To be redeemed<F4> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.5
Redemption of 8% Convertible Subordinated Notes due 2002<F4> . . . . . . . . . . . . . . . . . . 67.0
Estimated fees and expenses<F5> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1
-------
Total Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $372.5
=======
<FN>
<F1> The Senior Credit Facility originally consisted
of a $110 million Revolving Credit Facility and
an $85 million Term Loan Facility. In connection
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<PAGE>
with the Transactions, the Company borrowed $37.5
million under the Term Loan Facility and $10
million under the Revolving Credit Facility.
Approximately $17.2 million of the proceeds of
the Offering were used to pay down indebtedness
under the Term Loan Facility. In connection with
the Offering, the Company borrowed $19.9 million
under the Revolving Credit Facility.
Additionally, in connection with the Offering,
the Company permanently reduced the commitments
under the Term Loan Facility to $25 million from
$85 million. Loans obtained under the Revolving
Credit Facility mature in December 2003 and loans
obtained under the Term Loan Facility mature in
December 2004, subject to amortization and
mandatory prepayment. See "Other Indebtedness--
Senior Credit Facility".
<F2> Includes purchases made pursuant to the Tender
Offer and in connection with the Merger totalling
$134.3 million and retirement of stock options
totalling $2.4 million. See "The Transactions".
<F3> Includes tender premium and accrued interest.
<F4> Includes call premium and accrued interest.
<F5> Includes amounts paid pursuant to the former
Chairman of Holdings' employment agreement,
financial advisory, consulting and other
professional fees and financing costs. See
"Certain Relationships and Related Transactions".
</TABLE>
32
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange
Offer.
The net proceeds of the Offering were used to (i) pay a dividend to
Holdings to enable Holdings to redeem (A) approximately $67.0 million of its
outstanding 8% Convertible Subordinated Notes due 2002 (including the
redemption premium and accrued interest) (the "Convertible Notes") and
(B) approximately $26.5 million of its outstanding 11 1/2% Senior Notes due
2002 (including the redemption premium and accrued interest) (the "Senior
Notes" and, together with the Convertible Notes, the "Holdings Notes") and
(ii) prepay approximately $17.2 million of the Company's indebtedness under
the Term Loan Facility.
The Convertible Notes were originally issued pursuant to an indenture
dated February 28, 1992 among Holdings, the subsidiary guarantors and Bankers
Trust Company. The Convertible Notes had a maturity date of February 15, 2002
and an interest rate of 8%. The Senior Notes were originally issued pursuant
to an indenture dated February 28, 1992 between Holdings and United States
Trust Company of New York. The Senior Notes had a maturity date of
February 15, 2002 and an interest rate of 11 1/2%. For a description of the
Term Loan Facility, see "Other Indebtedness--Senior Credit Facility".
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
(i) as of January 25, 1998 and (ii) as adjusted for the Transactions and the
Offering and the application of the net proceeds therefrom. See "Use of
Proceeds" and the financial statements and related notes appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
As of January 25, 1998
-------------------------------------------
Actual As Adjusted
------------------- ----------------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 16,100 $ 13,427
Debt:
Senior Credit Facility<F1>:
Revolving Credit Facility<F2> . . . . . . . . . . . . . . 10,000 10,000
Term Loan Facility . . . . . . . . . . . . . . . . . . . . 37,500 20,281
Capitalized lease obligations<F3> . . . . . . . . . . . . . . . 11,554 11,554
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . 29,680 29,680
Old Notes offered in the Offering . . . . . . . . . . . . . . . -- 115,000
11 1/2% Senior Notes due 2002<F4> . . . . . . . . . . . . . . . 25,235 --
8% Convertible Subordinated Notes due 2002<F4> . . . . . . . . 65,000 --
-------- --------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . 178,969 186,515
-------- --------
Total shareholder's equity . . . . . . . . . . . . . . . . . . 153,653 148,597
-------- --------
Total capitalization . . . . . . . . . . . . . . . . . . . . . $332,622 $335,112
======== ========
____________________
<FN>
<F1> The Senior Credit Facility originally consisted of a $110 million
Revolving Credit Facility and an $85 million Term Loan Facility. In
connection with the Transactions, the Company borrowed $37.5 million
under the Term Loan Facility and $10 million under the Revolving
Credit Facility. Approximately $17.2 million of the proceeds of the
Offering were used to pay down indebtedness under the Term Loan
Facility. In connection with the Offering, the Company reduced
commitments available under the Term Loan Facility to $25 million from
$85 million. Loans obtained under the Revolving Credit Facility mature
in December 2003 and loans obtained under the Term Loan Facility
mature in December 2004, subject to amortization and mandatory
prepayment. See "Other Indebtedness--Senior Credit Facility".
34
<PAGE>
<F2> The Revolving Credit Facility must have no borrowings outstanding for
a consecutive 30-day period during each fiscal year.
<F3> Capitalized lease obligations are primarily related to the Company's
financing of its retail stores. The implicit interest rates under the
leases range from approximately 9.3% to 18.2%. See "Other
Indebtedness--Capital Leases".
<F4> The Company redeemed the outstanding Holdings Notes with a portion of
the proceeds of the Offering.
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Unaudited Pro
Forma Financial Data") for the fiscal year ended January 25, 1998 have been
derived by the application of pro forma adjustments to the financial
statements of the Company included elsewhere in this Prospectus. The
unaudited pro forma results of operations data for the fiscal year ended
January 25, 1998 give effect to: (i) the Tender Offer, (ii) the Debt Tender,
(iii) borrowings under the Senior Credit Facility, (iv) the Merger and (v)
the consummation of the Offering and application of the proceeds therefrom,
as if each had occurred on January 27, 1997. The related unaudited pro forma
balance sheet data give effect to the Tender Offer, the Debt Tender,
borrowings under the Senior Credit Facility, the Merger and the consummation
of the Offering and application of the proceeds therefrom as if each had
occurred on January 25, 1998. The adjustments are described in the
accompanying notes. The Unaudited Pro Forma Financial Data (a) do not purport
to represent what the Company's results of operations actually would have
been if those transactions had been consummated on the date or for the
periods indicated, or what such results will be for any future date or for
any future period or (b) give effect to certain non-recurring charges
expected to result from the Transactions. The final allocation of the
purchase price in connection with the Transactions, in accordance with the
purchase method of accounting, may differ from the preliminary estimates due
to the final allocation being based on completion of fixed asset appraisals
and valuations of certain other acquired assets and assumed liabilities and
management's evaluation of such items. The Unaudited Pro Forma Financial Data
should be read in conjunction with "Selected Historical Financial and Other
Data", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements included elsewhere in
this Prospectus.
36
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
January 25, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Company Unaudited
Historical Adjustments Pro Forma
------------------- -------------------- --------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 16,100 $(2,673)<F1> $ 13,427
Accounts and notes receivable . . . . . . . . . . . . . . . 4,607 -- 4,607
Merchandise inventory . . . . . . . . . . . . . . . . . . . 81,051 -- 81,051
Other current assets . . . . . . . . . . . . . . . . . . . . 6,218 -- 6,218
-------- -------- --------
Total current assets . . . . . . . . . . . . . . . . . . 107,976 (2,673) 105,303
Net property, plant and equipment . . . . . . . . . . . . . . . 217,880 -- 217,880
Net intangibles . . . . . . . . . . . . . . . . . . . . . . . . 95,825 -- 95,825
Other assets and deferred charges . . . . . . . . . . . . . . . 13,248 1,477<F2> 14,725
-------- -------- --------
$434,929 $(1,196) $433,733
======== ======== ========
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 30,852 $ -- $ 30,852
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 53,677 (3,686)<F3> 49,991
Notes payable to bank . . . . . . . . . . . . . . . . . . . 10,000 -- 10,000
Current portion of long-term debt . . . . . . . . . . . . . 1,780 -- 1,780
-------- -------- --------
Total current liabilities . . . . . . . . . . . . . . . . 96,309 (3,686) 92,623
Long-term debt:
Senior debt . . . . . . . . . . . . . . . . . . . . . . . . 102,189 (42,454)<F4> 59,735
Subordinated debt . . . . . . . . . . . . . . . . . . . . . 65,000 50,000 <F5> 115,000
-------- -------- --------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . 167,189 7,546 174,735
Other liabilities and deferred credits . . . . . . . . . . . . 17,778 -- 17,778
37
<PAGE>
Shareholder's equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 246 -- 246
Capital in excess of par . . . . . . . . . . . . . . . . . . 165,754 -- 165,754
Intercompany payable . . . . . . . . . . . . . . . . . . . . (693) -- (693)
Retained earnings . . . . . . . . . . . . . . . . . . . . . (11,654) (5,056)<F6> (16,710)
-------- -------- --------
Total shareholder's equity . . . . . . . . . . . . . . . . . . 153,653 (5,056) 148,597
-------- -------- --------
$434,929 $(1,196) $433,733
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
January 25, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
(1) Cash:
Gross Proceeds from the Offering . . . . . . . . . . . . . . . . . . . . . . . . . $115,000
Less:
Repayment of 11 1/2% Senior Notes and 8% Convertible Notes, including accrued
interest and premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,129
Expenses related to the Offering . . . . . . . . . . . . . . . . . . . . . . . . . 4,325
Repayment of term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,219
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,673)
=========
(2) Changes in Other Assets and Deferred Charges as a result of:
Write-off of debt issue cost associated with the 11 1/2% Senior Notes and the 8%
Convertible Notes redeemed with the proceeds from the Offering . . . . . . . . . $(1,369)
Write-off of debt issue cost associated with Senior Credit Facility . . . . . . . . (1,479)
Expenses related to the Offering . . . . . . . . . . . . . . . . . . . . . . . . . 4,325
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,477
=========
(3) Accrued interest on balance of 11 1/2% Senior Notes redeemed . . . . . . . . . . . . $(1,375)
Accrued interest on 8% Convertible Notes redeemed . . . . . . . . . . . . . . . . . (2,311)
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,686)
=========
(4) Repayment of:
11 1/2% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(25,235)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,219)
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(42,454)
=========
(5) Issuance/(repayment) of:
Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,000
8% Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65,000)
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000
=========
(6) Reflects loss related to write-offs of:
Debt issue cost related to the reduction of the Term Loan facility . . . . . . . . $(1,479)
Debt issue cost associated with the 11 1/2% Senior Notes and the 8% Convertible
Notes redeemed with the proceeds from the Offering . . . . . . . . . . . . . . . . (1,369)
39
<PAGE>
Premium cost associated with the repayment of the 11 1/2% Senior Notes and the 8%
Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,208)
---------
Net Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,056)
=========
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Fiscal Year Ended January 25, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Company Historical
------------------------------
Four-Weeks Forty-Eight
Ended Weeks Ended Cypress Adjusted
January 25, December 28, Acquisition Unaudited Offering Unaudited
1998 1997 Adjustments Pro Forma Adjustments Pro Forma
-------------- -------------- --------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . $ 14,814 $515,204 $530,018 $530,018
Cost of sales, including buying
and occupancy expense . . . . . 17,532 367,008 384,540 384,540
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . (2,718) 148,196 145,478 145,478
Selling, general and
administrative expense . . . . 7,318 137,872 (1,264)<F1> 143,926 143,926
Impairment loss . . . . . . . . . 1,720 1,720 1,720
Provision for store closings and
other cost . . . . . . . . . . 6,677 6,677 6,677
-------- -------- -------- -------- -------- --------
Operating income . . . . . . . . (10,036) 1,927 1,264 (6,845) 0 (6,845)
Interest and debt expense . . . . 1,601 19,632 (4,509)<F2> 16,724 3,766<F3> 20,490
Other income (expense) . . . . . (17) (2,010) (2,027) (2,027)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes $(11,654) $(19,715) $ 5,773 $(25,596) $ (3,766) $(29,362)
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges <F4> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
</TABLE>
See Notes to Unaudited Pro Forma Statements of Operations
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Fiscal Year Ended January 25, 1998
(dollars in thousands)
[FN]
<F1> Pro forma adjustments to reflect
the effects of the Transactions
on property, plant and equipment
and intangibles:
Increase in amortization of
goodwill . . . . . . . . . . $2,041
Reduction in depreciation
for valuation of property,
plant and equipment(a) . . (3,305)
---------
$(1,264)
=========
(a) The reduction in depreciation expense is
due to the write-down of buildings,
fixtures and other fixed assets as a
result of the allocation of purchase
price based on appraisals.
<F2> Reflects interest and debt expense
adjustments as a result of the
Transaction as follows:
Interest expense for the Senior
Notes . . . . . . . . . . . . . . $(5,518)
Interest expense for certain
mortgages repaid . . . . . . . . (810)
Interest expense for the Previous
Bank Facility . . . . . . . . . . (1,290)
Change in commitment fees, net . 381
Amortization of Holdings' Senior
Notes issuance cost redeemed . . (185)
Amortization of issuance cost on
Senior Credit Facility . . . . . 476
Interest expense on borrowings
under the Senior Credit Facility
(b) . . . . . . . . . . . . . . . 2,437
---------
$(4,509)
=========
42
<PAGE>
(b) Reflects the following:
Revolving Credit Facility at
7.875% . . . . . . . . . . $ 788
Term Loan Facility at 8.125% 1,649
---------
$2,437
=========
A 1/8 increase in the interest rate
under the Senior Credit Facility would
increase interest expense and reduce
income (loss) before income taxes by $37
for the fiscal year ended January 25,
1998.
<F3> Reflects interest and debt expense
adjustments as a result of the
Offering as follows:
Interest expense for the Senior
Notes . . . . . . . . . . . . . . $(2,902)
Interest expense for the
Convertible Subordinated Notes . (5,200)
Amortization of Holdings Notes
issuance cost . . . . . . . . . . (353)
Interest expense for the Notes
offered hereby at a rate of 10.25% 11,788
Amortization of issuance cost on
Notes offered hereby . . . . . . 433
---------
$3,766
=========
<F4> For purposes of determining the ratio of
earnings of fixed charges, earnings are defined
as income before income taxes, plus fixed
charges. Fixed charges consist of interest
expense on all indebtedness (including
amortization of deferred debt issuance costs)
and a portion of operating lease rental expense
that is representative of the interest factor.
The Company's earnings would have been
insufficient to cover pro forma fixed charges
by $29.3 million.
43
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
Set forth below are selected historical financial data of the Company
for the forty-eight week period ending December 28, 1997, the four-week
period ending January 25, 1998 and for each of the two fiscal years in the
period ended January 26, 1997, which are derived from the audited financial
statements included elsewhere herein. Because of the Transactions, the
summary financial data for fiscal 1997 represents the operations data for the
forty-eight week period prior to the Transactions and the four-week period
subsequent to the Transactions. The post-Transactions period has been
presented on the purchase basis of accounting, and is therefore not
comparable to the historical financial information presented for the forty-
eight week pre-Transactions period. The selected historical financial data
set forth below for the Company as of January 30, 1994 and January 29, 1995
and for each of the two fiscal years in the period ended January 29, 1995 are
derived from the unaudited financial statements for those periods and, in the
opinion of management, include all adjustments necessary for a fair
presentation of said information. The selected historical financial data
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended Forty-Eight Four-Weeks
--------------------------------------------------- Weeks Ended Ended
January 30, January 29, January 28, January 26, December 28, January 25,
1994 1995 1996 1997 1997 1998
------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . $568,602 $ 567,987 $593,270 $530,752 $515,204 $ 14,814
Cost of sales, including buying and
occupancy . . . . . . . . . . . . 425,724 402,839 429,181 383,099 367,008 17,532
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . . . . 142,878 165,148 164,089 147,653 148,196 (2,718)
Selling, general and administrative
expense . . . . . . . . . . . . . 151,995 140,171 148,502 138,355 137,872 7,318
Impairment loss . . . . . . . . . . . -- -- -- -- 1,720 --
Provision for store closings
and other costs . . . . . . . . . 22,876 -- -- -- 6,677 --
-------- -------- -------- -------- -------- --------
Operating income (loss) . . . . . . . (31,993) 24,977 15,587 9,298 1,927 (10,036)
Interest expense . . . . . . . . . . 23,251 22,911 23,845 20,863 19,632 1,601
Other income (expense) . . . . . . . (216) 47 507 (226) (2,010) (17)
-------- -------- -------- -------- -------- --------
44
<PAGE>
Income (loss) before income taxes . . (55,460) 2,113 (7,751) (11,791) (19,715) (11,654)
Income tax expense (credit) . . . . . -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . $(55,460) $ 2,113 $ (7,751) $(11,791) $(19,715) $(11,654)
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges<F1> . . . . . . . . . . . -- 1.08x 0.76x 0.58x -- --
Other Data:
Merchandise gross margin . . . . . . 39.6% 42.3% 40.8% 42.2% 42.2% 13.7%
Depreciation and amortization<F2> . . $24,610 $ 23,836 $ 22,888 $ 22,377 $ 21,835 $ 1,500
Capital expenditures . . . . . . . . 29,946 5,391 5,497 4,371 12,472 (34)
Increase (decrease) in
comparable store sales . . . . . . (1.0)% 5.2% 4.5% (9.4)% 0.8% (5.2)%
Number of stores at end of period . . 265 265 264 262 258 258
Balance Sheet Data (at end of period):
Cash and cash equivalents<F3> . . . . $ 5,204 $ 5,619 $ 4,871 $ 3,526 $ 39,411 $ 16,100
Working capital<F4> . . . . . . . . . 27,127 9,631 36,926 27,005 (4,708) 7,347
Property, plant and equipment, net . 280,210 253,331 237,803 220,626 219,171 217,880
Total debt, including current
maturities . . . . . . . . . . . 256,875 234,005 191,872 195,015 169,067 178,969
Shareholder's equity . . . . . . . . 71,587 54,117 106,258 75,681 166,441 153,653
<FN>
<F1> The ratio of earnings to fixed charges has been calculated by
dividing income before income taxes and fixed charges (excluding
capitalized interest) by fixed charges. Fixed charges consist of
interest expense, capitalized interest and the portion of operating
rental expense which management believes is representative of the
interest component of rent expense. For fiscal 1993, fiscal 1995,
fiscal 1996, for the forty-eight weeks ended December 28, 1997 and
for the four weeks ended January 25, 1998, the Company's earnings
were insufficient to cover its fixed charges by $55,820, $7,610,
$11,803, $19,643 and $11,650, respectively.
<F2> Includes amortization of debt issuance cost of $1,485 for fiscal
1993, $1,218 for fiscal 1994, $1,671 for fiscal 1995, $899 for fiscal
1996 and $676 for the forty-eight weeks ended December 28, 1997 and
$56 for the four weeks ended January 25, 1998 and includes $1,720 for
the write-down to fair value of property, plant and equipment in
accordance with FAS-121 "Impairment of Long-Lived Assets" for the
forty-eight weeks ended December 28, 1997.
<F3> Excludes Holdings cash of $32,653 for fiscal 1993, $62,745 for fiscal
1994, $5,033 for fiscal 1995 and $23,796 for fiscal 1996.
<F4> Reflects total current assets (excluding cash) less total current
liabilities (excluding current maturities of long-term debt and notes
payable to banks).
</TABLE>
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the
financial condition and results of operations ("MD&A") of the Company for the
fiscal years ended January 25, 1998, January 26, 1997 and January 28, 1996.
This discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, the sections entitled (i) "Summary Historical
and Unaudited Pro Forma Financial Information", (ii) "Selected Historical
Financial and Other Data" and (iii) the financial statements of the Company
and the notes thereto included elsewhere in this Prospectus.
General
Overview. The Company operates the largest national chain of
specialty retail stores devoted to the sale of lawn and garden products. In
addition, the Company sells dried and artificial flowers and arrangements,
Christmas merchandise, crafts and pet supplies. The Company's parent,
Holdings, was acquired by Cypress and new management on December 24, 1997 in
a series of related transactions. See "The Transactions". Following the
Transactions, the Company announced the appointment of Joseph R. Baczko as
Chairman, President and Chief Executive Officer, Adam Szopinski as Executive
Vice President and Chief Operating Officer and Larry T. Lakin as Executive
Vice President and Chief Financial Officer. The new management team possesses
considerable expertise in specialty retailing and has developed an operating
strategy which is designed to position the Company as the nation's leading
lawn and garden specialty retailer.
Factors Affecting Historical Operating Performance. New management
believes that the Company's financial performance during the past several
years has been affected by senior management turnover and significant capital
constraints.
During the past several years, the operations of Frank's have been
under the leadership of three different senior executives: Ernest Townsend
(Frank's President and Chief Operating Officer from February 1997 to December
1997), Scott Hessler (Frank's President and Chief Operating Officer from May
1994 to January 1997) and Harris J. Ashton, former Chairman of Holdings
(acting president of Frank's from March 1991 to May 1994). New management
believes that lack of continuity and frequent change of strategic direction
adversely affected the Company's operations and financial performance.
Furthermore, in recent years, the Company's ability to effect a
long-term strategic plan has been adversely affected by capital constraints.
Since fiscal 1994, the Company's revolving line of credit has had a maturity
of no longer than a single year, prohibiting the Company from implementing a
strategy and merchandising plan beyond a one-year time horizon. In fiscal
1995 and early fiscal 1996, Frank's refinanced $76 million of mortgages with
approximately $39 million of new mortgages and available Holdings and Frank's
cash on hand. As a consequence, in fiscal 1996, the Company's overall
liquidity significantly deteriorated. The Company reduced its purchases of
inventory during fiscal 1996 by 15.6% versus the prior year, which
46
<PAGE>
contributed to a significant decline in fiscal 1996 comparable store sales.
In addition, during 1997, the Company's revolving line of credit was extended
only through December 31, 1997, further eroding long-term liquidity. New
management believes that the new $110 million Revolving Credit Facility,
which will solely finance working capital and must have no borrowings
outstanding for a consecutive 30-day period during each fiscal year, will
substantially increase the Company's liquidity and will allow for the
successful implementation of the new operating plan.
Anticipated Cost Savings
Since closing the acquisition on December 24, 1997, the Company's new
management team has identified and principally effected annual cost savings
of approximately $13.1 million through: (i) reduction of corporate overhead
related to the closing of Holdings' headquarters in Stamford, Connecticut,
(ii) streamlining and reduction of field supervision and store-level
management, (iii) replacement of the Company's insurance policies with new
lower premium plans providing for substantially similar coverages,
(iv) elimination of expenditures incurred by prior management to build and
promote a new store concept, (v) termination of the temporary mall-based
Christmas stores and realization of savings from several previous and two
additional store closings and (vi) expense reductions associated with the
consolidation of its distribution facilities implemented in late fiscal 1996
and early fiscal 1997. See "Risk Factors--Anticipated Cost Savings",
"Business--Overview" and "Business--Company Strategy".
These cost savings estimates were prepared solely by members of the
management of the Company. All of these statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict. There can be
no assurance that the savings anticipated in these statements will be
achieved. In addition, there can be no assurance that unforeseen costs and
expenses or other factors will not offset the estimated cost savings or other
components of the Company's operating plan in whole or in part.
Results of Operations
For purposes of the analysis of the results of operations, the four-
week period and forty-eight week period ending January 25, 1998 and December
28, 1997, respectively, have been aggregated for comparative purposes. The
following table sets forth the Company's results of operations for the
periods indicated expressed as a percentage of net sales:
47
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1995 1996 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy . . . . . . . . . . . . . . . . . 72.3 72.2 72.6
----- ----- -----
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.7 27.8 27.4
Selling, general and administrative expense . . . . . . . . . . . . . . . . . . 25.1 26.1 29.8
----- ----- -----
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 1.7 (2.4)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 3.9 4.0
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.0 0.5
----- ----- -----
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (1.3) (2.2) (5.9)
Income tax expense (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.3)% (2.2)% (5.9)%
===== ===== =====
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales for fiscal 1997 were $530.0 million compared to
$530.8 million for fiscal 1996, a decrease of 0.2%. Comparable store sales
(stores open for a full year in both years) for fiscal 1997 increased 0.6%
compared to fiscal 1996.
Cost of Sales, Including Buying and Occupancy. Cost of sales,
including buying and occupancy, was $384.5 million for fiscal 1997 compared
to $383.1 million for fiscal 1996, an increase of 0.4%. Cost of sales as a
percentage of net sales increased 0.4% to 72.6%. Merchandise gross margins,
as a percentage of net sales, declined 0.8% to 41.4% due primarily to the
1997 third quarter strategy under prior management that increased promotions
in the fall lawn and garden business and increased markdowns to clear some
seasonal and aged merchandise. Additionally, in the 1997 fourth quarter the
Company experienced a lower merchandise gross margin rate on Christmas
products, as a result of markdowns taken to minimize its inventory carryover.
Buying and occupancy costs for fiscal 1997 decreased by $2.1 million, and as
a percentage of net sales decreased 0.3% compared to fiscal 1996. As a
result, gross profit for fiscal 1997 was $145.5 million compared to $147.7
million for fiscal 1996, a decrease of 1.5%. As a percentage of net sales,
gross profit declined 0.4% to 27.4%.
Selling, General and Administrative Expense. Selling, general and
administrative expense for fiscal 1997 was $145.2 million compared to $138.4
million for fiscal 1996, an increase of 4.9% resulting from higher store
labor and advertising costs. In addition, fiscal 1997 included expenses of
48
<PAGE>
$1.2 million related to the forgiveness of indebtedness owed the Company by
its former Chairman and $2.5 million associated with the development of a new
store concept implemented by prior management. As a percentage of net sales,
selling, general and administrative expense increased 1.3% to 27.4%.
Operating Income (Loss). The operating loss for fiscal 1997 was
$12.7 million compared with operating income of $9.3 million for fiscal 1996.
Interest Expense. Interest expense for fiscal 1997 was $21.2 million
compared to $20.9 million for fiscal 1996.
Other Expense. Other expense was $2.0 million in fiscal 1997
compared to $0.2 million in fiscal 1996 due primarily to a gain of $2.8
million associated with the termination of a leased store, higher levels of
interest income and $4.6 million for legal and advisory fees in connection
with the acquisition. The increase was offset in part by a loss of $0.9
million associated with the sale of the Frank's headquarters and $0.5 million
associated with the closing of stores.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales for fiscal 1996 were $530.8 million compared to
$593.3 million for fiscal 1995, a decrease of 10.5%. Comparable store sales
for fiscal 1996 decreased 9.4% due primarily to a significant reduction in
inventory purchases from $332.5 million for fiscal 1995 to $280.7 million for
fiscal 1996, representing a decrease of 15.6%.
Cost of Sales, Including Buying and Occupancy. Consistent with the
reduction of sales discussed above, cost of sales, including buying and
occupancy was $383.1 million for fiscal 1996 compared to $429.2 million for
fiscal 1995, a decrease of 10.7%. Cost of sales as a percentage of net sales
decreased 0.1% to 72.2%. Merchandise gross margins, as a percentage of net
sales, improved 1.4% due to fewer promotions and tighter inventory management
during fiscal 1996. Buying and occupancy costs for fiscal 1996 decreased $1.8
million, but as a percentage of net sales, increased 1.2% compared to fiscal
1995. As a result, gross profit for fiscal 1996 was $147.7 million compared
to $164.1 million for fiscal 1995, a decrease of 10.0%. As a percentage of
net sales, gross profit improved 0.1% to 27.8%.
Selling, General and Administrative Expense. Selling, general and
administrative expense for fiscal 1996 was $138.4 million compared to $148.5
million for fiscal 1995, a decrease of 6.8%. This decrease resulted from
expense reductions initiated during 1996 particularly in the areas of
advertising, store payroll and administrative expenses. As a percentage of
net sales, selling, general and administrative expense increased 1.0% to
26.1%.
Operating Income. Operating income for fiscal 1996 was $9.3 million
compared to $15.6 million for fiscal 1995.
Interest Expense. Interest expense for fiscal 1996 was $20.9 million
compared to $23.8 million for fiscal 1995, a decrease of 12.2%. The decrease
49
<PAGE>
was primarily due to the Company's repayment in full of certain mortgages at
the end of fiscal 1995. The Company replaced this financing, in part, with
new mortgage financings that totalled $39.0 million as of January 26, 1997.
Liquidity and Capital Resources
Historical
The Company has historically financed its operations with funds
generated from operating activities, available cash (both at Frank's and
Holdings) and borrowing under its revolving credit facility with Comerica
Bank (the "Previous Bank Facility").
Operating Activities. Net cash provided by (used for) operating
activities for fiscal 1997 was $(27.0) million compared to $18.2 million for
fiscal 1996. The decrease is primarily attributable to lower earnings and a
decrease in accrued expenses due to timing of payments.
Net cash provided by (used for) operating activities for fiscal years
1996 and 1995 was $18.2 million and $(11.7) million, respectively. The
improvement in cash flow from operations in fiscal 1996 compared to fiscal
1995 was attributable to significantly reduced inventory purchases in fiscal
1996 and an increase in accrued expenses in fiscal 1996 compared to a
decrease in fiscal 1995. Furthermore, in fiscal 1995 the early receipt of
Christmas merchandise and reduced spring purchases in the 1995 fourth quarter
resulted in a decrease in accounts payable for fiscal 1995 of $13.9 million
compared to an increase of $0.1 million in fiscal 1996.
Investing Activities. Net cash provided by (used for) investing
activities for fiscal 1997 was $0.2 million compared to $(3.4) million for
fiscal 1996. The expenditures in fiscal 1997 included $12.4 million for the
addition of property, plant and equipment which was offset by $12.6 million
of proceeds from the sale of property, plant and equipment, which includes
$6.0 million from the sale/leaseback of three owned stores, the sale of the
Company's headquarters facility and the termination of a leased location.
Net cash used for investing activities for the fiscal years 1996 and
1995 was $3.4 million and $5.2 million, respectively. The majority of such
expenditures was generally for refurbishment of existing stores.
Financing Activities. Net cash provided by (used for) financing
activities for fiscal 1997 was $39.4 million compared to $(16.1) million for
fiscal 1996. The increase was primarily attributable to the Transactions.
Net cash provided by (used for) financing activities for the fiscal
years 1996 and 1995 was $(16.1) million and $16.1 million, respectively. The
greater net cash used in fiscal 1996 compared to fiscal 1995 was primarily
due to decreased intercompany borrowings with Holdings. Net cash provided in
fiscal 1995 included the payment of long-term debt and capital lease
obligations of $77.1 million (principally the repayment of $76 million of
mortgages), offset by $35.0 million of new mortgage financing and $59.9
million in increased intercompany borrowings with Holdings.
50
<PAGE>
After the Transactions and the Exchange Offer
Following the Exchange Offer, the Company's primary sources of
liquidity will be cash flow from operations and borrowings under its
Revolving Credit Facility. The primary uses of cash will be working capital,
capital expenditures and debt service requirements.
As a result of the Transactions and the Offering, the Company's
capital structure has changed substantially. As of January 25, 1998, after
giving pro forma effect to the Transactions and the Offering and the
application of the proceeds therefrom, the Company would have had total
outstanding indebtedness of $186.5 million, including $20.3 million under the
Company's Term Loan Facility and $10.0 million under the Revolving Credit
Facility. The Company would have had $98.3 million of remaining availability
under its $110 million Revolving Credit Facility. In connection with the
Offering, the Company reduced commitments available under the Term Loan
Facility to $25 million from $85 million. The unused portion of the Term Loan
Facility of $4.7 million is reserved for potential refinancing of certain
mortgages. See "Other Indebtedness--Mortgage Loans". The Term Loan and
Revolving Credit Facilities will mature on the seventh and sixth anniversary,
respectively, of the Credit Facility Closing Date (as defined herein). The
principal balance under the Term Loan Facility will begin amortizing at the
end of the first quarter of fiscal 1999. In addition, beginning with fiscal
1998, for a consecutive 30-day period during each fiscal year there must be
no outstanding borrowings under the Revolving Credit Facility. See "Other
Indebtedness--Senior Credit Facility".
The Company experiences seasonal fluctuations in its net sales and
profitability, with generally lower net sales and gross profit during the
winter and late summer months. The Company believes that the seasonality of
net sales and profitability is a factor that affects the lawn and garden
industry generally and is primarily due to fluctuating gardening activity
during any given year. As a result, the Company's working capital
requirements also fluctuate throughout the year, ranging from a deficit of
$7.3 million in May to a high of $62.1 million in November during the twelve
months ended January 25, 1998.
Subject to restrictions in the Senior Credit Facility and the
Indenture, the Company may incur additional indebtedness from time to time to
finance working capital, capital expenditures or acquisitions. For fiscal
1997, after giving pro forma effect to the Transactions and the Offering and
the proceeds therefrom, the Company's ratio of earnings to fixed charges
would have been insufficient to cover pro forma fixed charges by $29.3
million for the fiscal year ended January 25, 1998. See "Risk Factors--
Substantial Leverage".
Based upon the current level of operations and anticipated revenue
growth and operating improvements, management believes that cash flow from
operations and available cash, together with available borrowings under the
Senior Credit Facility, will be adequate to meet the Company's future
liquidity needs for at least the next several years, although no assurance
can be given in this regard. In addition, there can be no assurance that the
51
<PAGE>
Company's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or
that future borrowings will be available under the Senior Credit Facility in
an amount sufficient to enable the Company to service its indebtedness,
including the Notes, or to fund its other liquidity needs. The Company's
future operating performance and ability to service or refinance the Notes
and to extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control. See "Risk Factors".
Usage of Net Operating Losses
In preparing its financial statements included elsewhere herein,
Frank's has determined its available net operating losses ("NOLs") on a
stand-alone basis from Holdings. As of the close of the Transactions, the
Company had NOLs of approximately $68 million which expire from fiscal 2008
through fiscal 2013. The Company's income tax liability is calculated as part
of the consolidated U.S. federal income tax returns of Holdings. As of
January 25, 1998, Holdings had additional NOLs of approximately $24 million
which expire from fiscal 2008 through fiscal 2013 and will also be available
to offset income generated by the Company provided that the Company files its
tax returns as part of the consolidated U.S. federal income tax returns of
Holdings.
As a result of the Transactions, the tax status of such NOLs is
subject to limitations imposed by Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"), and as such their usage by Holdings is
currently estimated to be limited to $7.2 million per year. New management
expects to utilize such NOLs as the Company regains its profitability.
The Company projects future tax deductions, not subject to Section
382 of the Code, which are expected to result from the Transactions and the
use of the proceeds of the Offering of $16 million.
Capital Expenditures
The Company's capital expenditures were $4.4 million, $5.5 million
and $5.4 million in the fiscal years 1996, 1995 and 1994, respectively. The
majority of such capital expenditures in each of such fiscal years has been
for the refurbishment of the stores. The Company incurred approximately $12.4
million of expenditures in fiscal 1997 for various capital projects,
including investments in the new MIS, refurbishment of existing stores and
implementation of the new store concept by prior management.
Management anticipates that total capital expenditures for fiscal
1998 will be approximately $22 million. Such capital expenditures will be
made in connection with the implementation of the new MIS, refurbishment of
the existing stores and the new store opening program which is expected to
begin early in fiscal 1999.
52
<PAGE>
Inflation
Inflation has been modest in recent years and has not had a
significant effect on the Company. If merchandise costs were to increase
because of inflation, management believes such increases could be recovered
through higher selling prices, as virtually all retailers would be similarly
affected.
53
<PAGE>
BUSINESS
Overview
The Company operates the largest chain in the United States of
specialty retail stores devoted to the sale of lawn and garden products. In
addition, the Company sells dried and artificial flowers and arrangements,
Christmas merchandise, crafts and pet supplies. As of January 25, 1998, the
Company operated 256 retail stores located in 15 states primarily in the East
and Midwest regions of the country under the name Frank's Nursery & Crafts
(Registered Trademark). The Company derives approximately 80% of its sales
from its core business lines, which include lawn and garden products, related
home decor merchandise such as dried and artificial flowers and Christmas
merchandise. For fiscal 1997, the Company generated sales and Adjusted EBITDA
of $530.0 million and $36.5 million, respectively.
The Company was organized in 1957. Holdings acquired the Company in
1983 with the objective of developing the first national chain of lawn and
garden stores. At the time of the acquisition, Frank's had 95 stores
principally located in the Midwest. Since 1983, the Company has built, leased
or acquired a net of 161 stores in existing and new markets to become the
largest retail chain in the national lawn and garden industry. On
December 24, 1997, Holdings was acquired by Cypress and new senior management
with the strategic objective of positioning Frank's as the leading specialty
retailer in the lawn and garden arena. Frank's represents Holdings' sole
operating subsidiary.
The Company's principal executive offices are located at 1175 West
Long Lake Road, Troy, Michigan 48098 and its telephone number is (248) 712-
7000.
Company Strengths
The Company believes that its main competitive strengths include its
experienced new management team, its well-positioned specialty retailing
concept, its strong competitive position and the increased liquidity provided
by its new capital structure.
New Management Team with Proven Track Record. The Company's new
management team is led by its new Chairman, Chief Executive Officer and
President, Joseph R. Baczko, who was formerly President and Chief Operating
Officer at Blockbuster Entertainment Corp. ("Blockbuster") (1991-1992) and
the initial President of the International Division of Toys "R" Us, Inc.
("Toys "R" Us International") (1983-1991). At Blockbuster, Mr. Baczko oversaw
system-wide revenue growth from approximately $1.1 billion to approximately
$2.0 billion, and during his eight years with Toys "R" Us International,
system-wide sales expanded to approximately $800 million. To assist him in
leading the Company, Mr. Baczko has re-assembled his senior management team
from Toys "R" Us International, including Adam Szopinski as Chief Operating
Officer and Larry T. Lakin as Chief Financial Officer, both of whom served in
their respective functions under Mr. Baczko while at Toys "R" Us
International. This new management team has worked successfully together in
54
<PAGE>
the past and possesses, on average, 29 years of specialty retailing and
general management experience.
Well-Positioned to Capitalize on Favorable Industry Fundamentals.
The Company believes it has a strong existing operating base in a popular and
growing market segment. A recent study by the National Gardening Association
indicates that nearly two-thirds of all U.S. households participate in one or
more types of lawn and garden activities, ranking such leisure activities
among the most popular in the U.S. According to industry studies, adults
between the ages of 45 and 64 are the most frequent participants in the lawn
and garden market, and the U.S. Census Bureau expects the percentage of
Americans in this age bracket to increase from 19.9% in 1995 to 25.3% in
2005. In addition, management believes that Frank's merchandise selection is
characterized by relatively "high-maintenance" and low cost products with the
capacity to generate a significant level of ancillary purchases and a
relatively low exposure to fashion risk. As the country's largest specialty
retailer dedicated to this category, the Company is well-positioned to
capitalize on these trends and characteristics.
Well-Established Competitive Position. New management believes that
the Company is well-positioned within the lawn and garden industry.
Competition in the lawn and garden retailing industry is comprised of
traditional nationwide "big box" retailing chains, on the one hand, and
local, often family-run, garden centers on the other. Unlike the price-driven
competitive model of the "big box" retailers, the Company's business model
focuses on a broad product offering, high quality merchandise, value-added
customer service and the convenience of shopping in a smaller format
specialty store. The Company believes that such differentiating factors
create a basis for successful competition with "big box" home centers. In
addition, as the nation's largest specialty lawn and garden retailer, the
Company believes it successfully takes advantage of the economies of scale
associated with purchasing, advertising, distribution and brand name to
compete with locally-owned garden centers.
Increased Liquidity. New management believes that the Company has
been subject to capital constraints that have significantly hindered its
growth and operating performance. As a result of the Transactions, the
Company's prior $20 million revolving credit facility was replaced with a new
$110 million revolving credit facility which provides significant added
liquidity to support the new management team's strategic objectives.
Additionally, Holdings was acquired with a cash equity investment of $166
million which represents approximately 45% of the sources of funds used in
the Transactions and the Offering.
Company Strategy
The Company plans to build on its core competencies in plants and
gardening and its current market position to become the leading national
specialty retailer of lawn and garden products. Management intends to
systematically accomplish this objective by: (i) rationalizing the Company's
current cost structure, (ii) implementing a store refurbishment program
covering all existing 256 stores, (iii) increasing overall inventory levels,
<PAGE>
(iv) further focusing its merchandising strategy on its core lawn and garden
theme and (v) increasing market penetration and expanding geographically
through the selective opening and/or acquisition of new store locations.
Rationalize Cost Structure. Since closing the acquisition on
December 24, 1997, the Company's new management team has identified and
principally affected annual cost savings of approximately $13.1 million
through: (i) reduction of corporate overhead related to the closing of
Holdings' headquarters in Stamford, Connecticut, (ii) streamlining and
reduction of field supervision and store-level management, (iii) replacement
of the Company's insurance policies with new lower premium plans providing
for substantially similar coverages, (iv) elimination of expenditures
incurred by prior management to build and promote a new store concept,
(v) termination of the temporary mall-based Christmas stores and realization
of savings from several previous and two additional store closings and
(vi) expense reductions associated with the consolidation of its distribution
facilities implemented in late fiscal 1996 and early fiscal 1997.
Implement Store Refurbishment Program. Management expects to
refurbish all of Frank's existing 256 store locations. This refurbishment is
expected to occur over a three-year period by investing an average of $75,000
per store to improve overall store presentation, layout, signage and
fixturing. Management expects to implement this refurbishment program by
initially focusing on markets where the Company enjoys high market
penetration and brand awareness as well as stores where demographic
characteristics, traffic conditions and the competitive environment are
especially attractive.
Increase Overall Inventory Levels. Largely due to capital
constraints beginning in late fiscal 1995, the Company's purchases of new
inventory dropped by approximately 15.6% in fiscal 1996. Management believes
that this decrease contributed to the Company's significant decline in fiscal
1996 comparable store sales. During fiscal 1997, the Company's purchases of
inventory increased approximately 4.6% over fiscal 1996. New management
intends to raise overall inventory levels through a one-time increase of
approximately $50,000 per store, representing an increase of 14.5% versus
average inventory levels during the latest twelve months.
Focus Merchandising Strategy on Lawn and Garden Theme. The Company's
new merchandising strategy will build upon Frank's core lawn and garden
competencies. Management expects to (i) enhance and enlarge both indoor and
outdoor live plant categories and introduce more specialized assortments,
(ii) increase the variety of gardening tools, aids and accessories,
(iii) expand Frank's own private label program, (iv) provide ancillary
services such as in-store consultation and educational programs geared
towards the gardening enthusiast and (v) broaden and enhance the presentation
of the Company's dried and artificial flowers and arrangements and Christmas
trim-a-tree businesses. In addition, new management expects to re-merchandise
portions of the crafts and pet supplies product categories to make them more
complementary to the Company's core lawn and garden theme.
56
<PAGE>
Pursue Increased Market Penetration and Geographic Expansion. The
Company intends to focus solely on improving the operations of its existing
store base in fiscal 1998. Management currently expects to selectively pursue
a new store opening program beginning in fiscal 1999. The Company believes
that increased penetration and expansion will result in significant sales
growth and allow the Company to further realize economies of scale associated
with advertising, distribution, operations and brand name recognition.
Additionally, management will selectively review acquisition opportunities of
local and regional operators to complement its store expansion strategy.
Industry Overview
Summary. The national lawn and garden market is seasonal, highly
fragmented and generally non-branded, consisting of thousands of local garden
centers and mass merchandisers who sell lawn and garden products as part of
their overall product lines. According to Nursery Retailer, the overall
retail market for lawn and garden products, defined to include green goods,
fertilizers, gardening accessories, lawn furniture, Christmas merchandise and
snow removal, power and watering equipment, was approximately $71.2 billion
in 1996 and approximately $76.5 billion in 1997, representing a 7.4% growth
over 1996. Furthermore, between 1987 and 1997 the industry experienced an
8.6% compound annual growth rate.
Competition. The United States lawn and garden retail market is highly
fragmented, with the top ten competitors accounting for approximately 10% of
1996 industry-wide sales. During the past several years, hardware warehouses
and home centers have entered the lawn and garden market due to the
attractive margins and growth rates. Nursery Retailer estimates that hardware
warehouses and home centers are taking market share primarily at the expense
of mass merchandisers, local hardware stores and supermarkets. Additionally,
because consumers are increasingly demanding greater service, selection,
variety and material sizes, Nursery Retailer also estimates that competitors
best positioned to offer such amenities should gain market share.
Marketing Channels / Distribution. Approximately 36% of all 1996 lawn
and garden market sales were generated in the warehouse club / chain store /
mass market channel, 32% in the hardware store / home center / hardware
warehouse channel and 32% in the lawn and garden center / nursery / farm
store channel. Approximately 60% of all lawn and garden products sold in 1996
were distributed through a direct (one-step) method of distribution to the
retailer from the manufacturer or grower, and approximately 40% arrived at
retail through distributors (two-step distribution).
Widespread Popularity and Favorable Demographics. Gardening enjoys a
highly favorable demographic profile in that it is one of the most popular
leisure activities in the United States. According to the 1996-1997 National
Gardening Survey, 64% of the approximately 101 million U.S. households
participated in some form of gardening activity in 1996. According to
industry studies, adults between the ages of 45 and 64 are the most frequent
participants in the lawn and garden market, and the U.S. Census Bureau
expects the percentage of Americans in this age bracket to increase from
19.9% in 1995 to 25.3% in 2005.
57
<PAGE>
Product Categories and Strategic Enhancements
The following chart illustrates the Company's fiscal 1997 sales by
product category:
Sales by Product Category
(dollars in millions)
<TABLE>
<CAPTION>
Product Category Sales % of Sales Description
- ---------------- ----- ---------- -----------
<S> <C> <C> <C>
Lawn and Garden . . . . $294.0 55.5% Roses, potted plants, annual and perennial
flowering plants, trees, shrubs, fertilizers,
seeds and bulbs, mulches, plant accessories,
hoses and gardening tools and equipment
Floral . . . . . . . . 59.8 11.3 Dried, silk and acrylic flowers and arrangements
Christmas . . . . . . . 70.1 13.1 Artificial Christmas trees, decorations and
trimmings
Crafts . . . . . . . . 85.6 16.2 Yarns, macrame, art supplies, needlework, candles
and wood crafts
Pet Supplies . . . . . 20.5 3.9 Bird houses, feeders, seeds and accessories
----- ------
Total $530.0 100.0%
===== ======
</TABLE>
Management intends to execute specific strategic enhancements to the
Company's current product categories designed to build upon its existing
strengths.
Lawn and Garden. As the nation's largest specialty retailer of lawn and
garden products, the Company enjoys a strong franchise in the lawn and garden
business. The Company offers customers one of the widest selections of live
plants in the industry. In addition, the Company markets its own line of
private label lawn and garden products under the Frank's name.
The Company intends to build on the live plant category and introduce
deeper and more specialized and differentiated assortments on a year-round
basis. Similarly, the assortment of gardening tools, aids and accessories
will be increased. The Company also intends to grow Frank's private label
products in gardening tools, potting soil, fertilizers and related
merchandise. Finally, management intends to upgrade its service level to
cater more to the gardening enthusiast, with the added intention of tying
58
<PAGE>
sales of ancillary lawn and garden products to the purchase of live plants by
offering in-store demonstrations and take-home instructions.
Floral. The Company's floral products include dried and artificial
flowers and arrangements. Such floral products exhibit high inventory
turnover, excellent sales productivity, strong operating margins and low
seasonality. Importantly, the floral category ties in closely with the
Company's emphasis on the lawn and garden market and related home decor
merchandise.
The Company plans to improve its current in-store floral
presentation. Additionally, the Company will enhance its current service
level to assist customers more closely in developing their own unique floral
arrangements. Management expects the floral category to be a growth area for
the Company.
Christmas. During the Christmas holiday season, the Company's second
most important selling season after spring, the Company transforms
substantial portions of its stores into Christmas layouts and offers a broad
selection of seasonal merchandise for the holiday season and Christmas
decoration. The Company believes that it is the largest retailer of live
Christmas trees in the United States, selling in excess of 200,000 trees in
1997. In addition, the Company provides a large selection of artificial
trees, wreathes, and holiday plants as well as a wide array of trim-a-tree
items.
The Company plans to discontinue the operation of its temporary
mall-based Christmas boutiques under the name "Christmas by Frank's" in order
to concentrate on in-store Christmas presentations. Management will also
upgrade and expand the trim-a-tree business by offering a more diverse and
richer assortment of products to be displayed using an enhanced presentation
layout.
Crafts. The Company's crafts business provides a steady stream of
revenues throughout the year. The Company intends to re-merchandise the
crafts product category by narrowing the assortment range and re-focusing the
merchandise to better complement its lawn and garden theme.
Pet Supplies. Management believes the sale of pet supplies is a natural
complement to the Company's lawn and garden product offerings. The Company
intends to eliminate basic (dog and cat) pet foods and re-focus its pet
product line to focus on wild-bird related products, such as feeders, seeds
and bird houses which are more complementary to its lawn and garden theme.
Store Operations and Management
The Company's 256 stores average approximately 15,000 square feet of
indoor selling space and on average an equal amount of outdoor selling space
which is primarily closed during the winter months. The stores are primarily
free-standing and/or located adjacent to or near strip shopping centers. The
Company's stores are open 80 hours per week, with the average store opening
at 9 a.m. and closing at 9 p.m.
59
<PAGE>
The average store has approximately 20-25 part- and full-time
employees, including a store manager, an assistant manager and up to six
department managers responsible for the various product lines. The in-store
staff is generally supplemented at seasonal peaks by temporary employees.
Advertising and Marketing
For fiscal 1997, the Company spent $25.5 million, or 4.8% of sales,
on advertising and marketing. New management expects to increase its
advertising budget modestly for fiscal 1998.
Distribution
During fiscal years 1996 and 1997, the Company consolidated its
distribution centers by closing its facilities in Detroit and Chicago and
opening a new facility in Howe, Indiana. The Company also operates a
distribution center in Harrisburg, Pennsylvania.
In fiscal 1997, the Company's distribution facilities delivered
approximately 50% of all merchandise, principally bulk, crafts and Christmas
items, to the stores primarily using contract carriers. The balance of the
Company's products, primarily live goods, are delivered directly to the
stores by regional and local outside vendors.
Properties
In March 1998, the Company moved its headquarters to Troy, Michigan.
The Company's headquarters measure approximately 27,000 square feet and are
subject to a lease which expires in September 2007.
The Company currently leases a 292,300 square foot distribution
facility in Harrisburg, Pennsylvania as well as a 346,515 square foot
facility in Howe, Indiana. The lease on the Harrisburg facility expires in
March 2002, with one five-year renewal option. The Howe property carries a
lease expiring in June 2002 with two five-year renewal options.
As of January 25, 1998, the Company operated 256 Frank's stores, 117
of which were leased and 139 were owned (40 of which are subject to ground
leases). The following is a summary of store properties by state:
<TABLE>
<CAPTION>
Number of Frank's Stores Per State
<S> <C>
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
New York . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . 18
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . 17
60
<PAGE>
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . 16
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . 15
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . 12
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . 7
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
===
</TABLE>
The Company owns three and leases eleven additional store locations
which were previously operated as Frank's stores. The Company is actively
engaged in the leasing, sub-leasing and releasing of these properties.
Vendors
The Company purchases its merchandise from approximately 1,200
outside vendors. Of the Company's total vendor purchases in fiscal 1997,
approximately $126 million, or 43.8%, came from its top 50 vendors, with no
single vendor representing more than 2.1% of overall purchases. Alternative
sources of supply are generally available for all products sold by the
Company. The Company intends to increase its product purchases, particularly
in the floral, Christmas and crafts product categories, from overseas
vendors.
Seasonality
The Company benefits from two distinct selling seasons--Spring and
the Christmas holiday season. The lawn and garden market is fundamentally
seasonal, with the low point arriving during the winter months and the high
point being the spring planting season of April through June, during which
nearly 40% of the Company's annual sales occur.
Employees
In fiscal 1997, the Company's employee base (excluding employees at
the Company's temporary mall-based Christmas stores which are being
discontinued) ranged from a low of 6,500 employees in February to a high of
8,100 employees in May. The Company's entire employee base is non-unionized
and management considers its employee relations to be good.
Management Information System
To address the Year 2000 Issue, the Company is currently in the
process of implementing a new MIS at its headquarters. The Company has hired
outside consultants specializing in retailing MIS to implement the new
system. The implementation process entails transferring the headquarters from
a mainframe-based system to an IBM AS/400 computer system. The project is
already in process and is expected to be completed by the end of fiscal 1998.
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The Company's in-store MIS capabilities are adequate and are not directly
impacted by the implementation of the new home office system. These
capabilities include POS data capture, laser scanning and price look-up. The
Company believes it has adequately addressed the Year 2000 Issue as it
relates to its in-store systems. See "Risk Factors--Year 2000 Issue; Computer
System Upgrade".
Environmental Matters
The Company and its operations are subject to Environmental Laws. As
an owner/lessor or former owner/lessor of numerous properties, as well as a
seller of certain environmentally sensitive products such as herbicides and
pesticides, the Company has an inherent risk of liability under Environmental
Laws, including, for example, contamination that may have occurred in the
past on its current or former properties or as a result of its operations.
For example, prior to the Company's ownership/occupancy, some of the
Company's store locations were the site of uses such as car dealerships,
gasoline stations, or lumber yards. In addition, several of the Company's
stores are known to use (and others to have formerly used) underground tanks
for heating oil storage, and a facility in Detroit formerly used by the
Company as its headquarters has been, in connection with its sale by the
Company, the subject of investigation and remediation relating to underground
storage tanks formerly present and other environmental conditions. The
Company believes it complies in all material respects with applicable
Environmental Laws and does not anticipate any obligations with respect to
Environmental Laws that would have a material adverse effect on its
operations.
The Company may also be affected by Holdings' or Holdings' present or
former subsidiaries' liabilities and potential liabilities with respect to
Environmental Laws, which have been and may continue to be significant to
Holdings. Such liabilities could adversely affect the Company insofar as the
Company declares dividends to Holdings (subject to certain covenants in the
Indenture and the Senior Credit Facility) to discharge any such liability.
The Company believes, however, that it is unlikely to be held liable in any
claim that may be asserted against it for the liabilities or potential
liabilities of Holdings or Holdings' present or former subsidiaries under any
Environmental Law. See "Risk Factors--Environmental Matters".
Litigation
In the normal course of business the Company is subject to various
claims. In the opinion of the Company, any ultimate liability arising from or
related to these claims should not have a material adverse effect on future
results of operations or the consolidated financial position of the Company.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Set forth below are the names, ages and positions of the persons
serving as the executive officers and directors of the Company. Each director
will hold office until the next annual meeting of shareholders and until the
director's successor is elected and qualified or until the earlier of the
director's death, resignation or removal.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joseph R. Baczko . . . . . . . . 52 Chairman of the Board of Directors,
Chief Executive Officer and President
Adam Szopinski . . . . . . . . . 52 Executive Vice President,
Chief Operating Officer and Director
Larry T. Lakin . . . . . . . . . 54 Executive Vice President,
Chief Financial Officer and Director
William C. Boyd . . . . . . . . . 67 Executive Vice President
J. Theodore Everingham . . . . . 58 Vice President, General Counsel and Secretary
David P. Spalding . . . . . . . . 43 Director
James A. Stern . . . . . . . . . 47 Director
Bahram Shirazi . . . . . . . . . 33 Director
</TABLE>
Joseph R. Baczko became Chairman of the Board, Chief Executive
Officer and President of the Company following consummation of the Tender
Offer after having been a private investor and consultant since 1993. From
1991 to 1992, Mr. Baczko served as President, Chief Operating Officer and
director of Blockbuster. Prior to joining Blockbuster, he was the initial
President of Toys "R" Us International from 1983 to 1991. At Blockbuster,
Mr. Baczko oversaw system-wide revenue growth from approximately $1.1 billion
to approximately $2.0 billion, and during his eight years with Toys "R" Us
International system-wide sales expanded to approximately $800 million.
Adam Szopinski became Executive Vice President, Chief Operating
Officer and director of the Company upon consummation of the Merger after
having served as the Vice President of Operations of Toys "R" Us
International since 1989. During his service as Vice President of Operations
for Toys "R" Us International, Mr. Szopinski was responsible for directing
the operational development of that company's $2.7 billion international
business extending across 27 countries and a total of 394 superstores.
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<PAGE>
Mr. Szopinski had been employed by Toys "R" Us in various positions of
increasing responsibility during the 22 years prior to assuming his role as
that company's Vice President of Operations in 1989.
Larry T. Lakin became the Company's Chief Financial Officer following
consummation of the Tender Offer, and was elected Executive Vice President
and director of the Company following consummation of the Merger. Mr. Lakin
previously served as the Chief Financial Officer and a principal of Shiara,
Inc. ("Shiara"), a private fragrance company and cosmetics venture, from
April 1994 to December 1997. Prior to Shiara, Mr. Lakin served as Vice
President of Finance and principal of River Road Distributors, Inc. from
November 1992 to March 1994. Previously, Mr. Lakin served as Chief Financial
Officer and/or Vice President of Finance of the international operations of
Faberge Inc., LJN Toys Ltd., Toys "R" Us International and Max Factor & Co.'s
international operations and Controller of Chrysler Corporation--France.
William C. Boyd has served as Executive Vice President of the Company
since June 1987 and prior thereto was employed by the Company in various
capacities since 1949.
J. Theodore Everingham has served as Vice President, General Counsel
and Secretary of the Company since July 1995. He was self-employed in the
private practice of law from January 1995 to July 1995 and was a partner of
the law firm of Dykema Gossett PLLC from April 1975 through December 1994.
David P. Spalding became a director of the Company upon consummation
of the Tender Offer, and has served as Vice Chairman of Cypress since its
formation in April 1994. Prior to joining Cypress, he was a Managing Director
in the Merchant Banking Group at Lehman Brothers Inc. from February 1991 to
April 1994. Prior to 1991 he was a Senior Vice President in the Merchant
Banking Group at Lehman Brothers Inc. Mr. Spalding is also a director of Lear
Corporation, AMTROL Inc. and Williams Scotsman, Inc.
James A. Stern became a director of the Company upon consummation of
the Tender Offer, and has been Chairman of Cypress since its formation in
April 1994. Prior to joining Cypress, Mr. Stern spent his entire career with
Lehman Brothers Inc., most recently as head of the Merchant Banking Group.
During his twenty years with Lehman Brothers, he also served as head of
Lehman's High Yield and Primary Capital Markets Groups, and was co-head of
Investment Banking. In addition, Mr. Stern was a member of Lehman's Operating
Committee. Mr. Stern is also a director of AMTROL Inc., Cinemark USA, Inc.,
Lear Corporation, Noel Group, Inc., R.P. Scherer Corporation, Genesis
ElderCare Corp., and a trustee of Tufts University.
Bahram Shirazi became a director of the Company upon consummation of
the Tender Offer, and has been a principal of Cypress since its formation in
April 1994. Prior to joining Cypress, he was a Vice President in the Merchant
Banking Group at Lehman Brothers Inc. from 1992 to 1994.
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<PAGE>
Compensation of Directors
The Company currently pays no compensation to its non-employee
directors, nor does it pay any additional remuneration to employees or
executive officers of the Company for serving as directors.
Compensation Committee Interlocks and Insider Participation; Compensation of
Executive Officers
The Company's newly formed compensation committee (the "Compensation
Committee") is comprised of three non-employee directors and will be
responsible for establishing the Company's executive compensation policies,
reviewing the compensation of officers and key employees, recommending and
approving changes in compensation and reviewing and recommending changes in
the Company's employee benefit programs and management succession plans. The
Compensation Committee currently consists of Messrs. Spalding, Stern and
Shirazi.
The annual base salaries of the Company's executive officers for
fiscal 1998 are as follows: Mr. Baczko, $500,000; Mr. Szopinski, $250,000;
Mr. Lakin, $250,000; Mr. Boyd, $163,000; and Mr. Everingham, $125,000.
Stock Option Grants
In connection with the Transactions, all options to acquire Holdings
Common Stock issued under Holdings' Amended and Restated 1986 Stock Incentive
Plan and its 1996 Stock Incentive Plan (collectively, the "Previous Stock
Option Plans") were modified to be exercisable solely for a cash amount equal
to the difference between each option's exercise price and the price paid for
each Former Share in the Merger. All modified options that were exercisable
for value have been exercised and paid. On February 6, 1998, the Company
terminated the Previous Stock Option Plans and cancelled all remaining
options issued thereunder. The Company and Holdings intend to implement a new
stock option plan.
Employment Agreements
The Company intends to enter into employment agreements with Messrs.
Baczko, Szopinski and Lakin. It is expected that these agreements will
address typical employment issues including compensation, termination and the
executives' ability to compete with the Company.
Severance Agreements
Prior to the consummation of the Transactions, Holdings had entered
into a severance agreement with Mr. Everingham, the Vice President, General
Counsel and Secretary of Holdings and the Company. Under the severance
agreement Holdings has agreed to pay Mr. Everingham a lump sum equal to half
of his annual base salary if, within one year following the Merger,
Mr. Everingham either is terminated by Holdings without Cause (as defined
therein) or he terminates his employment with Holdings for Good Reason (as
defined therein) (a "Qualifying Termination"). Under the severance agreement
65
<PAGE>
Holdings also has agreed to provide continuing medical insurance benefits to
Mr. Everingham for a period of one year should a Qualifying Termination
occur.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by
Holdings. The authorized capital stock of Holdings consists of 100,000,000
shares of Holdings Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 per share. As of April 1, 1998, 1,660 shares of Holdings Common
Stock and no shares of preferred stock were issued and outstanding on a fully
diluted basis.
The following table sets forth certain information as to the
beneficial ownership of Holdings Common Stock as of April 1, 1998 by (i)
owners of more than 5% of the outstanding shares of Holdings Common Stock,
(ii) each executive officer and director of Holdings, and (iii) all executive
officers and directors of Holdings, as a group. Except as indicated in the
footnotes to this table, the Company believes that the persons named in the
table have sole voting and investment power with respect to all shares shown
as beneficially owned by them.
[CAPTION]
<TABLE>
Shares Of Holdings Common Stock
--------------------------------------------
Amount Percentage
Beneficially of
Owned<F2> Class
Beneficial Owners --------------------- ----------------------
<S> <C> <C>
Principal Shareholders:
Cypress Merchant Banking Partners L.P.<F3> . . . . . . . 1,568.7482 94.5%
c/o The Cypress Group L.L.C.
65 East 55th Street
New York, New York 10022
Cypress Offshore Partners L.P.<F3><F4> . . . . . . . . . 81.2518 4.9%
c/o The Cypress Group L.L.C.
65 East 55th Street
New York, New York 10022
Executive Officers and Directors:
Joseph R. Baczko . . . . . . . . . . . . . . . . . . . . 10.0000 <F1>
Adam Szopinski . . . . . . . . . . . . . . . . . . . . . -- --
Larry T. Lakin . . . . . . . . . . . . . . . . . . . . . -- --
William C. Boyd . . . . . . . . . . . . . . . . . . . . -- --
J. Theodore Everingham . . . . . . . . . . . . . . . . . -- --
David P. Spalding<F3> . . . . . . . . . . . . . . . . . -- --
James A. Stern<F3> . . . . . . . . . . . . . . . . . . . -- --
Bahram Shirazi . . . . . . . . . . . . . . . . . . . . . -- --
All executive officers and directors as a group (8 persons) 10.0000 <F1>
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<PAGE>
____________________
<FN>
<F1> Represents holdings of less than 1%.
<F2> The amounts and percentage of Holdings Common Stock beneficially owned
are reported on the basis of rules and regulations of the Commission
governing the determination of beneficial ownership of securities.
Under such rules and regulations, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of
such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities which that
person has a right to acquire beneficial ownership of within 60 days.
Under these rules and regulations, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed
to be a beneficial owner of securities in which he has no economic
interest.
<F3> Cypress Offshore and CMBP are affiliates of Cypress. Messrs. Spalding
and Stern are members of Cypress and may be deemed to share beneficial
ownership of the shares of Holdings Common Stock shown as beneficially
owned by the Cypress Funds. Both of such individuals disclaim
beneficial ownership of such shares.
<F4> Cypress Offshore owns its interest in Holdings through its wholly
owned subsidiary, Cypress Garden Ltd.
</TABLE>
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The summary of the following agreements does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
the agreements summarized below, including the definitions therein of certain
terms.
Certain Fees Relating to the Transactions
Pursuant to an agreement entered into on January 6, 1998 between
Acquisition Corp. and Cypress Advisors Inc., an affiliate of Cypress,
Holdings (as successor by merger to Acquisition Corp.) has paid Cypress
Advisors Inc. $4.5 million in fees for providing services relating to the
consummation of the Tender Offer, Merger, Senior Credit Facility, certain
related transactions and the Offering. Cypress Advisors Inc. is also entitled
to receive reimbursement for all expenses reasonably incurred by it in
connection with the Transactions and the Offering.
Preceding his election as an executive officer of the Company,
Mr. Baczko served as a consultant to Cypress and Acquisition Corp. in
connection with the Transactions. In consideration thereof, Acquisition Corp.
paid approximately $0.5 million to Mr. Baczko. Additionally, in connection
with the Transactions, Mr. Szopinski received a signing bonus of
approximately $0.2 million from Acquisition Corp.
Indemnification Agreement
Pursuant to a letter agreement dated December 19, 1997, Acquisition
Corp. agreed to indemnify the Cypress Funds and their directors, officers and
limited partners against any losses or liabilities incurred by them which
arise out of or are based upon the Tender Offer, the Schedule 14D-1 filed
with the Commission in connection with the Tender Offer and any other
transactions contemplated by the Schedule 14D-1. As successor by merger to
Acquisition Corp., Holdings is bound by the terms of the indemnification
agreement.
Registration Rights Agreement
Pursuant to a registration rights agreement dated as of December 23,
1997 (the "Investor Registration Rights Agreement"), CMBP and Cypress Garden
Ltd. (collectively, the "Cypress Entities") and any of their direct or
indirect transferees have the right, under certain circumstances and subject
to certain conditions, to request that Holdings (as successor by merger to
Acquisition Corp.) register under the Securities Act shares of Holdings
Common Stock held by them. Subject to certain conditions and exceptions, the
Cypress Entities and their transferees also have the right to require that
the shares of Holdings Common Stock held by them be included in any
registration under the Securities Act commenced by Holdings. The Investor
Registration Rights Agreement provides that Holdings will pay all expenses in
connection with the first six registrations requested by the Cypress Entities
and in connection with any unrequested registration undertaken by Holdings.
The agreement also provides that Holdings will indemnify sellers of Holdings
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<PAGE>
Common Stock and their affiliates for any liability they might incur under
the securities laws based on a material untrue statement or omission
contained in the registration statement or prospectus unless such
misstatement or omission was made in reliance on written information provided
by the seller to Holdings specifically for use in the registration statement
or prospectus.
Management Stockholders Agreement
Holdings intends to enter into a stockholders agreement (the
"Stockholders Agreement") with Mr. Baczko, the Company's new Chairman, CEO
and President, in connection with his ownership of Holdings Common Stock.
Among other things, the Stockholders Agreement is expected to provide for
purchase and sale rights in the event that Mr. Baczko is no longer employed
by the Company and Holdings and to place restrictions on the transfer of
shares of Holdings Common Stock held by Mr. Baczko. The Stockholders
Agreement will also grant Mr. Baczko certain registration rights under, and
bind Mr. Baczko to certain of the conditions and obligations of, the Investor
Registration Rights Agreement, provided that Mr. Baczko will not have demand
registration rights.
Sale Participation Agreement
The Cypress Entities intend to enter into a sale participation
agreement (the "Sale Participation Agreement") with Mr. Baczko in connection
with his ownership of Holdings Common Stock. Among other things, the Sale
Participation Agreement is expected to contain customary tag-along and
drag-along rights relating to the rights and obligations of Mr. Baczko to
include his shares of Holdings Common Stock in sales of Holdings Common Stock
by the Cypress Entities.
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<PAGE>
OTHER INDEBTEDNESS
The following are summaries of the material terms and conditions of
the Senior Credit Facility and certain other indebtedness and do not purport
to be complete and are qualified in their entirety by reference to the Senior
Credit Facility and the other agreements summarized below.
Senior Credit Facility
General. The Company has entered into a Senior Credit Facility dated as
of December 24, 1997 (the "Credit Facility Closing Date") with various banks
and financial institutions, including The Chase Manhattan Bank ("Chase"), as
bank lender and administrative agent for the bank lenders party thereto, and
Goldman Sachs Credit Partners L.P. ("Credit Partners"), as bank lender and
documentation agent. The agreement provides for (i) a Term Loan Facility for
up to $85 million in term loans available during the period ending 120 days
after the Credit Facility Closing Date and (ii) a Revolving Credit Facility
for up to an aggregate of $110 million in revolving credit loans and letters
of credit, with outstanding letters of credit not to exceed $25 million. In
connection with the Offering, the Company reduced commitments available under
the Term Loan Facility to $25 million from $85 million.
Use of Facility. The Term Loan Facility may be used, in general and
subject to specified limitations on amounts: (i) to refinance a portion of
the Holdings Notes, (ii) to refinance a portion of the Company's existing
mortgages as necessary, (iii) to satisfy certain financial obligations under
the former Chairman's employment agreement, (iv) to cover costs relating to
the exercise of appraisal rights and options in connection with the
Transactions, (v) to cover other transaction costs associated with the
Transactions and (vi) for general corporate purposes. The Revolving Credit
Facility may be used to repay a portion of the Company's existing
indebtedness and for general corporate purposes. Letters of credit may be
issued only for general corporate purposes.
Security, Guarantees. The Company's obligations under the Senior Credit
Facility are unconditionally guaranteed by Holdings and certain existing and
subsequently acquired direct and indirect subsidiaries of Holdings. The
Senior Credit Facility and guarantees are secured by substantially all of the
assets of Holdings, the Company and certain existing and subsequently
acquired direct and indirect subsidiaries of Holdings; such assets include
real property not subject to other mortgages, personal property (including
inventory) and the capital stock of the Company and Holdings' other direct
and indirect subsidiaries.
Maturity. Term loans provided pursuant to the Term Loan Facility mature
seven years after the Credit Facility Closing Date. The Term Loan Facility
will amortize in equal quarterly installments beginning in fiscal 1999 in an
aggregate amount equal to 8.8% of the aggregate Term Loan Facility amount and
increasing at each anniversary. Subsequent annual amortization will be 10.6%,
12.9%, 14.7%, 20.6% and 32.4% for fiscal years 2000, 2001, 2002, 2003 and
2004, respectively, subject to prepayment as described below. Revolving
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<PAGE>
credit loans obtained pursuant to the Revolving Credit Facility mature six
years after the Credit Facility Closing Date.
Interest. Term loans provided pursuant to the Term Loan Facility will
bear interest, at the Company's election, at an annual rate equal to the
Adjusted LIBO Rate (as defined therein) plus 2.50% or Alternative Base Rate
(as defined therein) plus 1.50%, provided that such margins may be reduced if
the Company meets certain senior leverage ratio tests. Revolving credit loans
obtained pursuant to the Revolving Credit Facility bear interest, at the
Company's election, at an annual rate equal to the Adjusted LIBO Rate (as
defined therein) plus 2.25% or Alternative Base Rate (as defined therein)
plus 1.25%, provided that such margins may be reduced if the Company meets
certain senior leverage ratio tests. The Alternate Base Rate is the highest
of Chase's Prime Rate (as defined therein), the Federal Funds Effective Rate
(as defined therein) plus 0.50% and the Base CD Rate (as defined therein)
plus 1.00%. Adjusted LIBO Rate and the Base CD Rate will at all times include
statutory reserves (and, in the case of the Base CD Rate, FDIC assessment
rates).
Fees. The Company is required to pay the lenders a commitment fee equal
to 0.50% per annum on the undrawn portion of the commitments in respect to
the Term Loan Facility and the Revolving Credit Facility, with such fee
commencing to accrue on the Credit Facility Closing Date and payable
quarterly in arrears after the Credit Facility Closing Date. The Company also
is required to pay a letter of credit fee on the face amount of all
outstanding letters of credit at an annual rate up to the applicable margin
on Eurodollar Loans under the Revolving Credit Facility then in effect plus a
fronting fee equal to 0.25% per annum, payable quarterly, on the face amount
of each letter of credit. All commitment fees, letter of credit fees and
fronting fees are computed on the basis of a year of 360 days and are payable
for the actual number of days elapsed.
Prepayments. Borrowings under the Term Loan Facility, in general, must
be prepaid with (i) 75% of excess cash flow, subject to reduction based on
the senior leverage ratio of the Company, (ii) 100% of the net cash proceeds
of certain non-ordinary-course asset sales or other dispositions of property
(including by casualty) by Holdings, the Company's or Holdings' existing and
subsequently acquired direct and indirect subsidiaries not reinvested in the
Company's business (subject to limited exceptions) and (iii) 100% of the net
cash proceeds of certain issuances of equity and debt obligations of Holdings
or the Company or their subsidiaries. In addition, the Company must repay all
borrowings under the Revolving Credit Facility and refrain from taking
additional revolving credit loans to the extent necessary in order that there
be a period of at least 30 consecutive days in each fiscal year of Holdings
during which no borrowings under the Revolving Credit Facility are
outstanding. Subject to these provisions, term loans and revolving credit
loans may be prepaid at any time at the option of the Company.
Covenants. The Senior Credit Facility includes customary types of
affirmative covenants including those that require the Company to (i) provide
certain financial information to the lenders, (ii) maintain all rights,
privileges and permits material to the conduct of its business, (iii) give
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<PAGE>
notice of the occurrence of certain material events, (iv) maintain its
material property and adequate insurance, (v) keep proper account of all
transactions material to its business, (vi) allow the lenders to inspect its
records and properties and (vii) comply with laws.
The Senior Credit Facility also includes customary types of negative
covenants applicable to the Company Holdings and their subsidiaries including
limitations on certain types of indebtedness, liens, guarantees, loans,
dividends, redemptions of debt and capital stock, mergers, asset sales,
investments, capital expenditures, amendments to or waivers of the terms of
other material indebtedness (including the Notes) and transactions with
affiliates.
Ratios. The Senior Credit Facility requires that the Company and
Holdings comply with certain financial tests, including a maximum
consolidated debt to consolidated EBITDA ratio and a minimum consolidated
EBITDA to consolidated net cash interest expense ratio.
Events of Default. The Senior Credit Facility contains customary types
of events of default including defaults relating to material breach of a
representation, warranty or covenant contained therein, non-payment of
principal or interest, cross default and acceleration, bankruptcy, material
judgments, certain ERISA events, actual or asserted invalidity of any
guaranty or security document and change in control.
Mortgage Loans
As of January 25, 1998, an aggregate of approximately $19.2 million
was outstanding under 20 mortgage loans executed by the Company during 1995
and 1996 in favor of Midland Commercial Financing Corp. ("Midland") and
Midland Loan Services, L.P. Amounts outstanding under the Midland mortgage
loans bear interest at rates of either 8.31%, 8.70% or 9.28% per annum and
will mature in the years 2005 and 2006. The Midland mortgage loans are
secured by a total of 20 of the Company's store properties.
On April 22, 1996, the Company executed six mortgage loans in favor
of First Union National Bank of North Carolina ("First Union"). As of January
25, 1998, approximately $4.3 million was outstanding under the loans which
are secured by six of the Company's store properties. Amounts outstanding
under the First Union mortgages bear interest at rates of either 9.375% or
9.625% per annum and mature in April 2006. As a result of the Transactions,
the "change of control" default provisions under the First Union mortgages
were triggered. Consequently, there has been a default. This default has not
triggered and will not trigger any cross default provisions in the Senior
Credit Facility or in any other agreements relating to indebtedness of the
Company. First Union is currently in the process of evaluating the
Transactions. At the completion of such evaluation (expected to be completed
during the second quarter of fiscal 1998), if necessary, the Company will
refinance these mortgage loans with available borrowings under the Term Loan
Facility.
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On January 25, 1996, the Company executed six mortgage loans in favor
of People's Bank ("People's"). As of January 25, 1998, approximately
$4.6 million was outstanding under the loans which are secured by six of the
Company's store properties. Amounts outstanding under the People's mortgages
bear interest at 7.80% per annum and mature in February 2001.
On August 19, 1997, the Company executed a mortgage loan in favor of
National Realty Funding L.C. ("National Realty"). As of January 25, 1998,
approximately $1.6 million was outstanding under the loan which is secured by
a Company property located in Huntington, New York. Amounts outstanding under
the mortgage with National Realty bear interest at 9.10% per annum and mature
in September 2007.
Capital Leases
The Company has entered into capital leases covering approximately 40
real properties. The implicit interest rates under the leases vary between
9.3% and 18.2% and the leases expire between the years 1998 and 2011. As of
January 25, 1998, the capitalized obligations outstanding under the leases
totalled approximately $11.6 million.
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THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the Exchange Offer), to exchange up to
$115,000,000 aggregate principal amount of Exchange Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the
Old Notes.
As of the date of this Prospectus, $115,000,000 aggregate principal
amount of the Old Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998,
to all holders of Old Notes known to the Company. The Company's obligation
to accept Old Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions set forth under "--Termination" below. The Company
currently expects that each of the conditions will be satisfied and that
no waivers will be necessary.
Purpose of the Exchange Offer
In connection with the Offering, the purchasers of the Old Notes
became entitled to the benefits of certain registration rights. Pursuant to
the Registration Rights Agreement, the Company agreed to use its best efforts
to cause the Exchange Offer Registration Statement, of which this Prospectus
is a part, to become effective with respect to the Exchange Offer for the
Exchange Notes not later than 150 days after the date of the issuance of the
Old Notes and to consummate the Exchange Offer within 30 business days of the
Exchange Offer Registration Statement being declared effective. Subject to
the terms and conditions stated herein, all Old Notes validly tendered and
not withdrawn will be accepted for exchange upon consummation of the Exchange
Offer. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Exchange Offer Registration Statement of which this Prospectus
is a part.
If (i) the Exchange Offer is not permitted by applicable law or (ii)
any holder of Old Notes notifies the Company within 20 business days
following the consummation of the Exchange Offer that (A) it is prohibited by
law or Commission policy from participating in the Exchange Offer, (B) it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) it is a broker-dealer and owns Old Notes acquired
directly from the Company or an affiliate of the Company, the Company will be
required to file a Shelf Registration Statement to cover resales of the Notes
by the holders thereof.
If (i) the Company fails to file within 60 days of the closing of the
Offering, or cause to become effective within 150 days of the closing of the
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Offering, the Exchange Offer Registration Statement, or (ii) the Company is
obligated to provide a Shelf Registration Statement and such Shelf
Registration Statement is not filed within 30 days, or declared effective
within 150 days, of the date on which the Company became so obligated, or
(iii) the Company fails to consummate the Exchange Offer within 30 business
days of the date on which the Exchange Offer Registration Statement was
required to be declared effective by the Commission or (iv) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but shall thereafter cease to be effective or usable in
connection with resales of the Notes for the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv) above a "Registration Default"), then the Company shall pay to
each holder of Transfer Restricted Securities (as defined herein), with
respect to the first 90-day period following such Registration Default,
liquidated damages in an amount equal to $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by such holder. The
amount of such liquidated damages will increase by an additional $0.05 per
week per $1,000 in principal amount of Transfer Restricted Securities held by
such holders for each subsequent 90-day period until such Registration
Default has been cured, up to a maximum of $0.50 per week. Following the
cure of all Registration Defaults, the accrual of all liquidated damages will
cease.
The Exchange Offer shall be deemed consummated for purposes of the
Registration Rights Agreement upon the occurrence of (i) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the Exchange Notes, (ii) the maintenance of the
Exchange Offer Registration Statement continuously effective and the keeping
of the Exchange Offer open for a period not less than 20 business days and
(iii) the delivery by the Company to the Registrar under the Indenture of
Exchange Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes tendered by holders thereof pursuant to the
Exchange Offer.
Terms of the Exchange
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Old Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer in
denominations of $1,000 and integral multiples thereof. The Exchange Notes
have terms identical in all material respects to the terms of the Old Notes
except that the Exchange Notes have been registered under the Securities Act,
and therefore will not bear legends restricting their transfer and will not
contain certain provisions providing for registration rights and liquidated
damages relating to the Old Notes under certain circumstances described in
the Registration Rights Agreement, which provisions will terminate as to all
the Notes upon consummation of the Exchange Offer.
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The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions
of the Securities Act. Instead, based on no-action letters issued by the
staff of the Commission to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that the holder is
acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives Exchange Notes in exchange for Old
Notes held for its own account, as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, such broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such broker-dealer in connection with resales of
Exchange Notes where such Exchange Notes were acquired by such broker-dealer
as a result of market-making or trading activities. The Company has agreed
that for a period of 120 days after the consummation of the Exchange Offer it
will make this Prospectus and any amendment or supplement to this Prospectus
available to any such broker-dealer for use in connection with any such
resale. See "Plan of Distribution".
In connection with the issuance of the Old Notes, the Company
arranged for the Old Notes initially purchased by qualified institutional
buyers or in offshore transactions in reliance on Regulation S under the
Securities Act to be issued and transferable in book-entry form through the
facilities of DTC, acting as depositary. The Exchange Notes are also issuable
and transferable in book-entry form through DTC. See "Description of Exchange
Notes--Book-Entry, Delivery and Form".
The Company shall be deemed to have accepted validly tendered Old
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. See "--Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
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Exchange Notes from the Company and delivering Exchange Notes to such
holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
any such unaccepted Old Notes will be returned without expenses to the
tendering holder thereof as promptly as is practicable after the Expiration
Date.
Holders of Old Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all reasonable
charges and expenses, other than certain applicable taxes and counsel fees,
incurred in connection with the Exchange Offer. See "--Fees and Expenses".
Expiration Date; Extensions; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on
the Expiration Date. The term "Expiration Date" shall mean _______________
__, 1998 unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended. The Expiration Date will be at least 20
business days after the commencement of the Exchange Offer in accordance with
Rule 14e-1(a) under the Exchange Act. In order to extend the Expiration Date,
the Company will notify the Exchange Agent of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date. Such notice may state
that the Company is extending the Exchange Offer for a specified period of
time. During any such extension, all Old Notes previously tendered will
remain subject to the Exchange Offer unless properly withdrawn. The Company
does not anticipate extending the Expiration Date.
The Company expressly reserves the right (i) to delay acceptance of
the Old Notes, to extend the Exchange Offer or terminate the Exchange Offer
and refuse to accept Old Notes not previously accepted, if any of the
conditions set forth herein under "--Termination" shall have occurred and
shall not have been waived by the Company (if permitted to be waived by the
Company), by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (ii) to amend the terms of the
Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as is practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly
disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner to which the Company may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the Exchange Offer, the Company shall have no obligation to
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publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to the Dow Jones News Service.
Interest on the Exchange Notes
The Exchange Notes will bear interest from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from February 26, 1998, the date of
issuance of the Old Notes, payable semi-annually in arrears on March 1 and
September 1 of each year, commencing on September 1, 1998, at the rate of
10 1/4% per annum. Holders of Old Notes accepted for exchange will be deemed
to have waived the right to receive any payment in respect of interest on the
Old Notes accrued from February 26, 1998 until the date of the issuance of
the Exchange Notes. Consequently holders who exchange their Old Notes for
Exchange Notes will receive the same interest payment on September 1, 1998
(the first interest payment date with respect to the Old Notes and the
Exchange Notes) that they would have received had they not accepted the
Exchange Offer.
Procedures for Tendering
To tender in the Exchange Offer, a holder must properly complete,
sign and date the Letter of Transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes (unless such tender is being effected pursuant to
the procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at
its address set forth herein under "--Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of Old Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for the holders.
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The method of delivery of Old Notes and the Letters of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that
holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. NO LETTER OF TRANSMITTAL OR
OLD NOTES SHOULD BE SENT TO THE COMPANY.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. The term "holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Notes are held of record by DTC
who desires to deliver such Old Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder and properly instruct
such registered holder to tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from
the registered holder. The transfer of record ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office of correspondent in
the United States or an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such
person to tender the Old Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
the Company, evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of the tendered Old Notes will be
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determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under
any duty to give notification of defects or irregularities with respect to
tenders of Old Notes nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the Exchange Agent to the tendering holder of such Old Notes
unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company expressly reserves the right in its sole
discretion to (a) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under "--
Termination," to terminate the Exchange Offer and (b) to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or
offers may differ from the terms of the Exchange Offer.
By tendering, each holder of Old Notes will represent to the Company
that, among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the
holder, that neither the holder nor any other person has an arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and that neither the holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if an affiliate, such holder or such other person will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, or (ii) who cannot deliver their Old Notes,
the Letter of Transmittal, or any other required documents to the Exchange
Agent prior to the Expiration Date, or if such holder cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
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(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer and any other documents required by the Letter of Transmittal, will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a facsimile
transmission or letter notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) include a statement that the Depositor is withdrawing its
election to have Old Notes exchanged, and identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the Depositor in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to permit the Trustee with respect to the
Old Notes to register the transfer of such Old Notes into the name of the
Depositor withdrawing the tender and (iv) specify the name in which any such
Old Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of
receipt) for such withdrawal notices will be determined solely by the
Company, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
is practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be re-tendered by following
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one of the procedures described above under "--Procedures for Tendering" at
any time prior to the Expiration Date.
Termination
The Exchange Offer shall not be subject to any conditions, other than
(i) that the Exchange Offer does not violate applicable law or any applicable
interpretation of the staff of the Commission, (ii) that no action or
proceeding shall have been instituted or threatened in any court or by or
before any governmental agency or body with respect to the Exchange Offer and
(iii) that there shall not have been adopted or enacted any law, statute,
rule or regulation that would render the Exchange Offer illegal. There can be
no assurance that any such condition will not occur.
If the Company determines that it may terminate the Exchange Offer,
as set forth above, the Company may (i) refuse to accept any Old Notes and
return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date, subject to the rights of such holders of tendered Old Notes
to withdraw their tendered Old Notes, or (iii) waive such termination event
with respect to the Exchange Offer and accept all properly tendered Old Notes
that have not been withdrawn. If such waiver constitutes a material change in
the Exchange Offer, the Company will disclose such change by means of a
supplement to this Prospectus that will be distributed to each registered
holder of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the Old
Notes, if the Exchange Offer would otherwise expire during such period.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend
thereon. Old Notes not exchanged pursuant to the Exchange Offer will continue
to remain outstanding in accordance with their terms. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act.
Participation in the Exchange Offer is voluntary, and holders of Old
Notes should carefully consider whether to participate. Holders of Old Notes
are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to
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all the rights and limitations applicable thereto under the Indenture, except
for any such rights under the Registration Rights Agreement that by their
terms terminate or cease to have further effectiveness as a result of the
making of this Exchange Offer. All untendered Old Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms
of the Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company
has no present plan to acquire any Old Notes which are not tendered in the
Exchange Offer.
Exchange Agent
Bankers Trust Company, the Trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests
for assistance and inquiries for additional copies of this Prospectus or of
the Letter of Transmittal should be directed to the Exchange Agent addressed
as follows:
By Mail:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Securities Payment Unit
PO Box 291207
Nashville, TN 37229-1207
By Overnight Courier:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Securities Payment Unit
648 Grassmere Park Road
Nashville, TN 37211
By Hand Delivery:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Securities Payment Unit
123 Washington Street
1st Floor
New York, NY 10006
Facsimile Transmission:
(615) 835-3701
For Information Telephone:
(800) 735-7777
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Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer
will be borne by the Company. The principal solicitation for tenders pursuant
to the Exchange Offer is being made by mail. Additional solicitations may be
made by officers and regular employees of the Company and its affiliates in
person, by telegraph or telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services
and will reimburse the Exchange Agent for its reasonable out-of-pocket
expenses in connection therewith. The Company may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus, Letters of
Transmittal and related documents to the beneficial owners of the Old Notes
and in handling or forwarding tenders for exchange.
Reasonable expenses incurred in connection with the Exchange Offer,
including expenses of the Exchange Agent and Trustee and accounting and legal
fees, other than certain applicable taxes and counsel fees, will be paid by
the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the person signing
the Letter of Transmittal, and if a transfer tax is imposed for any reason
other than the exchange of Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder
or any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
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DESCRIPTION OF EXCHANGE NOTES
General
The Old Notes were, and the Exchange Notes will be, issued pursuant
to the Indenture, dated as of February 26, 1998, between the Issuer and
Bankers Trust Company, as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture (which is filed as an exhibit to the
Exchange Offer Registration Statement and of which this Prospectus forms a
part) and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture will be made available as set forth under the caption "--Additional
Information". The definitions of certain terms used in the following summary
are set forth below under the caption "--Certain Definitions". For purposes
of this "Description of Exchange Notes", the term "Issuer" refers only to
Frank's Nursery & Crafts, Inc. and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Issuer and
will be subordinated in right of payment to all existing and future Senior
Debt of the Issuer. See "--Subordination". As of January 25, 1998, after
giving pro forma effect to the Transactions, the Offering and the application
of the proceeds therefrom, the Issuer would have had approximately $73.2
million of Senior Debt outstanding, including $30.3 million of outstanding
borrowings under the Senior Credit Facility. In addition, the Issuer would
have had $103.0 million of additional borrowings available under the Senior
Credit Facility. The Indenture permits the incurrence of additional
indebtedness, including additional Senior Debt, subject to certain
restrictions. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock".
As of the date of the Indenture, none of the Issuer's Subsidiaries
were Restricted Subsidiaries. Under certain circumstances, the Issuer will be
able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $250.0 million
and mature on March 1, 2008. An aggregate of $115,000,000 in principal amount
of Notes was issued pursuant to the Offering, and an aggregate of
$135,000,000 in principal amount of Notes may be issued in the future
(subject to the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock"). Interest on the
Notes will accrue at the rate of 10 1/4% per annum and will be payable
semi-annually in arrears on March 1 and September 1 of each year, commencing
on September 1, 1998, to Holders of record on the immediately preceding
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February 15 and August 15. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Principal of and premium
and interest, if any, on the Notes will be payable at the office or agency of
the Issuer maintained for such purpose within the City and State of New York
or, at the option of the Issuer, payment of interest, if any, may be made by
check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments of
principal, premium and interest, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Issuer will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Issuer,
the Issuer's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of
$1,000 and integral multiples thereof.
Subordination
The payment of principal of and premium and interest, if any, on the
Notes will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Debt of the Issuer, whether outstanding on the date of the Indenture
or thereafter incurred.
Upon any distribution to creditors of the Issuer in a liquidation or
dissolution of the Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its property, an
assignment for the benefit of creditors or any marshaling of the Issuer's
assets and liabilities, the holders of Senior Debt of the Issuer will be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt, regardless of whether such interest is an allowed claim in such
proceeding) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all Obligations with respect to
Senior Debt are paid in full, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive Permitted Junior Securities and payments made
from the trust described under the caption "--Legal Defeasance and Covenant
Defeasance").
The Issuer also may not make any payment upon or in respect of the
Notes (except in Permitted Junior Securities or from the trust described
under the caption "--Legal Defeasance and Covenant Defeasance") if (i) a
default in the payment of the principal of or premium or interest, if any, on
any Designated Senior Debt occurs and is continuing or (ii) any other default
occurs and is continuing with respect to any Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Issuer or the holders of such
Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in
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the case of a payment default, upon the date on which such default is cured
or waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated. No new period of
payment blockage may be commenced unless and until 360 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 180 consecutive days.
The Indenture further requires that the Issuer promptly notify
holders of Senior Debt if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Notes may recover less
ratably than creditors of the Issuer who are holders of Senior Debt. As of
January 25, 1998, after giving pro forma effect to the Transactions, the
Offering and the application of the proceeds therefrom, the Issuer would have
had approximately $73.2 million of Senior Debt outstanding. The Issuer will
be able to incur additional Senior Debt in the future, subject to certain
limitations. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock".
"Designated Senior Debt" means (i) so long as the Senior Bank Debt is
outstanding, any Indebtedness outstanding under the Senior Bank Debt and
(ii) at any time thereafter, any other Senior Debt or Guarantor Senior Debt
permitted under the Indenture the principal amount of which is $15.0 million
or more and that has been designated by the Issuer as "Designated Senior
Debt".
"Guarantor Senior Debt" means with respect to any Guarantor (i) all
Indebtedness of such Guarantor outstanding under Credit Facilities and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
Guarantor permitted to be incurred under the terms of the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is subordinated in right of payment to the Subsidiary Guarantee of
such Guarantor and (iii) all Obligations of such Guarantor with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing,
Guarantor Senior Debt will not include (a) any liability for federal, state,
local or other taxes owed or owing by such Guarantor, (b) any Indebtedness of
such Guarantor to any of its Subsidiaries or other Affiliates, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
"Permitted Junior Securities" means Equity Interests in the Issuer or
debt securities of the Issuer or the relevant Guarantor that are subordinated
to all Senior Debt (and any debt securities issued in exchange for Senior
Debt) or Guarantor Senior Debt (and any debt securities issued in exchange
for Guarantor Senior Debt), as applicable, to substantially the same extent
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as, or to a greater extent than, the Notes are subordinated to Senior Debt or
the Subsidiary Guarantees are subordinated to Guarantor Senior Debt, as
applicable, pursuant to the Indenture.
"Senior Bank Debt" means all Obligations under or in respect of the
Senior Credit Facility, together with any refunding, refinancing or
replacement, in whole or in part, of such Indebtedness.
"Senior Debt" of the Issuer means (i) all Indebtedness of the Issuer
outstanding under Credit Facilities and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of the Issuer permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right
of payment to the Notes and (iii) all Obligations of the Issuer with respect
to the foregoing. Notwithstanding anything to the contrary in the foregoing,
Senior Debt of the Issuer will not include (a) any liability for federal,
state, local or other taxes owed or owing by the Issuer, (b) any Indebtedness
of the Issuer to any of its Subsidiaries or other Affiliates, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the Issuer's option prior to March 1, 2003. Thereafter, the
Notes will be subject to redemption at any time or from time to time at the
option of the Issuer, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest, if any,
thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
- ---- -------------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . 105.125%
2004 . . . . . . . . . . . . . . . . . . . . . 102.562%
2005 and thereafter . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, prior to March 1, 2001, the Issuer may
redeem up to 35% of the aggregate principal amount of Notes originally issued
under the Indenture at a redemption price of 110.25% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with the net cash proceeds of one or more public offerings of Capital
Stock of (i) the Issuer or (ii) Holdings to the extent the net cash proceeds
thereof are (a) contributed to the Issuer as a capital contribution to the
common equity of the Issuer or (b) used to purchase Equity Interests of the
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Issuer (in either case, other than Disqualified Stock); provided that (i) at
least 65% of the aggregate principal amount of the Notes remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by
the Issuer and its Subsidiaries) and (ii) each such redemption shall occur
within 90 days after the date of the closing of any such offering of Capital
Stock of the Issuer.
Selection and Notice
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any,
on which the Notes are listed, or, if the Notes are not so listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption become
due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption
Except as set forth below under the caption "--Repurchase at the
Option of Holders", the Issuer is not required to make mandatory redemption
or sinking fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Issuer will be
obligated to make an offer (a "Change of Control Offer") to each Holder of
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, the Issuer will mail a notice to each
Holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 75 days
from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
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extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions
thereof being purchased by the Issuer. The Paying Agent will promptly mail to
each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Indenture provides that, prior to complying
with the provisions of this covenant, but in any event within 90 days
following a Change of Control, the Issuer will either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required
by this covenant. The Issuer will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except
as described above with respect to a Change of Control, the Indenture does
not contain provisions that permit the Holders of the Notes to require the
Issuer to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facility prohibits, and future credit agreements or
other agreements relating to Senior Debt to which the Issuer becomes a party
may prohibit, the Issuer from purchasing any Notes following a Change of
Control and provide that certain change of control events with respect to the
Issuer would constitute a default thereunder. In the event a Change of
Control occurs at a time when the Issuer is prohibited from purchasing Notes,
the Issuer could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If
the Issuer does not obtain such a consent or repay such borrowings, the
Issuer will remain prohibited from purchasing Notes. The Issuer's failure to
purchase tendered Notes following a Change of Control would constitute an
Event of Default under the Indenture which would, in turn, constitute a
default under the Senior Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes. See "--Subordination".
The Issuer will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control
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Offer made by the Issuer and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
Asset Sales
The Indenture provides that the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(i) the Issuer or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of
the consideration therefor received by the Issuer or such Restricted
Subsidiary is in the form of cash; provided that the amount of (a) any
liabilities (as shown on the Issuer's or such Restricted Subsidiary's most
recent balance sheet) of the Issuer or such Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Issuer or such Restricted Subsidiary from further liability and (b) any
securities, notes or other obligations received by the Issuer or such
Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Issuer or such
Restricted Subsidiary into cash (to the extent of the cash received) shall be
deemed to be cash for purposes of this provision.
Notwithstanding the immediately preceding paragraph, the Issuer and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraph if (i) the Issuer or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets or
other property sold, issued or otherwise disposed of (as evidenced by a
resolution of the Issuer's Board of Directors set forth in an Officers'
Certificate delivered to the Trustee), and (ii) at least 75% of the
consideration for such Asset Sale constitutes assets or other property of a
kind usable by the Issuer and its Restricted Subsidiaries in a Permitted
Business; provided that any consideration not constituting assets or property
of a kind usable by the Issuer and its Restricted Subsidiaries in a Permitted
Business on the date of such Asset Sale received by the Issuer or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Proceeds subject to the
provisions of the immediately succeeding paragraph.
Within 270 days of the receipt of any Net Proceeds from an Asset
Sale, the Issuer may apply such Net Proceeds, at its option, (i) to repay
Senior Debt (and to correspondingly reduce commitments with respect thereto
in the case of revolving borrowings) or (ii) to the acquisition of a
controlling interest in a Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, the Issuer may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
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Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Issuer will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Issuer may use any remaining Excess
Proceeds for any purpose not otherwise prohibited by the Indenture. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Issuer's or any of its Restricted Subsidiary's Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Issuer or any Restricted Subsidiary) or to any
direct or indirect holders of the Issuer's Equity Interests in their capacity
as such (other than dividends or distributions (a) payable in Equity
Interests (other than Disqualified Stock) of the Issuer or (b) to the Issuer
or any Wholly Owned Restricted Subsidiary of the Issuer); (ii) purchase,
redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Issuer) any Equity Interests of the Issuer or any direct or indirect parent
of the Issuer (other than any such Equity Interests owned by the Issuer or
any Wholly Owned Restricted Subsidiary of the Issuer); (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness of the Issuer or any Restricted Subsidiary
that is subordinated to the Notes, except a payment of interest or principal
at Stated Maturity; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Issuer would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
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covenant described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph),
is less than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Issuer for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Issuer's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Issuer as a contribution to its common equity
capital or from the issue or sale since the date of the Indenture of Equity
Interests of the Issuer (other than Disqualified Stock) or from the issue or
sale of Disqualified Stock or debt securities of the Issuer that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Issuer and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (iii) 50% of any
dividends received by the Issuer or a Wholly Owned Restricted Subsidiary
after the date of the Indenture from an Unrestricted Subsidiary of the
Issuer, to the extent that such dividends were not otherwise included in
Consolidated Net Income of the Issuer for such period, plus (iv) to the
extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount
of such Restricted Investment, plus (v) to the extent that any Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary after the date of the
Indenture, the fair market value of the Issuer's Investment in such
Subsidiary as of the date of such redesignation.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
the Indenture; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any Equity Interests of the Issuer or subordinated
Indebtedness of the Issuer or any Guarantor in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other Equity Interests of the Issuer (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Restricted Subsidiary of the Issuer to the holders of its
Equity Interests on a pro rata basis; (v) (a) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the
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Issuer or any Restricted Subsidiary of the Issuer held by any member of the
Issuer's (or any of its Restricted Subsidiaries') management or Board of
Directors pursuant to any management equity subscription agreement, stock
option agreement or other similar agreement and (b) the payment of dividends
to Holdings to permit Holdings to repurchase, redeem, or otherwise acquire or
retire for value any Equity Interests of Holdings or any Restricted
Subsidiary of Holdings held by any member of Holdings' (or any of its
Restricted Subsidiaries') management or Board of Directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction;
(vi) following the initial public offering of common stock of the Issuer or
Holdings, the payment of dividends by the Issuer in an aggregate amount in
any year not to exceed 6% of the aggregate net cash proceeds received by the
Issuer in connection with such initial public offering and any subsequent
public offering of common stock of the Issuer or Holdings; provided, however,
that no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (vii) repurchases of Capital Stock deemed
to occur upon exercise of stock options if such Capital Stock represents a
portion of the exercise price of such options; (viii) any payment by the
Issuer to Holdings to permit Holdings to pay any federal, state, local or
other taxes that are then actually due and owing by Holdings; (ix) the
payment of dividends to Holdings to the extent required to pay general
corporate and overhead expenses incurred by Holdings; provided that such
amounts shall not exceed $1.0 million in any twelve-month period; (x) the
payment of dividends to Holdings to permit Holdings to redeem its Senior
Notes and Convertible Notes; (xi) the payment of dividends to Holdings to
permit Holdings to pay any Merger Consideration and any transaction costs in
connection with the Transactions; provided that such amounts shall not exceed
$5.0 million in the aggregate; (xii) the payment of dividends to Holdings to
permit Holdings to pay financial advisory, financing, underwriting or
placement fees to Cypress and its Affiliates; (xiii) the payment of dividends
to Holdings to permit Holdings to pay any employment, noncompetition,
compensation or confidentiality arrangements entered into with its employees
in the ordinary course of business; (xiv) the payment of dividends to
Holdings to permit Holdings to pay fees and indemnities to directors and
officers of Holdings; and (xv) other Restricted Payments in an aggregate
amount not to exceed $10.0 million.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Issuer and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
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Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. If,
at any time, any Unrestricted Subsidiary would fail to meet the definition of
an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Issuer as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock", the Issuer shall
be in default of such covenant). The Board of Directors of the Issuer may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Issuer of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock", calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period and (ii) no
Default or Event of Default would be in existence immediately following such
designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuer will not, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) or issue
any shares of Disqualified Stock and will not permit any of its Subsidiaries
to incur Indebtedness or issue shares of preferred stock; provided, however,
that, so long as no Default or Event of Default has occurred and is
continuing, the Issuer may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Issuer's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred or the Disqualified Stock had been
issued at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Issuer and the Guarantors of
Indebtedness under one or more Credit Facilities in an aggregate
principal amount at any time outstanding not to exceed $195.0 million
(with letters of credit being deemed to have a principal amount equal
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to the maximum potential liability of the Issuer and the Guarantors
thereunder), less the aggregate amount of all Net Proceeds of Asset
Sales applied to repay any such Indebtedness pursuant to clause
(i) of the second paragraph of the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales";
(ii) the incurrence by the Issuer and the Guarantors of
Indebtedness represented by the Notes, the Exchange Notes and any
Subsidiary Guarantees;
(iii) the incurrence by the Issuer and its Restricted Subsidiaries
of the Existing Indebtedness;
(iv) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was
permitted by the Indenture to be incurred by the first paragraph of
this covenant, or by clauses (ii), (iii), (iv), (vi), (vii), (viii),
(ix), (x) and (xii);
(v) the incurrence of Indebtedness between or among the Issuer
and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (a) if the Issuer is the obligor on such Indebtedness,
such Indebtedness is expressly subordinated to the prior payment in
full of all Obligations with respect to the Notes and (b) any
subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Issuer or
a Wholly Owned Restricted Subsidiary, and any sale or other transfer
of any such Indebtedness to a Person that is not either the Issuer or
a Wholly Owned Restricted Subsidiary, shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Issuer or
such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of this Indenture to
be outstanding;
(vii) the incurrence by any of the Issuer's Restricted
Subsidiaries of Indebtedness or Preferred Stock incurred and
outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Issuer (other than Indebtedness or
preferred stock incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired
by the Issuer); provided that the principal amount (or accreted
value, as applicable) or aggregate liquidation preference, as
applicable, of such Indebtedness or Preferred Stock, as the case may
be, together with any other outstanding Indebtedness and Preferred
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Stock incurred pursuant to this clause (vii) does not exceed $5.0
million;
(viii) the incurrence by the Issuer or any Restricted Subsidiary of
Indebtedness (including Capital Lease Obligations) financing the
purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the
Capital Stock of any Person owning such assets), in each case,
incurred no more than 180 days after such purchase, lease or
improvement of such property in respect of such Indebtedness;
provided, however, at the time of the incurrence of such Indebtedness
and after giving effect thereto, the aggregate principal amount of
all Indebtedness incurred pursuant to this clause (viii) and then
outstanding shall not exceed the greater of $10.0 million and 10% of
Adjusted Consolidated Assets;
(ix) the incurrence by the Issuer of Indebtedness in connection
with the acquisition of a Permitted Business in respect of such
Indebtedness; provided, however, that the aggregate amount of
Indebtedness incurred pursuant to this clause (ix) and then
outstanding shall not exceed $20.0 million;
(x) the guarantee by the Issuer or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision
of this covenant;
(xi) the incurrence by the Issuer's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by
a Restricted Subsidiary of the Issuer that was not permitted by this
clause (xi); and
(xii) the incurrence by the Issuer or its Restricted Subsidiaries
of Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Issuer outstanding on the date of such
incurrence (other than Indebtedness permitted by clauses (i) through
(xi) above or the first paragraph of this covenant) does not exceed
$30.0 million; provided that the aggregate principal amount of
Indebtedness incurred by Restricted Subsidiaries of the Company
pursuant to this clause (xii) and then outstanding shall not exceed
$2.0 million.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Issuer shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses
or pursuant to the first paragraph hereof. Accrual of interest, the accretion
of accreted value, the payment of interest on any Indebtedness in the form of
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additional Indebtedness with the same terms and the payment of dividends on
preferred stock in the form of additional shares of the same class of
preferred stock will not be deemed to be an incurrence of Indebtedness or an
issuance of preferred stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in the Fixed Charges of the
Issuer as accrued.
Limitation on Other Senior Subordinated Debt
The Indenture provides that (i) the Issuer will not directly or
indirectly incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to
the Notes and (ii) no Guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to its Guarantor Senior Debt and
senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Liens
The Indenture provides that the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness or trade payables on
any asset now owned or hereafter acquired, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
Sale and Leaseback Transactions
The Indenture provides that the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Issuer and the Guarantors may enter into a
sale and leaseback transaction if (i) the Issuer or such Guarantor could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens",
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such transaction are applied
in compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales".
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
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encumbrance or restriction on the ability of any Restricted Subsidiary to
(i)(a) pay dividends or make any other distributions to the Issuer or any of
its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to
any other interest or participation in, or measured by, its profits, or
(b) pay any indebtedness owed to the Issuer or any of its Restricted
Subsidiaries, (ii) make loans or advances to the Issuer or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Issuer or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Senior Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Senior
Credit Facility as in effect on the date of the Indenture, (c) the Indenture,
the Notes, the Exchange Notes and the Subsidiary Guarantees, (d) applicable
law, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Issuer or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred,
(f) by reason of customary non-assignment or subletting provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described
in clause (iii) above on the property so acquired, (h) in the case of clause
(iii) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages, (i) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or disposition,
or (j) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Issuances and Sales of Equity Interests in Wholly Owned Restricted
Subsidiaries
The Indenture provides that the Issuer (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Issuer to, transfer,
convey, sell, lease or otherwise dispose of any Equity Interests in any
Wholly Owned Restricted Subsidiary of the Issuer to any Person (other than
the Issuer or a Wholly Owned Restricted Subsidiary of the Issuer), unless
(a) such transfer, conveyance, sale, lease or other disposition is of all the
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Equity Interests in such Wholly Owned Restricted Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Holders Asset Sales", and (ii) will not permit
any Wholly Owned Restricted Subsidiary of the Issuer to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Issuer or a Wholly Owned Restricted Subsidiary of the Issuer.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Issuer may not consolidate or merge
with or into (whether or not the Issuer is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Issuer
is the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Issuer) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Issuer under the Notes, the Indenture
and the Registration Rights Agreement pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the
case of a merger of the Issuer with or into a Wholly Owned Restricted
Subsidiary of the Issuer, the Issuer or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Issuer), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (a) will have Consolidated Net Worth immediately after
the transaction equal to or greater than the Consolidated Net Worth of the
Issuer immediately preceding the transaction and (b) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock". Notwithstanding clause
(iv) above, the Issuer may consolidate with or merge with or into (A) another
Person if such Person is a single purpose corporation that has not conducted
any business or incurred any Indebtedness or other liabilities and such
transaction is being consummated solely to change the state of incorporation
of the Issuer or (B) Holdings; provided, however, that, in the case of clause
(B), (x) Holdings shall not have owned any assets other than assets owned by
Holdings on the date of the Indenture, including the Capital Stock of the
Issuer (and other immaterial assets incidental to its ownership of such
Capital Stock) or conducted any business other than owning the Capital Stock
of the Issuer, (y) Holdings shall not have any Indebtedness or other
liabilities (other than ordinary course liabilities incidental to its
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ownership of the Capital Stock of the Issuer) and (z) immediately after
giving effect to such consolidation or merger, the Issuer, Holdings or the
Person formed by or surviving such consolidation or merger (if other than the
Issuer or Holdings) shall have a pro forma Fixed Charge Coverage Ratio that
is not less than the Fixed Charge Coverage Ratio of the Issuer immediately
prior to such consolidation or merger.
Transactions with Affiliates
(a) The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to,
or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Issuer or such Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the Issuer
or such Restricted Subsidiary with an unrelated Person and (ii) the Issuer
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $2.0 million, a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors and
(b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an
opinion as to the fairness to the Issuer of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under the caption "--Restricted Payments", (ii) any issuance of
securities, or other payments, benefits, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors of the
Issuer, (iii) the grant of stock options or similar rights to employees and
directors of the Issuer pursuant to plans approved by the Board of Directors,
(iv) loans or advances to employees in the ordinary course of business in
accordance with the past practices of the Issuer or its Restricted
Subsidiaries, but in any event not to exceed $2.0 million in the aggregate
outstanding at any one time, (v) the payment of reasonable fees to directors
of the Issuer and its Restricted Subsidiaries who are not employees of the
Issuer or its Restricted Subsidiaries, (vi) any payment by the Issuer to
Holdings to permit Holdings to pay any federal, state, local or other taxes
that are then actually due and owing by Holdings, (vii) indemnification
agreements with, and the payment of fees and indemnities to, directors,
officers and employees of the Issuer and its Restricted Subsidiaries, in each
case, in the ordinary course of business, (viii) any employment,
compensation, noncompetition or confidentiality agreement entered into by the
Issuer and its Restricted Subsidiaries with its employees in the ordinary
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course of business, (ix) the payment by the Issuer of fees, expenses and
other amounts to Cypress and its Affiliates in connection with the Merger;
provided that the aggregate amount paid under this clause (ix) shall not
exceed $5.0 million, (x) payments by the Issuer or any of its Restricted
Subsidiaries to Cypress and its Affiliates made pursuant to any financial
advisory, financing, underwriting or placement agreement, or in respect of
other investment banking activities, in each case, as determined by the Board
of Directors in good faith, (xi) any agreement as in effect as of the date of
the Indenture or any amendment or replacement thereto or any transaction
contemplated thereby so long as any such amendment or replacement agreement
is not more disadvantageous to the Holders of the Notes in any material
respect than the original agreement as in effect on the date of the
Indenture, and (xii) any Affiliate Transaction between the Issuer and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries of the Issuer.
Subsidiary Guarantees
(a) The Indenture provides that the Issuer will not permit any
Restricted Subsidiary to guarantee the payment of any Indebtedness of the
Issuer or any Indebtedness of any other Restricted Subsidiary (in each case,
the "Guaranteed Debt") unless (i) if such Restricted Subsidiary is not a
Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Subsidiary Guarantee
of payment of the Notes by such Restricted Subsidiary, (ii) if the Notes or
the Subsidiary Guarantee (if any) of such Restricted Subsidiary are
subordinated in right of payment to the Guaranteed Debt, the Subsidiary
Guarantee under the supplemental indenture shall be subordinated to such
Restricted Subsidiary's guarantee with respect to the Guaranteed Debt
substantially to the same extent as the Notes or the Subsidiary Guarantee are
subordinated to the Guaranteed Debt under the Indenture, (iii) if the
Guaranteed Debt is by its express terms subordinated in right of payment to
the Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
any such guarantee of such Restricted Subsidiary with respect to the
Guaranteed Debt shall be subordinated in right of payment to such Restricted
Subsidiary's Subsidiary Guarantee with respect to the Notes substantially to
the same extent as the Guaranteed Debt is subordinated to the Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Issuer or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee, and (v) such Restricted Subsidiary shall deliver to the
Trustee an opinion of counsel to the effect that (A) such Subsidiary
Guarantee of the Notes has been duly executed and authorized and (B) such
Subsidiary Guarantee of the Notes constitutes a valid, binding and
enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers)
and except insofar as enforcement thereof is subject to general principles of
equity.
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(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any
Person not an Affiliate of the Issuer, of all of the Issuer's Capital Stock
in, or all or substantially all the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the Indenture) or
(ii) the release or discharge of the guarantee which resulted in the creation
of such Subsidiary Guarantee, except a discharge or release by or as a result
of payment under such guarantee.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Issuer will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuer was required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Issuer and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Issuer and its Restricted Subsidiaries separate
from the financial information and results of operations of the Unrestricted
Subsidiaries of the Issuer) and, with respect to the annual information only,
a report thereon by the Issuer's certified independent accountants and
(ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Issuer was required to file such reports, in
each case, within the time periods specified in the Commission's rules and
regulations. In addition, following the consummation of the exchange offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the Commission, the Issuer will file a copy of
all such information and reports with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Issuer has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an
Event of Default: (i) default for 30 days in the payment when due of interest
on, if any, with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture), (ii) default in payment when due
of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure
by the Issuer or any Restricted Subsidiary for 30 days to comply with the
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provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control", "--Repurchase at the Option of Holders--Asset
Sales", "--Certain Covenants--Restricted Payments", "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock" or "--Certain
Covenants--Merger, Consolidation or Sale of Assets"; (iv) failure by the
Issuer or any Restricted Subsidiary for 60 days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture
or the Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Issuer or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Issuer or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more; (vi) failure by the Issuer or
any of its Significant Subsidiaries to pay final judgments aggregating in
excess of $25.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acing on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Issuer
or any of the Issuer's Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of the Issuer that, taken
together, would constitute a Significant Subsidiary. However, a default under
clauses (iii), (iv) and (vi) will not constitute an Event of Default until
the Trustee or the holders of 25% in aggregate principal amount of the
outstanding Notes notify the Issuer of the default and the Issuer does not
cure such default within the time specified after receipt of such notice.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuer, any Restricted
Subsidiary of the Issuer that constitutes a Significant Subsidiary or any
group of Restricted Subsidiaries of the Issuer that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due
and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of
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Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes.
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuer are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee
a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder of the Issuer or any
Guarantor, as such, shall have any liability for any obligations of the
Issuer or any Guarantor under the Notes, the Subsidiary Guarantees, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Notes and to have
each Guarantor's obligation discharged with respect to its Subsidiary
Guarantee ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of and
premium and interest, if any, on the Notes when such payments are due from
the trust referred to below, (ii) the Issuer's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office
or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuer's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Issuer may, at its
option and at any time, elect to have the obligations of the Issuer and each
Guarantor released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under the caption "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Issuer must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of and premium and interest, if any,
on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Issuer must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Issuer shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Issuer has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the
date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Issuer shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance
or Covenant Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument (other than
the Indenture) to which the Issuer or any of its Subsidiaries is a party or
by which the Issuer or any of its Subsidiaries is bound; (vi) the Issuer
shall have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) the Issuer shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Issuer with the intent of preferring the Holders
of Notes over the other creditors of the Issuer with the intent of defeating,
hindering, delaying or defrauding creditors of the Issuer or others; and
(viii) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or
exchange any Note selected for redemption. Also, the Issuer is not required
to transfer or exchange any Note for a period of 15 days before a selection
of Notes to be redeemed. The registered Holder of a Note will be treated as
the owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
Indenture, the Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender
offer or exchange offer for, Notes), and any existing default or compliance
with any provision of the Indenture, the Notes or the Subsidiary Guarantees
may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including, without limitation, consents
obtained in connection with a purchase of or tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium or interest, if any, on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other
than that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium or interest, if any, on
the Notes, (vii) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), (viii) release any
Guarantor from its Subsidiary Guarantee or (ix) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 662/3% in aggregate
principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
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Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Issuer, a Guarantor (with respect to a Subsidiary Guarantee or the
Indenture to which it is a party) and the Trustee may amend or supplement the
Indenture, the Notes or any Subsidiary Guarantee to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to
or in place of certificated Notes, to provide for the assumption of the
Issuer's or any Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation or sale of substantially all of the Issuer's assets,
to make any change that would provide any additional rights or benefits to
the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Issuer, to obtain payment of
claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the
Indenture without charge by writing to Frank's Nursery & Crafts, Inc., 1175
West Long Lake Road, Troy, Michigan 48098, Attention: Chief Financial
Officer.
Book-Entry, Delivery and Form
Except as set forth below, Exchange Notes will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof. Exchange Notes initially will be
represented by one or more Exchange Notes in registered, global form without
interest coupons (collectively, the "Global Exchange Notes"). The Global
Exchange Notes will be deposited with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in
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the name of DTC or its nominee, in each case, for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Exchange Notes may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Exchange
Notes may not be exchanged for Exchange Notes in certificated form except in
the limited circumstances described below. See "--Exchange of Book-Entry
Exchange Notes for Certificated Exchange Notes". Except in the limited
circumstances described below, owners of beneficial interests in the Global
Exchange Notes will not be entitled to receive physical delivery of
Certificated Exchange Notes (as defined below).
Initially, the Trustee will act as Paying Agent and Registrar. The
Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Issuer takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss
these matters.
DTC has advised the Issuer that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Issuer that, pursuant to procedures
established by it, (i) upon deposit of the Global Exchange Notes, DTC will
credit the accounts of Participants with portions of the principal amount of
the Global Exchange Notes and (ii) ownership of such interests in the Global
Exchange Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Exchange Notes).
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Investors in the Global Exchange Notes may hold their interests
therein directly through DTC, if they are Participants in such system, or
indirectly through organizations (including Euroclear and Cedel) which are
Participants in such system. All interests in a Global Exchange Note,
including those held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Cedel may also be subject to the procedures and requirements of such systems.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Exchange Note to such persons will
be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a
Global Exchange Note to pledge such interests to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interests in the Global Exchange
Notes will not have Exchange Notes registered in their names, will not
receive physical delivery of Exchange Notes in certificated form and will not
be considered the registered owners or "Holders" thereof under the Indenture
for any purpose.
Payments in respect of the principal of, and premium, if any, and
interest on a Global Exchange Note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered Holder under
the Indenture. Under the terms of the Indenture, the Issuer and the Trustee
will treat the persons in whose names the Exchange Notes, including the
Global Exchange Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, none of the Issuer, the Trustee or any agent of the Issuer or
the Trustee has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of any beneficial ownership
interest in the Global Exchange Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Exchange
Notes or (ii) any other matter relating to the actions and practices of DTC
or any of its Participants or Indirect Participants. DTC has advised the
Issuer that its current practice, upon receipt of any payment in respect of
securities such as the Exchange Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Exchange Notes will be governed by
standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee or the Issuer. Neither the Issuer nor the
Trustee will be liable for any delay by DTC or any of its Participants in
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identifying the beneficial owners of the Exchange Notes, and the Issuer and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants,
interests in the Global Exchange Notes are expected to be eligible to trade
in DTC's Same-Day Funds Settlement System and secondary market trading
activity in such interests will, therefore, settle in immediately available
funds, subject in all cases to the rules and procedures of DTC and its
Participants. See "--Same Day Settlement and Payment".
Transfers between Participants in DTC will be effected in accordance
with DTC's procedures and will be settled in same day funds, and transfers
between participants in Euroclear and Cedel will be effected in the ordinary
way in accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the
case may be, by its respective depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Exchange Note in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
DTC has advised the Issuer that it will take any action permitted to
be taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Exchange Notes and only in respect of such portion of the aggregate principal
amount of the Exchange Notes as to which such Participant or Participants has
or have given such direction. However if there is an Event of Default under
the Exchange Notes, DTC reserves the right to exchange the Global Exchange
Notes for legended Exchange Notes in certificated form, and to distribute
such Exchange Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Exchange Notes
among Participants in DTC, Euroclear and Cedel, they are under no obligation
to perform or to continue to perform such procedures, and such procedures may
be discontinued at any time. Neither the Issuer nor the Trustee nor any of
their respective agents will have any responsibility for the performance by
DTC, Euroclear or Cedel or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
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Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes
A Global Exchange Note is exchangeable for definitive Exchange Notes
in registered certificated form ("Certificated Exchange Notes") if (i) DTC
(x) notifies the Issuer that it is unwilling or unable to continue as
depositary for the Global Exchange Notes and the Issuer thereupon fails to
appoint a successor depositary or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Issuer, at its option, notifies
the Trustee in writing that it elects to cause the issuance of the
Certificated Exchange Notes or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Exchange Notes.
In addition, beneficial interests in a Global Exchange Note may be exchanged
for Certificated Exchange Notes upon request but only upon prior written
notice given to the Trustee by or on behalf of DTC in accordance with the
Indentures. In all cases, Certificated Exchange Notes delivered in exchange
for any Global Exchange Note or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary
procedures).
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Notes (including principal, premium and
interest, if any,) be made by wire transfer of immediately available funds to
the accounts specified by the Global Exchange Note Holder. With respect to
Exchange Notes in certificated form, the Issuer will make all payments of
principal, premium and interest, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's
registered address. The Exchange Notes represented by the Global Exchange
Notes are expected to be eligible to trade in the PORTAL market and to trade
in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Exchange Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. The
Issuer expects that secondary trading in any certificated Exchange Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Cedel participant purchasing an interest in a Global Exchange
Note from a Participant in DTC will be credited, and any such crediting will
be reported to the relevant Euroclear or Cedel participant, during the
securities settlement processing day (which must be a business day for
Euroclear and Cedel) immediately following the settlement date of DTC. DTC
has advised the Issuer that cash received in Euroclear or Cedel as a result
of sales of interests in a Global Exchange Note by or through a Euroclear or
Cedel participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel
following DTC's settlement date.
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Registration Rights; Liquidated Damages
Pursuant to the Registration Rights Agreement, the Issuer agreed to
file with the Commission the Exchange Offer Registration Statement with
respect to the Exchange Notes and, upon the effectiveness of the Exchange
Offer Registration Statement, to offer to the Holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes. If (i) the Issuer is not required to file the
Exchange Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities
notifies the Issuer prior to the 20th day following consummation of the
Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or
(c) that it is a broker-dealer and owns Old Notes acquired directly from the
Issuer or an affiliate of the Issuer, the Issuer will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by
the Holders thereof who satisfy certain conditions relating to the provision
of information in connection with the Shelf Registration Statement. The
Issuer will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Old Note until (i) the date on which such Old Note has been exchanged by a
person other than a broker-dealer for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of an
Old Note for an Exchange Note, the date on which such Exchange Note is sold
to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Old Note
is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Issuer will
file an Exchange Offer Registration Statement with the Commission on or prior
to 60 days after the date of the Indenture, (ii) the Issuer will use its best
efforts to have the Exchange Offer Registration Statement declared effective
by the Commission on or prior to 150 days after the date of the Indenture,
(iii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuer will commence the Exchange Offer and use its
best efforts to issue, on or prior to 30 business days after the date on
which the Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuer will use its best efforts to file the
Shelf Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 150 days after such
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obligation arises. If (a) the Issuer fails to file any of the registration
statements required by the Registration Rights Agreement on or before the
date specified for such filing, (b) any of such registration statements is
not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date"), (c) the Issuer
fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Issuer will pay liquidated damages to each Holder of
Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, in an amount equal to $.05 per
week per $1,000 principal amount of Notes held by such Holder. The amount of
the liquidated damages will increase by an additional $.05 per week per
$1,000 principal amount of Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages for all Registration Defaults of $.50 per week
per $1,000 principal amount of Notes. All accrued liquidated damages will be
paid by the Issuer on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
Holders of Old Notes are required to make certain representations to
the Issuer (as described in the Registration Rights Agreement and Letter of
Transmittal) in order to participate in the Exchange Offer and will be
required to deliver certain information to be used in connection with the
Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, or
assumed by such other Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person and
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(ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Adjusted Consolidated Assets" means at any time the total amount of
assets of the Issuer and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), after deducting
therefrom all current liabilities of the Issuer and its Restricted
Subsidiaries (excluding intercompany items), all as set forth on the
consolidated balance sheet of the Issuer and its Restricted Subsidiaries as
of the end of the most recent fiscal quarter for which financial statements
are available prior to the date of determination.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of
a sale and leaseback), excluding sales of services and products in the
ordinary course of business consistent with past practices (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Issuer and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant) and (ii) the issue or sale by the Issuer or any of its Restricted
Subsidiaries of Equity Interests of any of the Issuer's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Issuer to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Issuer or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Issuer or to another Wholly Owned Restricted Subsidiary,
(iii) the transfer of used, surplus or obsolete equipment in the ordinary
course of business, (iv) the sale and leaseback of any assets within 90 days
of the acquisition of such assets and (v) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments" will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
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GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than one year from the date of acquisition,
(iii) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within one year after the date of
acquisition and (vi) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i) through
(v) of this definition.
"Change of Control" means the occurrence of any of the following
events:
(i) prior to the first public equity offering, the Principals
cease to be the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of a majority
in the aggregate of the total voting power of the Voting Stock of the
Issuer, whether as a result of issuance of securities of the Issuer,
any merger, consolidation, liquidation or dissolution of the Issuer,
any direct or indirect transfer of securities or otherwise (for
purposes of this clause (i) and clause (ii) below, the Principals
shall be deemed to beneficially own any Voting Stock of a corporation
(the "specified corporation") held by any other corporation (the
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"parent corporation") so long as the Principals beneficially own (as
so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
(ii) on or after the first public equity offering, any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Principals, is or becomes the beneficial
owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Issuer; provided,
however, that the Principals beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the
Issuer than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors (for the purposes of
this clause (ii), such other person shall be deemed to beneficially
own any Voting Stock of a specified corporation held by a parent
corporation, if such other person is the beneficial owner (as defined
in this clause (ii)), directly or indirectly, of more than 35% of the
voting power of the Voting Stock of such parent corporation and the
Principals beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do
not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of
Directors of such parent corporation);
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of
the Issuer (together with any new directors whose election by such
Board of Directors or whose nomination for election by the
shareholders of the Issuer was approved by a vote of 66 2/3% of the
directors of the Issuer then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Issuer then in office; or
(iv) the merger or consolidation of the Issuer with or into
another Person or the merger of another Person with or into the
Issuer, or the sale of all or substantially all the assets of the
Issuer to another Person (other than a Person that is controlled by
the Principals), and, in the case of any such merger or
consolidation, the securities of the Issuer that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Issuer are changed
into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged
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for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in computing such Consolidated Net Income, (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale, (ii) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations), plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period, minus
(v) non-cash items increasing such Consolidated Net Income for such period,
(other than accruals of income in the ordinary course of business in respect
of future cash payments) in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Issuer by such
Restricted Subsidiary without prior approval (that has not been obtained) and
without direct or indirect restriction pursuant to the terms of its charter
and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary
or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or a
Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
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payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and
(v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Issuer or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (a) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date, plus (b) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (i) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (ii) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments) and (iii) all unamortized debt
discount and expense and unamortized deferred charges as of such date, in
each case, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Issuer who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Credit Facilities" means, with respect to the Issuer, one or more
debt facilities (including, without limitation, the Senior Credit Facility)
or commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes
are first issued and authenticated under the Indenture shall be deemed to
have been incurred on such date in reliance on the exception provided by
clause (i) of the definition of Permitted Debt.
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"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after
the date on which the Notes mature; provided, however, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof
have the right to require the Issuer to repurchase such Capital Stock upon
the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuer
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments".
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date
of the Indenture (other than Indebtedness under Credit Facilities), until
such Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations),
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person
or one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Issuer (other than
Disqualified Stock) or to the Issuer or a Restricted Subsidiary of the
Issuer, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Issuer or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Issuer or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles in the United
States of America set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on the date of the Indenture.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
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"Holdings" means FNC Holdings Inc. (formerly known as General Host
Corporation) and its successors.
"Indebtedness" means, with respect to any Person, (i) any
indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) all indebtedness of others secured by
a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and (iii) to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount
of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness issued with original issue
discount, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP. If the Issuer or any Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Issuer such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the third paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction
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in respect of preferred stock dividends, excluding, however, (i) any gain
(but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary or
non-recurring gain (but not loss), together with any related provision for
taxes on such extraordinary or non-recurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the
Issuer nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness
(other than the Notes being offered hereby) of the Issuer or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of the Issuer or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to the businesses of the Company on the
date of the Indenture.
"Permitted Investments" means (i) any Investment in the Issuer or in
a Wholly Owned Restricted Subsidiary of the Issuer; (ii) any Investment in
Cash Equivalents; (iii) any Investment by the Issuer or any Restricted
Subsidiary of the Issuer in a Person, if as a result of such Investment
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the Issuer or
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(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Issuer or a Wholly Owned Restricted Subsidiary of the Issuer;
(iv) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales"; (v) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Issuer; (vi) any Investment existing on the date of the Indenture;
(vii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(viii) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Issuer or any Restricted Subsidiary,
but in any event not to exceed $2.0 million in the aggregate outstanding at
any one time; (ix) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Issuer or
any Restricted Subsidiary or in satisfaction of judgments; and (x) other
Investments in any Person (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (x) that are
at the time outstanding, not to exceed $10.0 million.
"Permitted Liens" means (i) Liens securing Senior Debt or Guarantor
Senior Debt of the Issuer and its Restricted Subsidiaries that was permitted
by the terms of the Indenture to be incurred; (ii) Liens in favor of the
Issuer or any of its Restricted Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with
the Issuer or any Restricted Subsidiary of the Issuer; provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Issuer; (iv) Liens on property existing
at the time of acquisition thereof by the Issuer or any Restricted Subsidiary
of the Issuer, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory, regulatory, contractual or warranty requirements, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business; (vi) Liens existing on the date of the
Indenture; (vii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefore; (viii) statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof; (ix) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
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therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (x) judgment Liens not giving rise to an
Event of Default; (xi) easements, rights-of-way, zoning restrictions and
other similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the business
of the Issuer or any of its Restricted Subsidiaries; (xii) any interest or
title of a lessor under any Capital Lease Obligations; (xiii) purchase money
Liens to finance property or assets of the Issuer or any Restricted
Subsidiary of the Issuer acquired in the ordinary course of business; (xiv)
Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods; (xv) Liens securing
reimbursement obligations with respect to commercial letters of credit which
encumber documents and other property relating to such letters of credit and
products and proceeds thereof; (xvi) Liens securing Hedging Obligations that
are otherwise permitted to be incurred under the Indenture; (xvii) leases or
subleases granted to others that do not materially interfere with the
ordinary course of business of the Issuer and its Restricted Subsidiaries;
(xviii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; and (xix) Liens incurred in the ordinary course
of business of the Issuer or any Restricted Subsidiary of the Issuer with
respect to obligations that do not exceed $2.0 million at any one time
outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Issuer or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Issuer or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of and is subordinated in right of payment
to the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Issuer or by the Restricted Subsidiary
that is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
126
<PAGE>
"Principals" means Cypress Merchant Banking Partners L.P., Cypress
Offshore Partners L.P., Cypress Garden Ltd. and any Person who on the date of
the Indenture is an Affiliate of any of the foregoing.
"Related Party" with respect to any Principal means (i) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or
(ii) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means that certain credit agreement, dated
as of December 24, 1997, by and among the Issuer, Cyrus Acquisition Corp.,
Holdings, the lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent, Syndication Agent, Collateral Agent, Issuing Bank and
Swingline Lender and Goldman Sachs Credit Partners L.P., as Documentation
Agent, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
127
<PAGE>
Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Issuer or any Restricted
Subsidiary unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Issuer or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Issuer; (c) is a Person with respect to which neither
the Issuer nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Issuer or any of its Restricted Subsidiaries; and
(e) has at least one director on its Board of Directors that is not a
director or executive officer of the Issuer any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Issuer or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
128
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may
be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below.
The exchange of Old Notes for Exchange Notes in the Exchange Offer
will not constitute a taxable event to holders for United States federal
income tax purposes. Consequently, no gain or loss will be recognized by a
holder upon receipt of an Exchange Note, the holding period of the Exchange
Note will include the holding period the Old Note and the basis of the
Exchange Note will be the same as the basis of the Old Note immediately
before the exchange.
In any event, persons considering the exchange of Old Notes
for Exchange Notes should consult their own tax advisors concerning the
United States federal income tax consequences in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 120 days after the consummation of the Exchange Offer it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resales. In addition, until
, 1998, all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such Exchange Notes. Any broker-dealer that resells Exchange Notes
that were received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of such Exchange
129
<PAGE>
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the consummation of the Exchange
Offer, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed
to pay all expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that
receives Exchange Notes pursuant to the Exchange Offer hereby agrees to
notify the Company prior to using the Prospectus in connection with the sale
or transfer of Exchange Notes, and acknowledges and agrees that, upon receipt
of notice from the Company of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires
the making of any changes in the Prospectus in order to make the statements
therein not misleading or which may impose upon the Company disclosure
obligations that may have a material adverse effect on the Company (which
notice the Company agrees to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of the Prospectus until the Company has
notified such broker-dealer that delivery of the Prospectus may resume and
has furnished copies of any amendment or supplement to the Prospectus to such
broker-dealer.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Simpson
Thacher & Bartlett, New York, New York.
INDEPENDENT ACCOUNTANTS
The financial statements of Frank's Nursery & Crafts, Inc. as of
January 25, 1998 and January 26, 1997 and for each of the two years in the
period ended January 26, 1997 and for the four-week period and forty-eight
week period ended January 25, 1998 and December 28, 1997, respectively,
included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
130
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FRANK'S NURSERY & CRAFTS, INC.
Page No.
Report of Independent Accountants . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Shareholder's Equity . . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
Frank's Nursery & Crafts, Inc.
In our opinion, the accompanying balance sheets and the related
statements of income, changes in shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Frank's
Nursery & Crafts, Inc. (a wholly-owned subsidiary of FNC Holdings Inc.,
formerly "General Host Corporation") at January 25, 1998 and January 26,
1997, and the results of their operations and their cash flows for the
four-week period and forty-eight week period ending January 25, 1998 and
December 28, 1997, respectively, and the two years ended January 26, 1997
and January 28, 1996, respectively, in conformity with generally accepted
accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Bloomfield Hills, Michigan
March 13, 1998
F-2
<PAGE>
Frank's Nursery & Crafts, Inc.
(a wholly-owned subsidiary of Holdings)
Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
January 25, January 26,
1998 1997
----------------------- -------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 16,100 $ 3,526
Accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . 4,607 3,028
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 81,051 81,575
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . 6,218 9,458
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 107,976 97,587
------- -------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 217,880 220,626
Intangibles, less accumulated amortization of $173 and $10,653 at
January 25, 1998 and January 26, 1997, respectively . . . . . . . . . . 95,825 15,266
Other assets and deferred charges . . . . . . . . . . . . . . . . . . . . . . 13,248 10,544
------- -------
$434,929 $344,023
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,852 $ 27,870
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,677 39,186
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 1,780 2,254
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 96,309 69,310
------- -------
Long-term debt:
Senior debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,189 127,761
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000 65,000
------- -------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 167,189 192,761
------- -------
Other liabilities and deferred credits . . . . . . . . . . . . . . . . . . . 17,778 6,271
Commitments and contingencies
F-3
<PAGE>
Shareholder's equity:
Common stock $1.00 par value, 5,000,000 shares authorized, 246 shares
issued 246 246
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 165,754 48,146
Intercompany payable (receivable) . . . . . . . . . . . . . . . . . . . . (693) 115,147
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,654) (87,858)
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 153,653 75,681
------- -------
$434,929 $344,023
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
Frank's Nursery & Crafts, Inc.
(a wholly-owned subsidiary of Holdings)
Statements of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Four-Weeks Forty-Eight
Ended Weeks Ended
January 25, December 28, January 26, January 28,
1998 1997 1997 1996
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 14,814 $ 515,204 $530,752 $593,270
Other income (expense) . . . . . . . . . . . . . . . (17) (2,010) (226) 507
-------- -------- -------- --------
14,797 513,194 530,526 593,777
-------- -------- -------- --------
Costs and expenses:
Cost of sales, including buying and occupancy . . . 17,532 367,008 383,099 429,181
Selling, general and administrative . . . . . . . . 7,318 137,872 138,355 148,502
Provision for store closings and other costs . . . . 6,677
Impairment loss . . . . . . . . . . . . . . . . . . 1,720
Interest and debt expense . . . . . . . . . . . . . 1,601 19,632 20,863 23,845
-------- -------- -------- --------
26,451 532,909 542,317 601,528
-------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . $(11,654) $ (19,715) $(11,791) $ (7,751)
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Frank's Nursery & Crafts, Inc.
(A wholly-owned subsidiary of Holdings)
Statements of Changes in Shareholder's Equity
Fiscal Years Ended January 25, 1998, January 26, 1997
and January 28, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Common Capital in Total
Stock Excess of Intercompany Retained Shareholder's
Issued Par Value Payable Earnings Equity
------------- ------------- -------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 29, 1995 . . . . . . . . $ 246 $ 48,146 $ 74,041 $(68,316) $ 54,117
Net loss . . . . . . . . . . . . . . . . . (7,751) (7,751)
Increase in intercompany payable . . . . . 59,892 59,892
------ -------- -------- -------- --------
Balance at January 28, 1996 . . . . . . . . 246 48,146 133,933 (76,067) 106,258
Net loss . . . . . . . . . . . . . . . . . (11,791) (11,791)
Decrease in intercompany payable . . . . . (18,786) (18,786)
------ -------- -------- -------- --------
Balance at January 26, 1997 . . . . . . . . 246 48,146 115,147 (87,858) 75,681
Net loss . . . . . . . . . . . . . . . . . (19,715) (19,715)
Equity contribution . . . . . . . . . . . . 166,000 166,000
Purchase accounting adjustments . . . . . . (48,392) 107,573 59,181
Decrease in intercompany liability . . . . (114,706) (114,706)
------ -------- -------- -------- --------
Balance at December 28, 1997 . . . . . . . 246 165,754 441 -0- 166,441
Net loss . . . . . . . . . . . . . . . . . (11,654) (11,654)
Decrease in intercompany liability . . . . (1,134) (1,134)
------ -------- -------- -------- --------
Balance at January 25, 1998 . . . . . . . . $ 246 $165,754 $ (693) $(11,654) $153,653
====== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Frank's Nursery & Crafts, Inc.
(a wholly-owned subsidiary of Holdings)
Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Four-Weeks Forty-Eight
Ended Weeks Ended
January 25, December 28, January 26, January 28,
1998 1997 1997 1996
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Loss . . . . . . . . . . . . . . . . . . . . . . $(11,654) $ (19,715) $(11,791) $ (7,751)
Noncash adjustments:
Depreciation and amortization . . . . . . . . . . 1,500 20,115 22,377 22,888
Provision for store closings and other costs . . . 6,677
Impairment loss . . . . . . . . . . . . . . . . . 1,720
Gains from sales of property, plant and
equipment . . . . . . . . . . . . . . . . . . . (2,981)
Other . . . . . . . . . . . . . . . . . . . . . . (1,343) (3,188) 860 487
-------- -------- -------- -------
(11,497) 2,628 11,446 15,624
Changes in current assets and current liabilities:
Decrease (increase) in accounts and notes
receivable . . . . . . . . . . . . . . . . . . . 129 242 (530) 232
Decrease (increase) in inventory . . . . . . . . . (2,892) (757) 6,587 (924)
Decrease (increase) in prepaid expense . . . . . . 1,473 (167) (665) (672)
Increase (decrease) in accounts payable . . . . . (10,981) 13,963 91 (13,949)
Increase (decrease) in accrued expenses . . . . . (11,040) (8,061) 1,249 (11,982)
-------- -------- -------- -------
Net cash provided by (used for) operations (34,808) 7,848 18,178 (11,671)
-------- -------- -------- -------
Cash flows from investing activities:
Addition to property, plant and equipment . . . . . 34 (12,472) (4,371) (5,497)
Proceeds from sales of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . 12,597 930 342
-------- -------- -------- -------
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . . . . . . . 34 125 (3,441) (5,155)
-------- -------- -------- -------
F-7
<PAGE>
Cash flows from financing activities:
Issuance of long-term debt . . . . . . . . . . . . . 1,625 5,137 34,984
Debt issue costs . . . . . . . . . . . . . . . . . . (3,745) (439) (1,681)
Increase (decrease) in intercompany payable . . . . (1,134) (114,706) (18,786) 59,892
Payment of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . (98) (65,073) (1,994) (77,117)
Equity contribution, net . . . . . . . . . . . . . . 166,000
Other . . . . . . . . . . . . . . . . . . . . . . . 12,695 (3,689)
Increase (decrease) in notes payable to banks . . . 47,500
-------- -------- -------- -------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . . . 11,463 27,912 (16,082) 16,078
-------- -------- -------- -------
Increase (decrease) in cash and cash equivalents . . . (23,311) 35,885 (1,345) (748)
Cash and cash equivalents at beginning of period . . . 39,411 3,526 4,871 5,619
-------- -------- -------- -------
Cash and cash equivalents at end of period . . . . . . $ 16,100 $ 39,411 $ 3,526 $ 4,871
======== ======== ======== =======
</TABLE>
See accompanying notes.
F-8
<PAGE>
Frank's Nursery & Crafts, Inc.
(a wholly-owned subsidiary of Holdings)
Notes to Financial Statements
NOTE 1: ACCOUNTING POLICIES
Frank's Nursery & Crafts, Inc. ("Frank's" or the "Company") is a wholly-owned
subsidiary of FNC Holdings Inc. (formerly "General Host Corporation").
Frank's is a leading specialty retailer of lawn and garden products, crafts
and Christmas merchandise. Below are those accounting policies considered to
be significant.
The Company operates entirely in one industry segment, the lawn and garden
retail industry defined to include green goods, fertilizers, gardening
accessories, lawn furniture, Christmas merchandise and snow removal, power
and watering equipment.
The fiscal year is normally comprised of 52 or 53 weeks, ending on the last
Sunday in January. The 1997, 1996 and 1995 fiscal years each reflect a 52-
week period ended January 25, 1998, January 26, 1997 and January 28, 1996,
respectively. Because of the acquisition (see Note 6), the accompanying
financial statements for fiscal 1997 represent the financial position,
results of operations and cash flows of Frank's for the forty-eight week
period prior to the acquisition and the four-week period subsequent to the
acquisition. The post-acquisition period has been presented on the purchase
basis of accounting, and is therefore not comparable to the historical
financial information presented for the forty-eight week pre-acquisition
period. In addition, as a result of the cross guarantees on the debt,
Holdings debt and related issue costs and interest accruals have been
included in the Frank's financial statements. The financial statements have
been prepared in accordance with generally accepted accounting principles
and, as such, include amounts based on management's best estimates. Actual
results could differ from those estimates.
Cash equivalents are highly liquid investments, such as U.S. government
securities and bank certificates of deposit having original maturities of
three months or less, and are carried at cost plus accrued interest.
Merchandise inventories are stated at the lower of cost or market, with cost
being determined under the first-in, first-out method.
Pre-Opening costs are expensed as incurred.
Advertising costs are expensed when the advertising first takes place.
Advertising expenditures were $24,006,000 for the forty-eight weeks ended
December 28, 1997, $753,000 for the four weeks ended January 25, 1998,
$22,262,000 for 1996 and $24,373,000 for 1995.
Store closing costs include provisions for estimated future net lease
obligations, nonrecoverable investments in fixed assets, and other expenses
directly related to discontinuance of operations. During the forty-eight
F-9
<PAGE>
weeks ended December 28, 1997 the Company recorded a charge of $6,677,000 for
store closing cost. Store closure costs included in Accrued expenses and
other liabilities and deferred credits approximate $11,609,000 at January 25,
1998, $2,132,000 at January 26, 1997 and $4,347,000 at January 28, 1996.
Provisions for store closings are charged to operations in the period when
the decision is made to close a retail unit.
Property, plant and equipment, including significant improvements thereto,
are recorded at cost. Expenditures for repairs and maintenance are charged
to expense as incurred. The cost of plant and equipment is depreciated over
the estimated useful lives using the straight-line method. Estimated useful
lives, including capital leases, are: buildings, 10-40 years or, if shorter,
the terms of the lease; equipment, 3-20 years. Leasehold improvements are
depreciated over the lease terms of the respective leases or the estimated
useful lives. Upon sale or other disposition of assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss, if any, is recognized in the statement of income.
Intangibles, including costs in excess of net assets of acquired businesses,
are amortized over 40 years using the straight-line method.
Impairment of long-lived assets, including goodwill, is reviewed annually or
when events and circumstances warrant such a review by the Company in
accordance with Statement of Financial Accounting Standards No. 121,
"Impairment of Long-Lived Assets," (FAS 121) by comparing estimated future
undiscounted cash flows associated with the asset to the asset's carrying
value to determine if an impairment exists. During the forty-eight weeks
ended December 28, 1997 the Company recorded an impairment loss of
$1,720,000.
Other postretirement benefits are recognized in the financial statements
during the period in which service is provided.
Leases that meet the accounting criteria for capital leases are recorded as
property, plant and equipment, and the related capital lease obligations (the
aggregate present value of minimum future lease payments, excluding executory
costs such as taxes, maintenance and insurance) are included in long-term
debt. Depreciation and interest are charged to expense, and rent payments
are treated as payments of long-term debt, accrued interest and executory
costs. All other leases are accounted for as operating leases, and rent
payments are charged to expense as incurred.
Income taxes for Frank's are included in the consolidated U.S. federal income
tax return of Holdings. In preparing its financial statements, Frank's has
determined its tax provision on a separate return basis. Deferred income tax
assets and liabilities are determined based on the difference between the
financial carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse.
F-10
<PAGE>
NOTE 2: INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
Allocated Corporate Services:
The results of the Company include 100% of Holdings' costs incurred for
certain corporate overhead, such as risk management, human resources,
corporate law, corporate finance and accounting, treasury and public affairs.
100% of Holdings' costs incurred, aggregated $5,782,000, $(1,240,000),
$4,705,000, and $4,508,000 for the forty-eight weeks ended December 28, 1997,
the four weeks ended January 25, 1998 and for the fiscal years ended January
26, 1997 and January 28, 1996, respectively.
Cash Management:
Frank's utilized Holdings' centralized cash management services. Under this
arrangement Frank's accounts receivable are collected and cash disbursements
were funded by Holdings on a daily basis. Net activity between Holdings and
Frank's was reflected in the intercompany payable as shown in the statements
of cash flows.
NOTE 3: OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
Forty-Eight
Four Weeks Weeks Ended
Ended December 28,
January 25, 1998 1997 1996 1995
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest on cash and cash equivalents and
marketable securities $ 0 $ 1,035 $ 0 $ 0
Gain (loss) on the sale of property and
the termination or sale of leases (29) 1,382 (264) 469
Cost associated with the acquisition 0 (4,594) 0 0
Other 12 167 38 38
---- ------- ----- -----
Total $(17) $(2,010) $(226) $507
==== ======= ===== =====
</TABLE>
NOTE 4: INCOME TAXES
Differences between income taxes of continuing operations and income taxes
based on statutory federal income tax rates applied to income before taxes
are as follows:
F-11
<PAGE>
<TABLE>
<CAPTION>
Four-Weeks Forty-Eight
Ended Weeks Ended
January 25, December 28,
1998 1997 1996 1995
-------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Federal income taxes based on statutory
rates $ (3,962) $(6,703) $(4,009) $(2,635)
Increases (decreases) in rates resulting
from:
Limitation (utilization) of tax loss
carryforwards 3,946 6,508 3,850 2,097
Amortization of intangibles and other
acquisition costs 15 183 136 136
Other 1 12 23 402
------- ------- ------- -------
$ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
The tax effects of the principal temporary deferred tax assets and
liabilities are as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
(In thousands)
<S> <C> <C>
Liabilities:
Property, plant & equipment $(14,765) $(14,708)
-------- --------
Gross deferred tax liabilities (14,765) (14,708)
-------- --------
Assets:
Inventory 1,867 736
Accrued expenses 4,924 3,241
Other 1,520 606
Store closing reserve 3,061 796
NOL carryforward 23,028 14,866
-------- --------
Gross deferred tax assets 34,400 20,245
-------- --------
Net deferred tax asset 19,635 5,537
Valuation allowance (19,635) (5,537)
-------- --------
$ -- $ --
======== ========
</TABLE>
Due to the Company's historical operating results, a valuation allowance
for the net deferred tax asset balance is recorded at January 25, 1998 and
January 26, 1997.
As discussed in Note 1, Frank's files a consolidated tax return with
Holdings. At January 25, 1998 the federal tax NOL carryforwards, for
Holdings, on a consolidated basis, approximated $92,000,000. As a result of
the valuation allowance, approximately $57,000,000 of these carryforwards
have not been benefitted and utilization will be recognized against goodwill.
The net operating loss will expire as follows: in January 2009 --
$39,000,000, January 2010 -- $3,000,000, January 2011 -- $6,000,000, January
2012 -- $8,500,000 and January 2013 -- $35,500,000.
At January 25, 1998 the federal tax NOL carryforwards attributable to
Frank's on a separate return basis approximated $67,700,000. As a result of
the valuation allowance, approximately $57,400,000 of these carryforwards
have not been benefitted and utilization will be recognized against goodwill.
The net operating loss will expire as follows: in January 2009 - $30,000,000,
January 2010 - $2,000,000, January 2011 $4,000,000 and January 2012 -
$7,700,000 and January 2013 - $24,000,000.
The Company underwent an ownership change on December 24, 1997. Net
operating losses incurred prior to the ownership change will be subject to
usage limitations imposed by tax law. Of the Company's entire net operating
F-13
<PAGE>
loss carryforward of $67,700,000, approximately $16,000,000 will not be
subject to the limitations imposed. The annual limitation is expected to be
approximately $7,200,000 per year.
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
(In thousands)
<S> <C> <C>
Land $ 71,101 $ 45,328
Buildings:
Owned 160,170 169,141
Capital leases (Note 9) 17,445 17,445
Equipment 87,907 110,361
Leasehold improvements 48,183 48,328
Construction in progress 3,966 3,251
------- -------
388,772 393,854
Less accumulated depreciation, including capital lease amounts
of $11,691 and $10,889 170,892 173,228
------- -------
$217,880 $220,626
======= =======
</TABLE>
NOTE 6: ACQUISITION
On December 28, 1997 FNC Holdings Inc. was acquired through an equity tender
offer and the purchase of treasury shares from Holdings, and Holdings,
redeemed a majority in principal amount of Holdings' outstanding Senior Notes
pursuant to a separate debt tender offer. In addition, Holdings and Frank's
entered into a Senior Credit Facility (See Note 8). The proceeds of the
initial draw under the Senior Credit Facility, together with an equity
investment of $166 million by the investors, were used, among other thing, to
fund the equity and debt tender offers, to pay merger consideration, to
refinance certain indebtedness of Frank's and to pay fees and expenses
related to the Transactions described above. As a result of the
Transactions, $96,030,000 of goodwill was recorded.
If FNC Holdings Inc. had been acquired and the Offering completed on January
26, 1997, the pro forma net loss for the fiscal year ended January 25, 1998
would have decreased by $2,007,000.
F-14
<PAGE>
NOTE 7: ACCRUED EXPENSES
Accrued expenses are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
(In thousands)
<S> <C> <C>
Taxes, other than income taxes $ 6,907 $ 6,072
Payroll and other compensation 6,626 5,689
Insurance 2,131 3,476
Interest 4,342 6,832
Liabilities related to acquisition 13,363
Other 20,308 17,117
------- -------
$ 53,677 $39,186
======= =======
</TABLE>
NOTE 8: LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
(In thousands)
<S> <C> <C>
Senior debt:
Holdings 11 1/2% Senior Notes due February 15, 2002 $ 25,235 $ 78,000
Mortgage notes due on varying dates from February 1,
2001 to September 1, 2007 29,680 38,979
Notes payable to banks 37,500
Capital leases (Note 9) 11,554 12,518
Other 518
-------- --------
103,969 130,015
Less current portion 1,780 2,254
-------- --------
102,189 127,761
-------- --------
Subordinated debt:
Holdings 8% Convertible Subordinated Notes due
February 15, 2002 65,000 65,000
-------- --------
Total long-term debt $167,189 $192,761
======== ========
</TABLE>
F-15
<PAGE>
The Holdings Senior Notes, issued at par, bear interest at 11 1/2%.
The Holdings Convertible Subordinated Notes, issued at par, bear interest at
8% and are convertible into common stock of the General Host at a conversion
price of $8.54 per share, subject to adjustments in certain events.
The mortgage notes have interest rates varying from 7.8% to 9.625%,
and the notes mature with balloon payments on varying dates from February 1,
2001 to May 1, 2006. The mortgage notes are secured by retail properties
owned by the Company.
At January 25, 1998 the Company has a senior secured credit facility
with various banks and financial institutions which provides for (i) a term
loan facility of up to $85 million (the "Term Loan Facility") and (ii) a
revolving credit facility of up to $110 million (the "Revolving Credit
Facility"). Term loans will mature seven years after the closing date of the
facility - December 24, 1997, in equal quarterly installments beginning in
fiscal 1999 in an aggregate amount equal to 8.8% of the aggregate Term Loan
Facility amount and increasing at each anniversary to 10.6%, 12.9%, 14.7%,
20.6% and 32.4% for fiscal years 2000, 2001, 2002, 2003, and 2004,
respectively. Revolving credit loans mature in December, 2003. The
Company's initial borrowing under the Senior Credit Facility consisted of
$37.5 million in term loans and $10 million of revolving credit loans which
remained outstanding as of January 25, 1998.
Term loans provided pursuant to the Term Loan Facility will bear
interest, at the Company's election, at an annual rate equal to the Adjusted
LIBO Rate (London Interbank Offering Rate) plus 2.5% or Alternative Base Rate
(as defined therein) plus 1.5%, provided that such margins may be reduced if
the Company meets certain senior leverage ratio tests. Revolving credit
loans obtained pursuant to the Revolving Credit Facility bear interest, at
the Company's election, at an annual rate equal to the Adjusted LIBO Rate
plus 2.25% or Alternative Base Rate plus 1/25%, provided that such margins
may be reduced if the Company meets certain senior leverage ratio tests. The
Alternative Base Rate is the highest of the bank's Prime Rate, the Federal
Funds Effective Rate plus 0.50% and the base CD Rate plus 1.00%. In
addition, there is a commitment fee equal to 0.50% per annum on the total
undrawn portion of the Term Loan Facility and the Revolving Credit Facility.
Among other obligations, the Senior Credit Facility requires the
Company to satisfy certain tests and maintain specified financial ratios,
including a minimum interest coverage ratio and a maximum leverage ratio. In
addition, the Senior Credit Facility restricts, among other things, the
Company's ability to incur additional indebtedness and to make acquisitions,
investments and capital expenditures beyond a certain level.
In March 1998 the Company issued $115 million of 10 1/4% Senior
Subordinated Notes due March 1, 2008 (the "Offering") and utilized
approximately $110.7 million to pay down $17.2 million of indebtedness under
the Term Loan Facility and to repay the remaining outstanding 11 1/2% Senior
Notes of $25.2 million and the $65 million of 8% Convertible Subordinated
Notes including premium of $2,208,000 and accrued interest of $1,013,000 on
March 30, 1998. In conjunction with the Offering the Company wrote-off debt
F-16
<PAGE>
issue costs of $1,317,000 related to the 11 1/2% Senior Notes and the 8%
Convertible Subordinated Notes.
The Company was in compliance with all of the bank agreement
covenants and other restrictions under all other debt agreements at January
25, 1998.
Under the most restrictive provisions of any of the Holdings or
Frank's debt agreements, total General Host shareholders' equity available to
pay cash dividends or purchase treasury stock was below the required minimum
level by $44,364,000 at January 25, 1998.
Aggregate maturities of long-term debt for the five years subsequent
to 1997, excluding capital lease obligations (Note 9), are $793,000 in 1998,
$865,000 in 1999, $941,000 in 2000, $4,651,000 in 2001 and $91,066,000 in
2002.
NOTE 9: LEASES
The Company's capital leases are principally for retail stores, for periods
ranging up to 25 years. The Company's operating leases are principally for
retail store locations.
At January 25, 1998 lease obligations under capital leases, included
in long-term debt (Note 8), and operating leases with lease terms longer than
one year, are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
------------------------ ------------------------
(In thousands)
<S> <C> <C>
Payable in 1998 $ 2,309 $ 12,046
1999 2,363 12,078
2000 2,322 11,378
2001 2,202 10,893
2002 2,078 10,313
Payable after 2003 8,353 64,705
-------- --------
Total minimum lease obligations 19,627 $121,413
========
Executory costs (13)
Amount representing future interest (8,043)
--------
Present value of net minimum lease obligations $ 11,571
========
Future sublease rental income $ 3,152
========
</TABLE>
F-17
<PAGE>
Rent expense was $20,876,000 for the forty-eight weeks ended
December 28, 1997, $1,343,000 for the four weeks ended January 25, 1998,
$21,915,000 in 1996 and $22,473,000 in 1995. Rent expense includes
additional rentals based on retail store sales (in excess of the minimums
specified in leases) of $707,000 for the forty-eight weeks ended December 28,
1997, $(186,000) for the four weeks ended January 25, 1998, $691,000 in 1996
and $815,000 in 1995 and is reduced by sublease rental income of $603,000 in
1997, $859,000 in 1996 and $832,000 in 1995.
NOTE 10: PENSION PLAN
Retirement benefits for both salaried and hourly employees of the Company are
provided through a noncontributory, defined contribution plan of Holdings.
Contributions are determined by the Board of Directors of Holdings based upon
assessment of the Company's fiscal year's profitability as related to pre-
established financial objectives. There were no contributions made to the
plan for 1997, 1996 and 1995. The plan also includes a 401(k) component,
permitting employees to invest from 1% to 10% of their salary in the
employee's choice of an equity fund, a balanced fund or a fixed income fund.
The plan does not provide an employer match.
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
The carrying value amount approximates fair value because of the short
maturity of those investments.
Long-term debt
The fair value of the Company's long-term debt is estimated based upon the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at
January 25, 1998 and January 26, 1997 are as follows:
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ---------------- ----------------- -----------------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 16,100 $ 16,100 $ 3,526 $ 3,526
Long-term debt $168,969 $169,978 $195,015 $178,180
</TABLE>
NOTE 12: LITIGATION AND OTHER CONTINGENCIES
In the normal course of business the Company is subject to various claims.
In the opinion of management, any ultimate liability arising from or related
to these claims should not have a material adverse effect on future results
of operations or the consolidated financial position of the Company.
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
Interest payments were $21,523,000 for the forty-eight weeks ended
December 28, 1997, $301,000 for the four weeks ended January 25, 1998,
$19,685,000 in 1996, and $23,286,000 in 1995. Income tax payments were
$47,000 for the forty-eight weeks ended December 28, 1997, $55,000 in 1996
and $449,000 in 1995.
F-19
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given
or made, such information or representations must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
___________
TABLE OF CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Unaudited Pro Forma Financial Data . . . . . . . . . . . . . . . . . . 36
Selected Historical Financial and Other Data . . . . . . . . . . . . . 44
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 46
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Security Ownership of Certain Beneficial Owners and Management . . . . 67
Certain Relationships and Related Transactions . . . . . . . . . . . . 69
Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 71
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Description of Exchange Notes . . . . . . . . . . . . . . . . . . . . . 86
Certain United States Federal Income Tax Consequences of the Exchange . 129
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 129
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . 130
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
Until [ ] (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
Frank's Nursery & Crafts, Inc.
Offer to Exchange up to $115,000,000 of its
10 1/4% Series B Senior Subordinated Notes due 2008
which have been Registered under the
Securities Act for any of its outstanding
10 1/4% Senior Subordinated Notes due 2008
_________________________
LOGO
_________________________
_________________________
PROSPECTUS
_________________________
___________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 561 of the Michigan Business Corporation Act authorizes
indemnification of directors and officers of Michigan corporations. The
Registrant's By-laws permit it to indemnify directors and officers against
expenses, attorneys' fees, judgments, fines and settlements reasonably
incurred in connection with any threatened, pending or completed action or
proceeding brought by a third party so long as the director or officer acted
in good faith and in a manner reasonably believed not to be opposed to the
best interests of the Company. The By-laws also allow the Registrant to
indemnify directors and officers against expenses and attorneys' fees related
to any threatened, pending or completed action brought by or in the right of
the Company so long as the director acted in good faith and in a manner
reasonably believed not to be opposed to the best interests of the Company.
Where the action is brought by or in the right of the Company, however, no
indemnification is allowed as to any claim where the director or officer is
judged to be liable for negligence or misconduct in the performance of his or
her duties to the Company unless such indemnification is specifically
approved by the court in which such action was brought.
Though the Registrant's By-laws permit indemnification in the
situations described above, each request for indemnification must be
individually authorized by (i) the board by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding,
(ii) by independent legal counsel in a written opinion if such quorum is not
obtainable or (iii) the Company's shareholders. To the extent that a
director or officer is successful on the merits or otherwise in defense of
any action, suit or proceeding, the Registrant's By-laws dictate that he or
she must be indemnified against expenses actually and reasonably incurred.
The Registrant maintains insurance coverage for losses incurred by
its directors and officers as a result of any actual or alleged Wrongful Act
(as defined therein) performed by them during the Policy Period (as defined
therein) or Discovery Period (as defined therein) while acting in their
respective capacities as directors or officers of the Company. The insurance
policy also covers losses incurred by the Company arising from a Securities
Claim (as defined therein) raised against the Company or a claim made against
its directors or officers during the Policy Period or Discovery Period where
the Registrant has indemnified the directors and officers for their personal
losses.
Item 21. Exhibits and Financial Statements
(a) Exhibits
See list of Exhibits.
II-1
<PAGE>
(b) Financial Statement Schedules
Schedules other than those listed above are omitted because
the conditions requiring their filing do not exist, or because the
required information is provided in the Consolidated Financial
Statements, including the notes thereto.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Exchange Offer
Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Exchange Offer
Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth
in the Exchange Offer Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Exchange Offer Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
II-2
<PAGE>
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Exchange Offer Registration Statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all
information concerning a transaction, and the Company being acquired
involved therein, that was not the subject of and included in the
Exchange Offer Registration Statement when it became effective.
(6) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration Form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the
applicable form.
(7) That every prospectus: (i) that is filed pursuant to
paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the Exchange Offer Registration
Statement and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Troy, State of Michigan, on the 23rd day of April, 1998.
Frank's Nursery & Crafts, Inc.
By: /s/ Joseph R. Baczko
--------------------
Name: Joseph R. Baczko
Title: Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ Joseph R. Baczko Chairman of the Board of April 23, 1998
--------------------- Directors, Chief Executive
Joseph R. Baczko Officer and President
(Principal Executive Officer)
/s/ Adam Szopinski Executive Vice President, Chief April 23, 1998
--------------------- Operating Officer and Director
Adam Szopinski
/s/ Larry T. Lakin Executive Vice President, Chief April 23, 1998
--------------------- Financial Officer and Director
Larry T. Lakin (Principal Financial and
Accounting Officer)
/s/ David P. Spalding Director
--------------------- April 23, 1998
David P. Spalding
/s/ James A. Stern Director April 23, 1998
---------------------
James A. Stern
/s/ Bahram Shirazi Director April 23, 1998
---------------------
Bahram Shirazi
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- --------------------
2.1 Agreement and Plan of Merger dated as of November 22, 1997,
between FNC Holdings Inc. (formerly known as General Host
Corporation) and Cyrus Acquisition Corp.
3.1 Articles of Incorporation of Frank's Nursery & Crafts, Inc.*
3.2 By-laws of Frank's Nursery & Crafts, Inc.*
4.1 Indenture dated as of February 26, 1998 between Frank's Nursery &
Crafts, Inc. and Bankers Trust Company
4.2 Registration Rights Agreement dated as of February 26, 1998 by and
among Frank's Nursery & Crafts, Inc. and Goldman, Sachs & Co. and
Chase Securities Inc.
5.1 Opinion of Simpson Thacher & Bartlett*
10.1 Credit Agreement dated as of December 24, 1997 among Frank's
Nursery & Crafts, Inc., Cyrus Acquisition Corp., General Host
Corporation, the lenders party thereto, The Chase Manhattan Bank
and Goldman Sachs Credit Partners L.P.
12.1 Statement regarding computation of ratios
23.1 Consent of Simpson Thacher & Bartlett (included as part of its
opinion filed as Exhibit 5.1 hereto)*
23.2 Consent of Price Waterhouse LLP
24.1 Powers of Attorney*
25.1 Statement of Eligibility on Form T-1 of Bankers Trust Company
under the Trust Indenture Act of 1939
99.1 Form of Letter of Transmittal used in connection with the Exchange
Offer*
99.2 Form of Notice of Guaranteed Delivery used in connection with the
Exchange Offer*
99.3 Form of Exchange Agent Agreement*
* To be filed by amendment.
II-5
Exhibit 2.1
__________________________________________________________
AGREEMENT AND PLAN OF MERGER
Between
CYRUS ACQUISITION CORP.
and
GENERAL HOST CORPORATION
Dated as of November 22, 1997
__________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER . . . . . . . . . . . . . . . 2
SECTION 1.1 The Offer . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 Company Action . . . . . . . . . . . . . . . . . 3
ARTICLE II
THE MERGER . . . . . . . . . . . . . . . 4
SECTION 2.1 The Merger . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Effective Time . . . . . . . . . . . . . . . . . 4
SECTION 2.3 Effects of the Merger . . . . . . . . . . . . . . 4
SECTION 2.4 Certificate of Incorporation; By-Laws . . . . . . 4
SECTION 2.5 Directors and Officers . . . . . . . . . . . . . 5
SECTION 2.6 Conversion of Securities . . . . . . . . . . . . 5
SECTION 2.7 Dissenting Shares . . . . . . . . . . . . . . . . 6
SECTION 2.8 Surrender of Shares . . . . . . . . . . . . . . . 6
SECTION 2.9 No Further Transfer or Ownership Rights . . . . . 8
SECTION 2.10 Treatment of Options . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . 9
SECTION 3.1 Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 9
SECTION 3.2 Certificate of Incorporation and By-Laws . . . 10
SECTION 3.3 Capitalization . . . . . . . . . . . . . . . . 10
SECTION 3.4 Authority Relative to This Agreement . . . . . 11
SECTION 3.5 No Conflict; Required Filings and Consents . . 12
SECTION 3.6 Compliance . . . . . . . . . . . . . . . . . . 13
SECTION 3.7 SEC Filings; Financial Statements . . . . . . . 13
SECTION 3.8 Absence of Certain Changes or Events . . . . . 14
SECTION 3.9 Absence of Litigation . . . . . . . . . . . . . 14
SECTION 3.10 Employee Benefit Plans . . . . . . . . . . . . 15
SECTION 3.11 Tax Matters . . . . . . . . . . . . . . . . . . 17
SECTION 3.12 Offer Documents; Proxy Statement . . . . . . . 17
SECTION 3.13 Environmental Matters . . . . . . . . . . . . . 18
SECTION 3.14 Material Contracts . . . . . . . . . . . . . . 20
SECTION 3.15 Permits . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.16 Properties . . . . . . . . . . . . . . . . . . 20
SECTION 3.17 Intellectual Property . . . . . . . . . . . . . 22
SECTION 3.18 Management Information Systems . . . . . . . . 22
SECTION 3.19 Affiliate Transactions . . . . . . . . . . . . 22
SECTION 3.20 Approvals; Vote Required . . . . . . . . . . . 23
SECTION 3.21 Brokers . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.22 Rights Agreement . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . 24
SECTION 4.1 Corporate Organization . . . . . . . . . . . . 24
SECTION 4.2 Certificate of Incorporation and By-Laws . . . 24
<PAGE>
SECTION 4.3 Authority Relative to This Agreement . . . . . 24
SECTION 4.4 No Conflict; Required Filings and Consents . . 24
SECTION 4.5 Offer Documents; Proxy Statement . . . . . . . 25
SECTION 4.6 Debt Financing . . . . . . . . . . . . . . . . 26
SECTION 4.7 Equity Financing . . . . . . . . . . . . . . . 26
SECTION 4.8 Brokers . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . 26
SECTION 5.1 Conduct of Business of the Company Pending
the Merger . . . . . . . . . . . . . . 26
ARTICLE VI
ADDITIONAL AGREEMENTS . . . . . . . . . . . 29
SECTION 6.1 Shareholders Meeting . . . . . . . . . . . . . 29
SECTION 6.2 Proxy Statement . . . . . . . . . . . . . . . . 30
SECTION 6.3 Company Board Representation; Section 14(f) . . 31
SECTION 6.4 Access to Information; Confidentiality . . . . 32
SECTION 6.5 No Solicitation of Transactions . . . . . . . . 32
SECTION 6.6 Benefits Matters . . . . . . . . . . . . . . . 33
SECTION 6.7 Directors' and Officers' Indemnification
and Insurance . . . . . . . . . . . . . 35
SECTION 6.8 Notification of Certain Matters . . . . . . . . 35
SECTION 6.9 Further Action; Reasonable Best Efforts . . . . 35
SECTION 6.10 Public Announcements . . . . . . . . . . . . . 37
SECTION 6.11 Cancellation of Common Stock Equivalents . . . 38
SECTION 6.12 Disposition of Litigation . . . . . . . . . . . 38
SECTION 6.13 Equity Contribution . . . . . . . . . . . . . . 38
SECTION 6.14. Anti-Dilution . . . . . . . . . . . . . . . . . 38
SECTION 6.15. Support Agreement . . . . . . . . . . . . . . . 39
ARTICLE VII
CONDITIONS OF MERGER . . . . . . . . . . . 39
SECTION 7.1 Conditions to Obligation of Each Party to
Effect the Merger . . . . . . . . . . . 39
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . 39
SECTION 8.1 Termination . . . . . . . . . . . . . . . . . . 39
SECTION 8.2 Effect of Termination . . . . . . . . . . . . . 41
SECTION 8.3 Fees and Expenses . . . . . . . . . . . . . . . 42
SECTION 8.4 Amendment . . . . . . . . . . . . . . . . . . . 42
SECTION 8.5 Waiver . . . . . . . . . . . . . . . . . . . . 42
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . . . . 43
SECTION 9.1 Non-Survival of Representations, Warranties
and Agreements . . . . . . . . . . . . 43
SECTION 9.2 Notices . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.3 Certain Definitions . . . . . . . . . . . . . . 44
SECTION 9.4 Severability . . . . . . . . . . . . . . . . . 45
SECTION 9.5 Entire Agreement; Assignment . . . . . . . . . 45
<PAGE>
SECTION 9.6 Parties in Interest . . . . . . . . . . . . . . 45
SECTION 9.7 Governing Law . . . . . . . . . . . . . . . . . 46
SECTION 9.8 Headings . . . . . . . . . . . . . . . . . . . 46
SECTION 9.9 Counterparts . . . . . . . . . . . . . . . . . 46
Annex A - Offer Conditions
Annex B - Debt Offer Terms
Annex C - Amendment to Company Certificate of Incorporation
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 22, 1997 (the
"Agreement"), between CYRUS ACQUISITION CORP., a New York corporation
("Purchaser"), and GENERAL HOST CORPORATION, a New York corporation (the
"Company").
WHEREAS, the Board of Directors of the Company has determined that
it is in the best interests of the Company and the shareholders of the
Company to enter into this Agreement with Purchaser, providing for the merger
(the "Merger") of Purchaser with and into the Company in accordance with the
New York Business Corporation Law (the "NYBCL") and the other transactions
contemplated hereby, upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Board of Directors of Purchaser has approved the
Merger of Purchaser with and into the Company and such other transactions in
accordance with the NYBCL upon the terms and subject to the conditions set
forth herein;
WHEREAS, the Company and Purchaser have agreed that, upon the terms
and subject to the conditions contained herein, Purchaser shall commence an
offer (the "Offer") to purchase for cash all of the issued and outstanding
shares of common stock, par value $1.00 per share (referred to herein as
either the "Shares" or "Company Common Stock"), of the Company and the
associated Company Common Stock purchase rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of March 7, 1990 and subsequently
amended by Amendment No. 1 thereto, dated as of March 1, 1995, between the
Company and ChaseMellon Shareholder Services, as successor to Chemical Bank
(the "Rights Agreement"); and
WHEREAS, as a condition to its willingness to enter into this
Agreement and consummate the transactions contemplated hereby, Purchaser has
required that a principal shareholder (the "Supporting Shareholder") agree to
tender and vote Shares (as hereinafter defined) owned by him in the Offer in
accordance with the Support Agreement (as hereinafter defined) and to take
such other actions provided for therein; and in order to induce Purchaser to
enter into this Agreement, the Supporting Shareholder has agreed to execute
and deliver the Support Agreement, dated as of the date hereof, between
Purchaser and the Supporting Shareholder (the "Support Agreement").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Provided that this Agreement shall
not have been terminated in accordance with Section 8.1 and no event shall
have occurred and no circumstance shall exist which would result in a failure
to satisfy any of the conditions or events set forth in Annex A hereto (the
"Offer Conditions"), Purchaser shall, as soon as reasonably practicable after
<PAGE>
the date hereof (and in any event within five business days from the date of
public announcement of the execution hereof), commence the Offer at a price
of $5.50 per Share (and associated Right), net to the seller in cash. The
obligation of Purchaser to accept for payment Shares tendered pursuant to the
Offer shall be subject to the satisfaction of the Offer Conditions.
Purchaser expressly reserves the right, in its sole discretion, to waive any
such condition (other than the Minimum Condition as defined in the Offer
Conditions) and make any other changes in the terms and conditions of the
Offer, provided that, unless previously approved by the Company in writing,
no change may be made which decreases the price per Share payable in the
Offer, changes the form of consideration payable in the Offer (other than by
adding consideration), reduces the maximum number of Shares to be purchased
in the Offer, or imposes conditions to the Offer in addition to those set
forth herein which are adverse to holders of the Shares. The initial
expiration date of the Offer shall be 20 business days following (and
inclusive of) the date of commencement. Purchaser covenants and agrees that,
subject to the terms and conditions of this Agreement, including but not
limited to the Offer Conditions, it will accept for payment and pay for
Shares as soon as it is permitted to do so under applicable law, provided
that Purchaser shall have the right, in its sole discretion, to extend the
Offer from time to time for up to an aggregate of 20 business days,
notwithstanding the prior satisfaction of the Offer Conditions. It is agreed
that the Offer Conditions are for the benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition (including any action or inaction by Purchaser) or, except with
respect to the Minimum Condition, may be waived by Purchaser, in whole or in
part at any time and from time to time, in its sole discretion.
(b) As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1
(the "Schedule 14D-1") with respect to the Offer with the Securities and
Exchange Commission (the "SEC"). The Schedule 14D-1 shall contain an Offer
to Purchase and forms of the related letter of transmittal (which Schedule
14D-1, Offer to Purchase and other documents, together with any supplements
or amendments thereto, are referred to herein collectively as the "Offer
Documents"). Purchaser and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents that shall have
become false or misleading in any material respect, and Purchaser further
agrees to take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the SEC and the other Offer Documents as so
corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
SECTION 1.2 Company Action. (a) The Company hereby approves of
and consents to the Offer and represents and warrants that: (i) its Board of
Directors, at a meeting duly called and held on November 21, 1997, has
unanimously (A) determined that this Agreement and the transactions
contemplated hereby, including each of the Offer and the Merger, are fair to
and in the best interests of the holders of Shares, (B) approved this
Agreement, the Offer and the Merger, the Equity Contribution, the Debt Offer
and the Financing (each as hereinafter defined) and the other transactions
contemplated hereby and (C) resolved to recommend that the shareholders of
the Company accept the Offer, tender their Shares to Purchaser thereunder and
approve this Agreement, the Merger and the other transactions contemplated
hereby; and (ii) Credit Suisse First Boston Corporation (the "Financial
Adviser") has delivered to the Board of Directors of the Company its opinion
that the consideration to be received by holders of Shares pursuant to the
<PAGE>
Offer and the Merger is fair to such holders from a financial point of view.
The Company will promptly provide Purchaser with a true and complete written
copy of such fairness opinion and has been authorized by the Financial
Adviser to permit the inclusion of such fairness opinion (and, subject to
prior review and consent by such Financial Adviser, a reference thereto) in
the Offer Documents and in the Schedule 14D-9 referred to below and the Proxy
Statement referred to in Section 3.12. The Company hereby consents to the
inclusion in the Offer Documents of the recommendations of the Company's
Board of Directors described in this Section 1.2(a).
(b) The Company shall file with the SEC, contemporaneously with
the commencement of the Offer pursuant to Section 1.1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing the
recommendations of the Company's Board of Directors described in Section
1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the shareholders of
the Company. The Company and Purchaser each agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 that shall have
become false or misleading in any material respect, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities
laws.
(c) In connection with the Offer, if requested by Purchaser, the
Company shall promptly furnish Purchaser with mailing labels, security
position listings, any non-objecting beneficial owner lists and any available
listings or computer files containing the names and addresses of the record
holders of Shares, each as of a recent date, and shall promptly furnish
Purchaser with such additional information (including but not limited to
updated lists of shareholders, mailing labels, security position listings and
non-objecting beneficial owner lists) and such other assistance as Purchaser
or its agents may reasonably require in communicating the Offer to the record
and beneficial holders of Shares.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the NYBCL, at the
Effective Time (as defined in Section 2.2), Purchaser shall be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Purchaser shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation").
SECTION 2.2 Effective Time. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Article VII, the
parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Department of
State of the State of New York, in such form as required by and executed in
accordance with the relevant provisions of the NYBCL (the date and time of
the filing of the Certificate of Merger with the Department of State of the
State of New York (or such later time as is specified in the Certificate of
Merger) being the "Effective Time").
<PAGE>
SECTION 2.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the NYBCL. Without
limiting the generality of the foregoing and subject thereto, at the
Effective Time all the property, rights, privileges, immunities, powers and
franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Purchaser shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.4 Certificate of Incorporation; By-Laws. (a) At the
Effective Time and without any further action on the part of the Company and
Purchaser, the Restated Certificate of Incorporation of the Company (as
amended, the "Certificate of Incorporation"), as in effect immediately prior
to the Effective Time, shall be amended so as to add the provision set forth
in Annex C hereto, and, as so amended, until thereafter further amended
(subject to Section 6.7) as provided therein and under the NYBCL, shall be
the certificate of incorporation of the Surviving Corporation following the
Merger.
(b) At the Effective Time and without any further action on the
part of the Company and Purchaser, the By-Laws of the Company shall be the
By-Laws of the Surviving Corporation and thereafter may (subject to Section
6.7) be amended or repealed in accordance with their terms or the Certificate
of Incorporation of the Surviving Corporation and as provided by law.
SECTION 2.5 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and By-Laws of the Surviving Corporation, and the officers
of the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified.
SECTION 2.6 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(i) Each share of common stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
(ii) Each share of Company Common Stock held in the treasury of
the Company and each Share owned by Purchaser or any direct or indirect
subsidiary of the Company, in each case immediately prior to the
Effective Time, shall be cancelled and retired without any conversion
thereof and no payment or distribution shall be made with respect
thereto.
(iii) Each issued and outstanding share of Company Common Stock
(other than shares cancelled pursuant to Section 2.6(ii) and any
Dissenting Shares (as defined in Section 2.7(a))) shall be converted
into the right to receive $5.50 in cash or any higher price that may be
paid pursuant to the Offer (the "Merger Consideration") payable to the
holder thereof, without interest, upon surrender of the certificate
formerly representing such share in the manner provided in Section 2.8,
less any required withholding taxes.
<PAGE>
(iv) Immediately following the Effective Time, the Surviving
Corporation shall execute and deliver to the trustee under the
Indenture, dated as of February 28, 1992, between the Company and United
States Trust Company of New York, as trustee (the "Convertible Notes
Indenture"), executed in connection with the issuance by the Company of
its 8% convertible subordinated notes due 2002 (the "Convertible
Notes"), a Supplement to the Convertible Notes Indenture pursuant to
Section 14.11 thereof providing that each Convertible Note remaining
outstanding shall after the Effective Time be convertible into an amount
in cash equal to the product of (x) the number of Shares into which such
Convertible Note was convertible immediately prior to the Effective Time
times (y) the Merger Consideration.
SECTION 2.7 Dissenting Shares. (a) Notwithstanding anything in
this Agreement to the contrary, Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders
who have not voted such Shares in favor of the Merger (or consented thereto
in writing), who shall have delivered a written objection to the Merger and a
demand for appraisal of such Shares in accordance with Sections 623 and 910
of the NYBCL, and who shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
NYBCL (the "Dissenting Shares"), shall not be converted into the right to
receive the Merger Consideration, but shall instead entitle the holder
thereof to receive that consideration determined pursuant to Sections 623 and
910 of the NYBCL; provided, however, that if such holder shall have failed to
perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under the NYBCL, such holder's Shares shall thereupon
be deemed to have been converted, at the Effective Time, into the right to
receive the Merger Consideration, without any interest thereon.
(b) The Company shall give Purchaser (i) prompt notice of any
demands for appraisal pursuant to Sections 623 and 910 of the NYBCL received
by the Company, withdrawals of such demands, and any other instruments served
pursuant to the NYBCL and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the NYBCL. The Company shall not, except with the prior
written consent of Purchaser, make any payment with respect to any such
demands for appraisal or offer to settle or settle any such demands.
SECTION 2.8 Surrender of Shares. (a) Prior to the mailing of the
Proxy Statement (as defined in Section 3.12), Purchaser shall appoint a bank
or trust company which is reasonably satisfactory to the Company to act as
paying agent (the "Paying Agent") for the payment of the Merger
Consideration. When and as needed, the Surviving Corporation will deposit
with the Paying Agent for the benefit of former holders of the Company's
Common Stock sufficient funds to make all payments pursuant to this Section
2.8. Such funds shall be invested by the Paying Agent as directed by the
Surviving Corporation, provided that such investments shall be in obligations
of or guaranteed by the United States of America, in commercial paper
obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, or in certificates of deposit,
bank repurchase agreements or banker's acceptances of commercial banks with
capital exceeding $500 million. Any net profit resulting from, or interest
or income produced by, such investments will be payable to the Surviving
Corporation or as it directs.
<PAGE>
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each record holder, as of the Effective Time, of
an outstanding certificate or certificates which immediately prior to the
Effective Time represented Shares (the "Certificates"), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Paying Agent) and instructions for use in effecting
the surrender of the Certificates for payment of the Merger Consideration
therefor. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the aggregate amount of Merger
Consideration into which the number of shares of Company Common Stock
previously represented by such Certificate or Certificates surrendered shall
have been converted pursuant to this Agreement. If any Merger Consideration
is to be remitted to a person whose name is other than that in which the
Certificate for Company Common Stock surrendered for exchange is registered,
it shall be a condition of such exchange that the Certificate so surrendered
shall be properly endorsed, with signature guaranteed, or otherwise in proper
form for transfer, and that the person requesting such exchange shall have
paid any transfer and/or other taxes required by reason of the remittance of
Merger Consideration to a person whose name is other than that of the
registered holder of the Certificate surrendered, or the person requesting
such exchange shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. No
interest shall be paid or accrued, upon the surrender of the Certificates,
for the benefit of holders of the Certificates on any Merger Consideration.
(c) At any time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect
thereto) which had been deposited with the Paying Agent and which have not
been disbursed to holders of Certificates, and thereafter such holders shall
be entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) and only as general creditors
thereof for payment of their claim for Merger Consideration to which such
holders may be entitled.
(d) Notwithstanding the provisions of Section 2.8(c), neither the
Surviving Corporation nor the Paying Agent shall be liable to any person in
respect of any Merger Consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. If any
Certificates representing shares of Company Common Stock shall not have been
surrendered prior to one year after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
governmental entity), any such cash shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
SECTION 2.9 No Further Transfer or Ownership Rights. After the
Effective Time, there shall be no further transfer on the records of the
Company (or the Surviving Corporation) or its transfer agent of certificates
representing Shares of Company Common Stock which have been converted
pursuant to this Agreement into the right to receive Merger Consideration,
and if such certificates are presented to the Company for transfer, they
<PAGE>
shall be cancelled against delivery of Merger Consideration. From and after
the Effective Time, the holders of Certificates evidencing ownership of
Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law. All Merger Consideration paid upon the
surrender for exchange of Certificates representing shares of Company Common
Stock in accordance with the terms of this Article II shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
Shares of Company Common Stock exchanged for Merger Consideration theretofore
represented by such Certificates.
SECTION 2.10 Treatment of Options. Prior to the Effective Time,
the Board of Directors of the Company (or, if appropriate, any committee
thereof) shall adopt appropriate resolutions and take all other actions
necessary to provide that each outstanding stock option heretofore granted
under any Company Plan (as defined in Section 3.10) (each "Option"), whether
or not then vested or exercisable, shall, at and after the Effective Time, be
exercisable solely for, and shall entitle each holder thereof solely to, a
payment in cash from the Company (subject to any applicable withholding
taxes, the "Cash Payment"), upon exercise, equal to the product of (x) the
total number of Shares subject or related to such Option, whether or not then
vested or exercisable, and (y) the excess, if any, of the Merger
Consideration over the exercise price or purchase price, as the case may be,
per Share subject or related to such Option, each such Cash Payment to be
paid to each holder of an outstanding Option upon exercise; provided,
however, that with respect to any person subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any such
amount shall be paid as soon as practicable after the first date payment can
be made without liability to such Person under Section 16(b) of the Exchange
Act. As provided herein, the Company Plans (and any other plan, program or
arrangement) providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any subsidiary shall terminate
as of the Effective Time. The Company will take all commercially reasonable
steps to ensure that none of the Company or any of its subsidiaries is or
will be bound by any Options, other options, warrants, rights or agreements
which would entitle any person, other than the current shareholders of
Purchaser or its affiliates, to own any capital stock of the Surviving
Corporation or any of its subsidiaries or, except as otherwise provided in
this Section 2.10, to receive any payment in respect thereof and to cause or
request the holders of the Options to agree to an automatic exercise thereof
at the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth with reasonable specificity in a corresponding
numbered section of the Company Disclosure Schedule delivered to Purchaser at
the execution of this Agreement (the "Company Disclosure Schedule"), the
Company hereby represents and warrants to Purchaser that:
SECTION 3.1 Organization and Qualification; Subsidiaries. Each of
the Company and each of its Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority and any necessary governmental approvals to own, lease and operate
<PAGE>
its properties and to carry on its business as it is now being conducted
except where the failure to be in good standing or to have such power and
authority would not, individually or in the aggregate, have a Material
Adverse Effect. Each of the Company and each of its Significant Subsidiaries
is duly qualified or licensed as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which would not, individually or
in the aggregate, have a Material Adverse Effect or prevent or materially
delay the consummation of any of the Offer, the Merger, the Equity
Contribution, the Debt Offer, the Financing or the other transactions
contemplated hereby (collectively, the "Transactions"). When used in
connection with the Company or any of its subsidiaries, the term "Material
Adverse Effect" means any change or effect that, either individually or in
the aggregate with all other changes or effects, is materially adverse to the
business, operations, assets, liabilities, properties, financial condition,
or results of operations of the Company and its subsidiaries taken as a
whole.
SECTION 3.2 Certificate of Incorporation and By-Laws. The Company
has heretofore furnished to Purchaser complete and correct copies of the
Certificate of Incorporation and the By-Laws of the Company and the
equivalent organizational documents of each of its Significant Subsidiaries
as currently in effect. Such Certificate of Incorporation, By-Laws and other
organizational documents are in full force and effect and no other
organizational documents are applicable to or binding upon the Company or its
Significant Subsidiaries. Neither the Company nor any of its Significant
Subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation, By-Laws or other organizational documents.
SECTION 3.3 Capitalization. The authorized capital stock of the
Company consists of 100,000,000 shares of Company Common Stock and 1,000,000
shares of preferred stock, par value $1.00 per share ("Company Preferred
Stock"). As of November 2, 1997, (i) 24,413,686 shares of Company Common
Stock were issued and outstanding, all of which were validly issued, fully
paid and nonassessable and were issued free of preemptive (or similar)
rights, (ii) 7,338,764 shares of Company Common Stock were held in the
treasury of the Company, (iii) an aggregate of 1,322,688 shares of Company
Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Options issued
pursuant to the Company Plans and (iv) an aggregate of 7,616,003 shares of
Company Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of conversion rights of
the Convertible Notes. Since November 2, 1997, no options to purchase shares
of Company Common Stock have been granted and no shares of Company Common
Stock have been issued except for shares issued pursuant to the exercise of
Options or the conversion of Convertible Notes. As of the date hereof, no
shares of Company Preferred Stock are issued and outstanding. Except (i) as
set forth above, (ii) as provided pursuant to Sections 6.13 and 6.14 and
(iii) for 200,000 aggregate common stock equivalents (the "Common Stock
Equivalents") issued pursuant to the agreements set forth on Section 3.3 of
the Company Disclosure Schedule (provided that any inaccuracies in such
Section 3.3 with respect to the Common Stock Equivalents which are not,
individually or in the aggregate, material to the Offer and the Merger shall
not constitute a breach of this representation and warranty), true and
complete copies of which have been provided to Purchaser, there are
<PAGE>
outstanding or reserved for issuance (a) no shares of capital stock or other
voting securities of the Company, (b) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (c) no options or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of the Company and (d) no equity equivalents, interests
in the ownership or earnings of the Company or other similar rights
(collectively, "Company Securities"). Section 3.3 of the Company Disclosure
Schedule sets forth a true and complete list of the Options and the Common
Stock Equivalents, indicating for each Option or Common Stock Equivalent the
holder thereof, the number of shares of Company Common Stock subject thereto,
and the exercise price and expiration date thereof (provided that any
inaccuracies in such list which are not, individually or in the aggregate,
material to the Offer and the Merger shall not constitute a breach of this
representation and warranty). The conversion price for the Convertible Notes
is $8.53466 per share of Company Common Stock. There are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem
or otherwise acquire any Company Securities. Except as set forth above,
there are no options, calls, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of the Company or any of its subsidiaries to which the
Company or any of its subsidiaries is a party. All shares of Company Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
and all Shares issued pursuant to Sections 6.13 and 6.14, shall be duly
authorized, validly issued, fully paid and nonassessable and free of
preemptive (or similar) rights. There are no outstanding contractual
obligations of the Company or any of its subsidiaries to provide funds to or
make any investment (in the form of a loan, capital contribution or
otherwise) in any subsidiary of the Company or any other entity which would
be material to the Company or such subsidiary, as the case may be. Each of
the outstanding shares of capital stock of each of the Company's Significant
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and all such shares are owned by the Company or another wholly owned
subsidiary of the Company and are owned free and clear of all security
interests, liens, claims, pledges, agreements, limitations in voting rights,
charges or other encumbrances of any nature whatsoever except where the
failure to own such shares free and clear would not, individually or in the
aggregate, have a Material Adverse Effect. The Company does not hold any
capital stock or other equity interests, directly or indirectly, in any
person other than its wholly-owned subsidiaries, a true and complete list of
which subsidiaries is set forth in Section 3.3 of the Company Disclosure
Schedule (provided that any inaccuracies in such list which are not,
individually or in the aggregate, material to the Offer and the Merger shall
not constitute a breach of this representation and warranty).
SECTION 3.4 Authority Relative to This Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than,
with respect to the Merger, the approval of this Agreement by the holders of
two-thirds of the outstanding shares of Company Common Stock if and to the
<PAGE>
extent required by applicable law, and the filing of appropriate merger
documents as required by the NYBCL). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Purchaser, constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
and general principles of bankruptcy.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by the Company do not
and will not: (i) conflict with or violate the Certificate of Incorporation
or By-Laws of the Company or the equivalent organizational documents of any
of its Significant Subsidiaries; (ii) assuming that all consents, approvals
and authorizations contemplated by clauses (i), (ii) and (iii) of subsection
(b) below have been obtained and all filings described in such clauses have
been made, conflict with or violate any law, statute, rule, regulation,
order, judgment or decree applicable to the Company or any of its Significant
Subsidiaries or by which its or any of their respective properties are bound
or affected; or (iii) conflict with or result in any breach or violation of
or constitute a default (or an event which with notice or lapse of time or
both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its Significant
Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its Significant Subsidiaries is a
party or by which the Company or any of its Significant Subsidiaries or its
or any of their respective properties are bound or affected, except, in the
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the
aggregate, have a Material Adverse Effect or prevent or materially delay
consummation of any of the Transactions.
(b) The execution, delivery and performance of this Agreement by
the Company and the consummation of the Merger by the Company do not and will
not require any consent, approval, authorization or permit of, action by,
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except for (i) applicable requirements, if any, of the
Exchange Act, and the rules and regulations promulgated thereunder, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as may be required by
the NYBCL, (iii) filings with the New York Stock Exchange (the "NYSE") and
(iv) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain would not, individually
or in the aggregate, prevent or materially delay consummation of any of the
Transactions or have a Material Adverse Effect.
SECTION 3.6 Compliance. Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
statute, rule, regulation, order, judgment or decree applicable to the
Company or any of its Significant Subsidiaries or by which its or any of
their respective properties are bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company or any of its
<PAGE>
Significant Subsidiaries is a party or by which the Company or any of its
Significant Subsidiaries or any of its or their respective properties are
bound or affected, except for any such conflicts, defaults or violations
which would not, individually or in the aggregate, have a Material Adverse
Effect or prevent or materially delay consummation of any of the
Transactions.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company
and, to the extent applicable, each of its then or current subsidiaries, has
filed all forms, reports, statements and documents required to be filed with
the SEC since January 30, 1995 (collectively, the "SEC Reports"), each of
which has complied in all material respects with the applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, or the Exchange Act, and the
rules and regulations promulgated thereunder, each as in effect on the date
so filed. None of the SEC Reports (including but not limited to any
financial statements or schedules included or incorporated by reference
therein) contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Except to the extent revised or superseded by a subsequent filing with the
SEC prior to the date hereof, none of the SEC Reports contains any untrue
statement of a material fact or omits to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the audited and unaudited consolidated financial
statements of the Company (including any related notes thereto) included in
the SEC Reports at the time filed complied as to form in all material
respects with all applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis throughout the periods involved
(except as specifically indicated in the notes thereto) and fairly presents
the consolidated financial position of the Company and its subsidiaries at
the respective date thereof and the consolidated results of its and their
operations and cash flows for the periods indicated (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and its subsidiaries at January 26, 1997,
including the notes thereto, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet or in the notes thereto prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations: (i)
specifically reflected in the most recent unaudited quarterly statements
included in the Current SEC Reports (as defined in Section 3.8) or (ii)
incurred in the ordinary course of business since January 26, 1997 which
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.8 Absence of Certain Changes or Events. Since January
26, 1997, except as specifically contemplated by this Agreement or disclosed
in the SEC Reports filed and publicly available prior to the date of this
<PAGE>
Agreement (the "Current SEC Reports"), the Company and its subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been: (i)
any condition, event or occurrence other than those which, individually or in
the aggregate, would not have a Material Adverse Effect; (ii) any material
change by the Company in its accounting methods, principles or practices; or
(iii) any revaluation by the Company of any of its assets, including but not
limited to writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business, other than
those resulting in an aggregate decrease in valuation over all such
revaluations which would not have a Material Adverse Effect.
SECTION 3.9 Absence of Litigation. Except as disclosed in the
Current SEC Reports, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries, or any properties or rights
of the Company or any of its Significant Subsidiaries, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign, other than those which (i) individually or in the
aggregate, would not have a Material Adverse Effect and (ii) do not seek to
delay or prevent the consummation of any of the Transactions. As of the date
hereof, neither the Company nor any of its Significant Subsidiaries nor any
of their respective properties is or are subject to any order, writ,
judgment, injunction, decree, determination or award other than those which,
individually or in the aggregate, would not have a Material Adverse Effect or
prevent or materially delay consummation of any of the Transactions.
SECTION 3.10 Employee Benefit Plans. (a) Section 3.10 of the
Company Disclosure Schedule contains a true and complete list of each
"employee benefit plan" (within the meaning of section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including,
without limitation, multiemployer plans within the meaning of ERISA section
3(37)), stock purchase, stock option, severance, employment, change-in-
control, fringe benefit, collective bargaining, bonus, incentive, deferred
compensation and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA (including
any funding mechanism therefor now in effect or required in the future as a
result of the transaction contemplated by this Agreement or otherwise),
whether formal or informal, under which any employee or former employee of
the Company or any of its subsidiaries has any present or future right to
benefits or under which the Company or any of its subsidiaries has any
present or future liability. All such plans, agreements, programs, policies
and arrangements shall be collectively referred to as the "Company Plans".
(b) With respect to each Company Plan, the Company has delivered
to Purchaser a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent applicable:
(i) any related trust agreement or other funding instrument; (ii) the most
recent determination letter, if applicable; (iii) any summary plan
description; and (iv) for the three most recent years (A) the Form 5500 and
attached schedules, (B) audited financial statements, (C) actuarial valuation
reports and (D) attorney's response to an auditor's request for information.
No communication by the Company or any of its subsidiaries to any of their
employees requires the payment of any benefits other than those required
under the terms of the Company Plans.
<PAGE>
(c) Except as set forth in the Current SEC Reports and except as
would not, individually or in the aggregate, have a Material Adverse Effect
or prevent or materially delay the consummation of any of the Transactions:
(1) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable
provisions of ERISA, the Internal Revenue Code of 1986, as amended (the
"Code"), and other applicable laws, rules and regulations; (ii) each
Company Plan which is intended to be qualified within the meaning of
Code section 401(a) is so qualified and has received a favorable
determination letter as to its qualification, and nothing has occurred,
whether by action or failure to act, that would cause the loss of such
qualification; (iii) no event has occurred and no condition exists that
would subject the Company or any of its subsidiaries, either directly or
by reason of their affiliation with any member of their "Controlled
Group" (defined as any organization which is a member of a controlled
group of organizations within the meaning of Code sections 414(b), (c),
(m) or (o)), to any tax, fine, lien or penalty imposed by ERISA, the
Code or other applicable laws, rules and regulations; (iv) for each
Company Plan with respect to which a Form 5500 has been filed, no
material change has occurred with respect to the matters covered by the
most recent Form since the date thereof; and (v) no "reportable event"
(as such term is defined in ERISA section 4043), "prohibited
transaction" (as such term is defined in ERISA section 406 and Code
section 4975) or "accumulated funding deficiency" (as such term is
defined in ERISA section 302 and Code section 412 (whether or not
waived)) has occurred with respect to any Company Plan;
(2) With respect to the only Company Plan that is not a
multiemployer plan within the meaning of section 4001(a)(3) of ERISA but
is subject to Title IV of ERISA, as of the Effective Time, the assets of
such Company Plan (as valued as of October 31, 1997 by the Company
Plan's actuary) are at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such
Company Plan on a termination and projected benefit obligation basis,
based on the actuarial methods and assumptions indicated in the most
recent actuarial valuation report, dated January 1, 1996, but using
current interest rates;
(3) Since 1990 there has been no multiemployer pension plan
(within the meaning of ERISA section 4001(a)(3)) to which the Company,
any of its subsidiaries or any member of their Controlled Group has any
liability or contributes (or has at any time contributed or had an
obligation to contribute); and
(4) With respect to any Company Plan, (i) no actions, suits or
claims (other than routine claims for benefits in the ordinary course)
are pending or threatened, and (ii) no facts or circumstances exist that
would give rise to any such actions, suits or claims.
(d) Effective as of the date hereof, the Company and its
subsidiaries have terminated any obligations under any Company Plan or other
arrangement to make loans to directors, officers or employees in respect of
the exercise of any Options or the purchase of any Shares.
(e) No action has been taken by the Board of Directors of the
Company which would entitle any director, in his or her capacity as such,
<PAGE>
upon retirement from the Board of Directors to any payments, repurchase of
Shares or other benefits.
SECTION 3.11 Tax Matters. Except to the extent that the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), individually or in the aggregate, would not have a Material
Adverse Effect: (i) The Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for tax purposes of which
the Company or any of its subsidiaries is or has been a member, has timely
filed all Tax Returns required to be filed by it in the manner provided by
law, has paid all Taxes shown thereon to be due and has provided adequate
reserves in its financial statements according to generally accepted
accounting principles for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns; (ii) no material claim for unpaid
Taxes has become a lien or encumbrance of any kind against the property of
the Company or any of its subsidiaries or is being asserted against the
Company or any of its subsidiaries except for statutory liens for Taxes not
yet due; no audit of any Tax Return of the Company or any of its subsidiaries
is being conducted by a Tax authority; and no extension of the statute of
limitations on the assessment of any Taxes has been granted by the Company or
any of its subsidiaries and is currently in effect; and (iii) neither the
Company nor any of its subsidiaries is a party to or is otherwise bound by
(or has any assets bound by) any Tax indemnity, Tax sharing or Tax allocation
agreement or arrangement except for the tax sharing arrangement with
Calloway's Nursery, Inc. (a true and complete copy of which has been provided
to Purchaser). Neither the Company nor any of its subsidiaries has undergone
an "ownership change" within the meaning of Section 382 of the Code. As used
herein, "Taxes" shall mean any taxes of any kind, including but not limited
to those on or measured by or referred to as income, gross receipts, capital,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
SECTION 3.12 Offer Documents; Proxy Statement. (a) None of (i)
the Schedule 14D-9, the Debt Offer Documents (as defined in Section 6.9(b))
or the information supplied by the Company for inclusion in the Offer
Documents (including any information incorporated by reference in the
Schedule 14D-9, Debt Offer Documents or Offer Documents), shall, at the
respective times such Schedule 14D-9, the Debt Offer Documents, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or
are first published, sent or given to shareholders, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (ii) the proxy statement or the information
statement (as selected by Purchaser) to be sent to the shareholders of the
Company in connection with the Shareholders Meeting (as defined in Section
6.1) (such proxy statement or information statement, as amended or
supplemented, is herein referred to as the "Proxy Statement"), including any
information incorporated by reference therein, shall, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
shareholders or at the time of the Shareholders Meeting or at the Effective
<PAGE>
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they
are made, not false or misleading. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
supplied by Purchaser or any of its representatives which is contained in the
Schedule 14D-9, the Debt Offer Documents or the Proxy Statement.
(b) The Schedule 14D-9, the Debt Offer Documents and the Proxy
Statement will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
SECTION 3.13 Environmental Matters. (a) Except (i) as disclosed
in the Current SEC Reports or (ii) to the extent that the inaccuracy of any
of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, would not have a Material Adverse Effect:
(i) (A) The Company and its subsidiaries are and within the period
of all applicable statutes of limitation have been in compliance with
all applicable Environmental Laws; and (B) the Company and its
subsidiaries hold all Environmental Permits (each of which is in full
force and effect) required for any of their current operations and for
any property owned, leased, or otherwise operated by any of them, and
are and within the period of all applicable statutes of limitation have
been in compliance with all such Environmental Permits.
(ii) Neither the Company nor any of its subsidiaries has received
any Environmental Claim (as hereinafter defined) against any of them,
and the Company has no knowledge of any such Environmental Claim being
threatened.
(iii) The Company has no knowledge of the presence or suspected
presence of any Materials of Environmental Concern at any location that
could be reasonably likely to form the basis of any Environment Claim
against the Company or any of its subsidiaries or any entity for which
any of them may be responsible.
(b) To the knowledge of the Company, the Company has provided to
Purchaser all Environmental Reports, and has disclosed to Purchaser all costs
the Company and any of its subsidiaries expect to incur for ongoing, and
reasonably anticipated, investigation and remediation of Materials of
Environmental Concern (including, without limitation, any payments to resolve
any threatened or asserted Environmental Claim for investigation and
remediation costs), except any such Environmental Reports which do not
disclose or indicate circumstances which, and except any such costs which,
would not, individually or in the aggregate, have a Material Adverse Effect.
(c) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter, or
notice (written or oral) asserting liability or potential liability
(including without limitation liability or potential liability for
enforcement, investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damage, personal injury, fines
<PAGE>
or penalties) arising out of, relating to, based on or resulting from
(i) the presence, discharge, emission, release or threatened release of
any Materials of Environmental Concern at any location, (ii)
circumstances forming the basis of any violation or alleged violation of
any Environmental Laws or Environmental Permits, or (iii) otherwise
relating to obligations or liabilities under any Environmental Law.
"Environmental Law" means any law, rule, order, regulation,
statute, ordinance, guideline, code, decree, or other legally
enforceable requirement (including, without limitation, common law) of
any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of
human health or the environment.
"Environmental Permit" means any permit, license, registration,
approval, exemption, or other filing with or authorization by any
Governmental Authority under any Environmental Law.
"Environmental Report" means any report, study, assessment, audit,
or other similar document that addresses any issue of actual or
potential noncompliance with, or actual or potential liability under or
cost arising out of, any Environmental Law that may in any way affect
the Company or any of its subsidiaries.
"Materials of Environmental Concern" means all hazardous or toxic
substances, wastes, materials or chemicals, petroleum (including crude
oil or any fraction thereof), petroleum products, asbestos, pollutants,
contaminants, radioactivity, and all other materials and forces, whether
or not defined as such, that are regulated pursuant to or that could
result in liability under any Environmental Law.
(d) For purposes of this Section 3.13, the term "subsidiaries" of
the Company shall include any former subsidiaries of the Company to the
extent that the failure of any representation and warranty contained in this
Section (as so interpreted) could give rise to any liability or obligation
of, its present subsidiaries.
SECTION 3.14 Material Contracts. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) the
Company and its subsidiaries are not in default under any agreement,
contract, arrangement or other understanding ("Contract") to which the
Company or any of its Significant Subsidiaries is a party or by which any of
their properties are bound, and (ii) to the Company's knowledge, the other
parties thereto are not in default thereunder and such Contracts are valid
and binding obligations of the other parties thereto in accordance with their
terms.
SECTION 3.15 Permits. Each of the Company and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders (collectively, the "Company Permits") that are necessary to own, lease
and operate the properties of the Company and its subsidiaries and to carry
on their business as owned, leased, operated or carried on as of the date of
this Agreement, except, in each case, where the failure to possess such
Company Permits would not, individually or in the aggregate, have a Material
Adverse Effect. The Company Permits are in full force and effect and there
<PAGE>
is no action, proceeding or investigation pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the
Company Permits, except, in each case, where the failure to possess, or the
suspension or cancellation of, such Company Permits, individually or in the
aggregate, would not have a Material Adverse Effect.
SECTION 3.16 Properties. (a) The Company or its Significant
Subsidiaries has good, valid, and, in the case of Owned Properties (as
defined below), marketable fee title to: (i) all of the real property and
interests in real property owned by the Company or its Significant
Subsidiaries indicated in the most recent financial statements included in
the SEC Reports, except for properties sold or otherwise disposed of in the
ordinary course of business (the "Owned Properties"), and (ii) leasehold
estates in all leased real properties indicated in the most recent financial
statements included in the SEC Reports, except leasehold interests terminated
in the ordinary course of business (the "Leased Properties"; the Owned
Properties and Leased Properties being sometimes referred to herein as the
"Real Properties"), in each case free and clear of all mortgages, liens,
security interests, easements, covenants, rights-of-way and other similar
restrictions and encumbrances ("Encumbrances"), except for (x) Encumbrances
which, individually or in the aggregate, would not have a Material Adverse
Effect, and (y) those Encumbrances set forth in Section 3.16(a) of the
Company Disclosure Schedule.
(b) Except to the extent that the inaccuracy of any of the
following, (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, would not have a Material Adverse Effect:
(i) each of the agreements by which the Company has obtained a leasehold
interest in each Leased Property (individually, a "Lease" and collectively,
the "Leases") is in full force and effect in accordance with its respective
terms and the Company or its subsidiary is the holder of the lessee's or
tenant's interest thereunder; to the knowledge of the Company, there exists
no default under any Lease and no circumstance exists which, with the giving
of notice, the passage of time or both, could result in such a default; the
Company and its subsidiaries have complied with and timely performed all
conditions, covenants, undertakings and obligations on their parts to be
complied with or performed under each of the Leases; the Company and its
subsidiaries have paid all rents and other charges to the extent due and
payable under the Leases; (ii) there are no leases, subleases, licenses,
concessions or any other contracts or agreements granting to any person or
entity other than the Company or any of its subsidiaries any right to the
possession, use, occupancy or enjoyment of any Real Property or any portion
thereof; (iii) the current operation and use of the Real Properties does not
violate any statute, law, regulation, rule, ordinance, permit, requirement,
order or decree now in effect; the use being made of each Real Property at
present is in conformity with the certificate of occupancy issued for such
Real Property; (iv) there are no existing, or to the knowledge of the
Company, threatened, condemnation or eminent domain proceedings (or
proceedings in lieu thereof) affecting the Real Properties or any portion
thereof; (v) no default or breach exists under any of the covenants,
conditions, restrictions, rights-of-way, or easements, if any, affecting all
or any portion of a Real Property, which are to be performed or complied with
by the Company or any of its subsidiaries; and (vi) all the buildings,
structures, equipment and other tangible assets of the Company (whether owned
or leased) are in normal operating condition (normal wear and tear excepted)
and are fit for use in the ordinary course of business.
<PAGE>
(c) Neither the Company nor any of its subsidiaries is obligated
under or bound by any option, right of first refusal, purchase contract, or
other contractual right to sell or dispose of any Owned Property or any
portions thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company and its
subsidiaries.
SECTION 3.17 Intellectual Property. Except to the extent the
failure of any of the following would not, individually or in the aggregate,
have a Material Adverse Effect: (i) the Company and each of its subsidiaries
owns and/or is licensed to use (in each case, clear of any liens, claims or
similar encumbrances) all patents, trademarks, trade names, copyrights,
technology, know-how and processes used in or necessary for the conduct of
its business as currently conducted; (ii) the use of such patents,
trademarks, trade names, service marks, copyrights, technology, know-how and
processes by the Company and its subsidiaries and their agents does not
infringe on the rights of any person; (iii) to the knowledge of the Company,
no person is infringing on any right of the Company or any of its
subsidiaries with respect to any such patents, trademarks, service marks,
trade names, copyrights, technology, know-how or processes; (iv) the Company
and its subsidiaries are not in breach or violation of any agreement relating
to the use of any of the intellectual property identified in this provision,
and they have not received any notification, written or oral, from any third
party that there is any such violation, breach or inability to perform under
any such agreement; and (v) there are no agreements, written or oral, which
in any material respect limit or otherwise relate to any rights by the
Company or its subsidiaries to use any of their intellectual property.
SECTION 3.18 Management Information Systems. The implementation
of the Company's planned management information systems is proceeding on
schedule and, to the Company's knowledge, there are no circumstances
currently existing or reasonably anticipated to delay such implementation or
increase the cost thereof, except to the extent the failure of any of the
foregoing would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.19 Affiliate Transactions. Except to the extent that
the inaccuracy of any of the following, (or the circumstances giving rise to
such inaccuracy), individually or in the aggregate, would not have a Material
Adverse Effect, Section 3.19 of the Company Disclosure Schedule sets forth a
true and complete list (including names of parties, amounts involved and
brief descriptions) of all transactions, agreements, arrangements or
understandings (or series thereof), written or oral, between the Company or
any of its subsidiaries and any of its or their directors or officers
(including, in the case of natural persons, any of such persons' relatives or
affiliates, but excluding any dealings exclusively among the Company and its
subsidiaries) currently existing or effected or entered into since January
30, 1995 involving amounts in excess of $25,000, other than any such
transactions, agreements, arrangements or understandings otherwise disclosed
with at least the same level of detail elsewhere in the Company Disclosure
Schedule.
SECTION 3.20 Approvals; Vote Required. The Board of Directors of
the Company has approved this Agreement, the Offer, the Merger and the other
Transactions, and such approval is sufficient to render inapplicable hereto
and thereto the provisions of Section 912 of the NYBCL. To the best
knowledge of the Company, no other state takeover statute or similar statute
<PAGE>
or regulation applies or purports to apply to the Merger, the Offer, this
Agreement or any of the other Transactions. The Board of Directors of the
Company has also approved this Agreement and the Support Agreement as a
"memorandum of understanding" with Purchaser pursuant to Section (D)(i) of
Article XI of the Company's Certificate of Incorporation with respect to the
transactions contemplated hereby and by the Support Agreement, and such
action is sufficient to render Section (A) of Article XI of the Certificate
of Incorporation inapplicable hereto and to the Support Agreement, the Offer,
the Merger and the other Transactions. As a result of the foregoing actions,
the only action required to authorize this Agreement and the Merger is the
affirmative vote of two-thirds of the outstanding Shares, and no further
action is required to authorize the other Transactions.
SECTION 3.21 Brokers. No broker, finder or investment banker
(other than the Financial Adviser) is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Purchaser a complete and correct copy of all agreements between
the Company and the Financial Adviser pursuant to which such firm would be
entitled to any payment relating to the Transactions.
SECTION 3.22 Rights Agreement. The Company and the Board of
Directors of the Company have taken all necessary action so that none of the
execution of this Agreement or the Support Agreement, the making of the
Offer, the acquisition of Shares pursuant to the Offer and the Equity
Contribution, or the consummation of the Merger or the other Transactions
will (i) cause any Rights issued pursuant to the Rights Agreement to become
exercisable, (ii) cause Purchaser or any of its Affiliates (as defined in the
Rights Agreement) or Associates (as defined in the Rights Agreement) to be an
Acquiring Person (as defined in the Rights Agreement) or (iii) give rise to a
Distribution Date or a Triggering Event (as each such term is defined in the
Rights Agreement), and will take any further action as may be necessary in
furtherance of the foregoing. The copy of the Rights Agreement included in
the Current SEC Reports is complete and correct and includes all amendments
and supplements to and including the date of this Agreement. The Company has
delivered to Purchaser a true and complete copy of all resolutions of the
Company's Board of Directors made with respect to the actions referred to in
this Section 3.22, which resolutions are in full force and effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company that:
SECTION 4.1 Corporate Organization. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate
power and authority and any necessary governmental authority to own, operate
or lease its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and governmental approvals could
not, individually or in the aggregate, reasonably be expected to prevent or
materially delay the consummation of the Offer or the Merger.
<PAGE>
SECTION 4.2 Certificate of Incorporation and By-Laws. Purchaser
has heretofore furnished to the Company complete and correct copies of the
Certificate of Incorporation and the By-Laws of Purchaser as currently in
effect. Such Certificate of Incorporation and By-Laws are in full force and
effect and no other organizational documents are applicable to or binding
upon Purchaser. Purchaser is not in violation of any provisions of its
Certificate of Incorporation or By-Laws.
SECTION 4.3 Authority Relative to This Agreement. Purchaser has
all necessary corporate power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the Transactions. The
execution, delivery and performance of this Agreement by Purchaser and the
consummation by Purchaser of the Transactions have been duly authorized by
all necessary corporate action on the part of Purchaser other than filing and
recordation of appropriate merger documents as required by the NYBCL. This
Agreement has been duly executed and delivered by Purchaser and, assuming due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of each such corporation enforceable against
such corporation in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of bankruptcy.
SECTION 4.4 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Purchaser do not and
will not: (i) conflict with or violate the certificate of incorporation or
by-laws of Purchaser; (ii) assuming that all consents, approvals and
authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b)
below have been obtained and all filings described in such clauses have been
made, conflict with or violate any law, statute, rule, regulation, order,
judgment or decree applicable to Purchaser or by which it or its properties
are bound or affected; or (iii) conflict with or result in any breach or
violation of or constitute a default (or an event which with notice or lapse
of time or both could become a default) or result in the loss of a material
benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Purchaser pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Purchaser is a party or
by which Purchaser or any of its properties are bound or affected, except, in
the case of clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which could not, individually or in
the aggregate, reasonably be expected to prevent or materially delay the
consummation of the Offer or the Merger.
(b) The execution, delivery and performance of this Agreement, and
the consummation of the Offer, by Purchaser do not and will not require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
and the rules and regulations promulgated thereunder, the HSR Act, state
securities, takeover and "blue sky" laws, (ii) the filing and recordation of
appropriate merger or other documents as required by the NYBCL and (iii) such
consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain would not, individually
or in the aggregate, reasonably be expected to prevent or materially delay
the consummation of the Offer or the Merger.
<PAGE>
SECTION 4.5 Offer Documents; Proxy Statement. None of (i) the
Offer Documents, as filed pursuant to Section 1.1, or the information
supplied by Purchaser for inclusion in the Debt Offer Documents or the
Schedule 14D-9, shall, at the time such Offer Documents, Debt Offer
Documents, Schedule 14D-9 or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to shareholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) the
information supplied by Purchaser for inclusion in the Proxy Statement shall,
on the date the Proxy Statement is first mailed to shareholders, at the time
of the Shareholders Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not false or
misleading. Notwithstanding the foregoing, Purchaser makes no representation
or warranty with respect to any information supplied by the Company or any of
its representatives which is contained in or incorporated by reference in any
of the foregoing documents. The Offer Documents will comply in all material
respects as to form with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
SECTION 4.6 Debt Financing. Assuming the Financing is obtained,
the Company or the Surviving Corporation, as the case may be, will have
sufficient funds to (i) consummate the transactions contemplated by the Debt
Offer and (ii) make and satisfy the obligations under the change in control
offer under the Convertible Notes Indenture.
SECTION 4.7 Equity Financing. Purchaser will have sufficient
funds to (i) accept for payment and pay for all Shares tendered pursuant to
the Offer, (ii) purchase the Shares in the Equity Contribution (iii) permit
the Surviving Corporation to pay the aggregate Merger Consideration in the
Merger and (iv) purchase Shares in the event it exercises its rights pursuant
to the anti-dilution provisions set forth in Section 6.14, in each case upon
the consummation thereof and subject to terms and conditions specified herein
including, in the case of the Offer, the Offer Conditions.
SECTION 4.8 Brokers. No unaffiliated broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf
of Purchaser.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the Merger.
The Company covenants and agrees that, during the period from the date hereof
to such time as Purchaser's designees shall constitute a majority of the
Company's Board of Directors, except as specifically contemplated hereby,
unless Purchaser shall otherwise agree in writing, the businesses of the
Company and its subsidiaries shall be conducted only in, and the Company and
its subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice and in compliance with
applicable laws; and the Company and its subsidiaries shall each use its
commercially reasonable efforts to preserve substantially intact the business
<PAGE>
organization of the Company and its subsidiaries, to keep available the
services of the present officers, employees and consultants of the Company
and its subsidiaries and to preserve the present relationships of the Company
and its subsidiaries with customers, suppliers and other persons with which
the Company or any of its subsidiaries has significant business relations.
By way of amplification and not limitation, except as specifically
contemplated hereby, neither the Company nor any of its Significant
Subsidiaries (or, in the case of clause (j) below, its subsidiaries) shall,
during such period, directly or indirectly do, or commit to do, any of the
following without the prior written consent of Purchaser:
(a) Amend or otherwise change its certificate of incorporation or
by-laws or equivalent organizational documents or, except as expressly
contemplated by this Agreement, amend the Rights Agreement;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (A) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom
stock), of the Company or any of its subsidiaries (except for (i) the
issuance of up to 1,322,688 shares of Company Common Stock issuable in
accordance with the terms of Options outstanding as of November 2, 1997,
and (ii) the issuance of up to 7,616,003 shares of Company Common Stock
issuable in accordance with the terms of Convertible Notes outstanding
as of November 2, 1997) or (B) any assets of the Company or any of its
subsidiaries, except for (x) assets (excluding real property) sold,
leased, pledged or otherwise encumbered in the ordinary course of
business and in a manner consistent with past practice and (y)
sale/leaseback transactions on commercially reasonably terms and in an
aggregate amount not in excess of $15 million, so long as such
transactions are not consummated prior to January 15, 1998 and so long
as such transactions can be abandoned by the Company at any time prior
to consummation without the payment or incurrence of material cost,
expense or fees;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization
or division thereof; (ii) other than with respect to borrowings
necessary to effect the Debt Offer, incur any indebtedness for borrowed
money (other than (x) up to an aggregate principal amount of $10 million
at any one time outstanding and incurred in the ordinary course of
business or (y) pursuant to the Financing), or issue any debt
securities, or enter into any sale/leaseback transaction other than as
described in clause (b) above, or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans, advances or capital contributions to, or
investments in, any other person; (iii) enter into any contract or
agreement other than in the ordinary course of business consistent with
<PAGE>
past practice; (iv) authorize any single capital expenditure (or series
of capital expenditures) which is in excess of $50,000 or capital
expenditures which are, in the aggregate, in excess of $250,000 for the
Company and its subsidiaries taken as a whole; or (v) enter into or
amend any contract, agreement, commitment or arrangement with respect to
any of the matters set forth in this Section 5.1(e); provided that the
Company and its subsidiaries may obtain commitments for up to $25
million of financing in replacement for any existing commitments so long
as no material fees are incurred in respect thereof on or prior to the
initial expiration date of the Offer and so long as any such commitments
may be terminated by the Company at any time without the payment or
incurrence of material cost, expense or fees;
(f) Except to the extent required under existing employee and
director benefit plans, agreements or arrangements as in effect on the
date of this Agreement, increase the compensation or fringe benefits of
any of its directors, officers or employees, other than increases in
salary or wages of employees of the Company or its subsidiaries who are
not officers of the Company in the ordinary course of business in
accordance with past practice, or grant any severance or termination pay
not currently required to be paid under existing severance plans or
enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other
employee of the Company or any of its subsidiaries, or establish, adopt,
enter into or amend or terminate any collective bargaining agreement or
Company Plan, including, but not limited to, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees, or make any loans to
any employees, officers or directors (other than advances in respect of
reimbursable expenses) or cancel or forgive any such existing loans;
(g) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(h) Make or change any tax election, file any amended Tax Return,
or settle or compromise any material federal, state, local or foreign
Tax liability;
(i) Settle or compromise any pending or threatened suit, action or
claim for an amount in excess of $25,000 or which relates to the
Transactions;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries other than the
Merger and other than with respect to an inactive subsidiary so long as
neither the Company nor its Significant Subsidiaries incurs or assumes
any liabilities or obligations in connection therewith or as a result
thereof;
(k) Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
<PAGE>
ordinary course of business and consistent with past practice of
liabilities; or
(l) Take, or offer or propose to take, or agree to take in writing
or otherwise, any of the actions described in Sections 5.1(a) through
5.1(k) or any action which would make any of the representations or
warranties of the Company contained in this Agreement untrue and
incorrect as of the date when made if such action had then been taken,
or would result in any of the Offer Conditions not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Shareholders Meeting. (a) The Company, acting
through its Board of Directors, shall, if required to approve the Merger in
accordance with applicable law and the Company's Certificate of Incorporation
and By-Laws, (i) duly call, give notice of, convene and hold a meeting of its
shareholders as soon as practicable following consummation of the Offer for
the purpose of considering and taking action on this Agreement, the Merger
and the other Transactions (the "Shareholders Meeting"), (ii) include in the
Proxy Statement the unanimous recommendation of the Board of Directors that
the shareholders of the Company vote in favor of the approval of this
Agreement, the Merger and the other Transactions, which recommendation may
not be withdrawn, amended or modified in a manner adverse to Purchaser (nor
may the Board of Directors of the Company announce publicly its intention to
do so), and the written opinion of the Financial Adviser that the
consideration to be received by the shareholders of the Company pursuant to
the Merger is fair to such shareholders and (iii) use its reasonable best
efforts to obtain the necessary approval of this Agreement and the Merger by
its shareholders. At the Shareholders Meeting, Purchaser shall cause all
Shares then owned by it or for which it has the power to vote or direct the
vote to be voted in favor of approval of this Agreement and the Transactions.
(b) The Board of Directors of the Company shall set the record
date for the Shareholders Meeting to occur immediately following the
consummation of the Offer and the Equity Contribution so that Purchaser is
the holder of record for purposes of such Shareholders Meeting of the Shares
acquired in the Offer and the Equity Contribution, which Shares shall
constitute in excess of two-thirds of the issued and outstanding Shares of
record at such record date. In the event that it becomes necessary to delay
the date of the Shareholders Meeting, the Company shall use its reasonable
best efforts to ensure that any such delay does not frustrate the purpose of
the immediately preceding sentence, including by issuing Shares in accordance
with Section 6.14 immediately prior to setting any new record date for the
Shareholders Meeting.
(c) Notwithstanding the foregoing, in the event that Purchaser
shall acquire at least 90% of the outstanding Shares, the Company agrees, at
the request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as
reasonably practicable after such acquisition, without a meeting of the
Company's shareholders, in accordance with Section 905 of the NYBCL.
SECTION 6.2 Proxy Statement. (a) As soon as practicable
following the date hereof, the Company shall prepare and file with the SEC
<PAGE>
under the Exchange Act and the rules and regulations promulgated thereunder,
and shall use its reasonable best efforts to have cleared by the SEC as
promptly as practicable after such filing, the Proxy Statement with respect
to the Shareholders Meeting. Purchaser and the Company will cooperate with
each other in the preparation of the Proxy Statement; without limiting the
generality of the foregoing, Purchaser will furnish in writing to the Company
the information relating to it and its affiliates required by the Exchange
Act and the rules and regulations promulgated thereunder to be set forth in
the Proxy Statement. The Company agrees to use its reasonable best efforts,
after consultation with Purchaser, to respond promptly to any comments made
by the SEC with respect to the Proxy Statement and any preliminary version
thereof filed by it, and to cause such Proxy Statement to be mailed to the
Company's shareholders as promptly as practicable. The Company and Purchaser
each agrees to correct any information provided by it for use in the Proxy
Statement which shall have become false or misleading.
(b) The Company will as promptly as practicable notify Purchaser
of (i) the receipt of any comments from the SEC with respect to the Proxy
Statement and (ii) any request by the SEC for any additional information.
All filings by the Company with the SEC, including the Proxy Statement and
any amendments thereto, and all mailings to the Company's shareholders in
connection with the Merger, including the Proxy Statement, shall be subject
to the prior review, comment and approval of Purchaser (such approval not to
be unreasonably withheld or delayed).
SECTION 6.3 Company Board Representation; Section 14(f). (a)
Immediately upon the purchase by Purchaser of Shares pursuant to the Offer,
and from time to time thereafter, Purchaser shall be entitled to designate up
to such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as shall give Purchaser representation on
the Board of Directors equal to the product of the total number of directors
on such Board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate of Purchaser (including
Shares as to which any such person has the right to vote or direct the
voting) bears to the total number of Shares then outstanding, and the Company
shall, at such time, take all action necessary to cause Purchaser's designees
to be so elected, including by securing the resignations of incumbent
directors. Purchaser shall determine for the approval of the Board of
Directors the classes into which such directors are placed, so long as such
placement does not violate or conflict with the Company's Certificate of
Incorporation or By-laws or the NYBCL and the Company shall cause Purchaser's
designees to be so placed. The Company will use its reasonable best efforts
to cause persons designated by Purchaser to constitute the same percentage as
is on the board of (i) each committee of the Board of Directors, (ii) each
board of directors of each subsidiary of the Company and (iii) each committee
of each such board, in each case only to the extent permitted by law and the
rules of the NYSE to the extent applicable.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-
1 promulgated thereunder. The Company shall promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 6.3 and shall include in the Schedule 14D-9 or
a separate Rule 14f-1 information statement provided to shareholders such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
<PAGE>
this Section 6.3. Purchaser will supply to the Company and be solely
responsible for any information with respect to it and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Purchaser's designees
pursuant to this Section 6.3 and prior to the Effective Time, so long as at
least one director of the Company then in office is neither designated by
Purchaser nor an employee of the Company (a "Disinterested Director"), any
amendment of this Agreement or, to the extent material, the Certificate of
Incorporation or By-Laws of the Company, any termination of this Agreement by
the Company, any extension by the Company of the time for the performance of
any of the obligations or other acts of Purchaser or waiver of any of the
Company's rights hereunder, and any other consent or action by the Board of
Directors hereunder, will require the concurrence of a majority of the
Disinterested Directors or, if there is only one Disinterested Director, of
such Disinterested Director. The Company shall use its best efforts to
insure that at least one Disinterested Director remains on the Board of
Directors prior to the Effective Time.
SECTION 6.4 Access to Information; Confidentiality. (a) From the
date hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Purchaser and
its affiliates, and financing sources who shall agree to be bound by the
provisions of this Section 6.4 as though a party hereto, access at all
reasonable times (i) to its officers, employees, agents, properties, offices,
stores and other facilities and to all books and records, and shall furnish
such persons with all financial, operating and other data and information as
they may from time to time request, (ii) the Company's and its subsidiaries'
vendors and (iii) the Company's and its subsidiaries' management information
systems and other consultants.
(b) The documents and information provided pursuant to this
Section 6.4 shall be subject to the provisions of the letter agreement dated
March 25, 1997 between the Company and The Cypress Group L.L.C. (the
"Confidentiality Agreement").
(c) No investigation pursuant to this Section 6.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 6.5 No Solicitation of Transactions. The Company agrees
that it shall not, and shall cause its subsidiaries and its and its
subsidiaries' officers, directors, employees, representatives, agents,
advisors and affiliates not to, solicit, initiate or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or
provide any confidential information to, or have any discussions with, or
enter into an agreement with, any person relating to any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving the Company or any of its subsidiaries or any proposal or offer to
acquire in any manner a greater than 20% equity interest in, or more than 20%
of the assets of, the Company or any of its subsidiaries, other than the
Transactions (any of the foregoing, an "Acquisition Proposal"); provided,
that the Company may (i) at any time prior to the consummation of the Offer,
if the Company is not otherwise in violation of this Section 6.5, furnish
information to, and negotiate or otherwise engage in discussions with, any
party who delivers a written proposal for an Acquisition Proposal if and so
<PAGE>
long as the Board of Directors of the Company determines in good faith by a
majority vote, based upon advice of its outside legal counsel, that failing
to take such action would reasonably be expected to constitute a breach of
the fiduciary duties of the Board; and (ii) take a position with respect to
the Acquisition Proposal, or amend or withdraw such position, in compliance
with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act with regard
to the Acquisition Proposal. The Company also agrees immediately to cease
and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than
Purchaser and its affiliates, with respect to any of the foregoing. The
Company shall promptly (and in any event within 24 hours) advise Purchaser
following the receipt by it of any Acquisition Proposal or any inquiry or
request relating thereto and the substance thereof (including the identity of
the person making such Acquisition Proposal and a copy of any written
proposal), and, if consistent with its fiduciary duties, advise Purchaser of
any developments with respect to such Acquisition Proposal, inquiry or
request promptly upon the occurrence thereof, including the Company's
entering into discussions or negotiations with respect thereto. The Company
agrees not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party.
Without limiting the generality of the foregoing, it is understood that any
violation of the restrictions set forth in this paragraph by any officer,
director, employee, representative, agent, advisor or affiliate of the
Company or any subsidiary shall be deemed to be a breach of this paragraph by
the Company.
SECTION 6.6 Benefits Matters. (a) On and after the Effective
Time, the Surviving Corporation shall promptly pay or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of any compensation arrangements, employment
agreements and employee or director benefit plans, programs and policies in
existence as of the date hereof for all employees (and former employees) and
directors (and former directors) of the Company and previously disclosed to
Purchaser. Purchaser and the Company agree that the Surviving Corporation
shall pay promptly or provide when due all compensation and benefits accrued
or incurred prior to the Effective Time and required to be paid pursuant to
the terms of any individual agreement with any employee, former employee,
director or former director in effect and disclosed to Purchaser as of the
date hereof, or pursuant to any applicable collective bargaining agreement.
(b) Notwithstanding the remaining provisions of this Section 6.6,
the Company and its subsidiaries, and the Surviving Corporation, its
subsidiaries and its successors and assigns, will honor all director
retirement benefits, and all employment or severance agreements with any
Employee (as defined below) or former employee of the Company or any of its
subsidiaries, in existence on the date hereof which are listed on Section
3.10 of the Company Disclosure Schedule and a full and complete copy (or, in
the case of oral agreements, written summary) of which has been provided to
Purchaser prior to the date hereof. "Employee" shall mean any employee of
the Company or its subsidiaries immediately prior to the purchase of Shares
pursuant to the Offer.
(c) Notwithstanding the remaining provisions of this Section 6.6,
from the Effective Time until the first anniversary of the Effective Time,
the Surviving Corporation, its subsidiaries, successors and assigns shall
provide Employees and former employees of the Company and its subsidiaries
(and directors and former directors of the Company) with benefit and
<PAGE>
compensation plans, programs, policies or arrangements (including, without
limitation, annual and long-term incentive plans, retirement plans, life
insurance, medical, dental and other similar employee welfare benefit plans)
no less favorable (subject to the following proviso) in the aggregate as to
each Employee, former employee, director or former director than those
currently provided to similarly situated persons by the Company and its
subsidiaries pursuant to plans, programs, policies and arrangements listed on
Section 3.10 of the Company Disclosure Schedule and a full and complete copy
(or, in the case or oral agreements, written summary) of which has been
provided to Purchaser prior to the date hereof; provided, however, that this
sentence shall not require the Surviving Corporation or its subsidiaries,
successors and assigns to provide any plan, program or arrangement providing
for the issuance or grant of any interest or right in respect of the capital
stock of the Surviving Corporation or any of its subsidiaries. Purchaser
acknowledges that the purchase of Shares pursuant to the Offer will
constitute a change in control of the Company (to the extent such concept is
applicable) for the purposes of all agreements, contracts, plans, programs,
policies or arrangements of the Company listed in Section 3.10 of the Company
Disclosure Schedule.
(d) Purchaser acknowledges the obligations of the Company and the
Surviving Corporation (and their subsidiaries, successors and assigns) set
forth in this Section 6.6. Nothing in this Section 6.6 shall require the
continued employment of any person or prevent the Company and/or the
Surviving Corporation (or its subsidiaries) from taking any action or
refraining from taking any action which the Company (or its subsidiaries),
prior to the Effective Time, could have taken or refrained from taking.
SECTION 6.7 Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation and the By-Laws of the
Surviving Corporation shall contain provisions no less favorable with respect
to indemnification than are set forth in the By-Laws of the Company on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who
prior to the purchase of Shares in the Offer were directors, officers or
employees of the Company unless such modification is required by law.
(b) The Surviving Corporation shall use its reasonable best
efforts to maintain in effect for six years from the Effective Time the
current policies of the directors' and officers' liability insurance
maintained by the Company with respect to matters occurring prior to the
Effective Time (provided that the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous to the covered officers
and directors) to the extent available; provided, however, that in no event
shall the Surviving Corporation be required to expend more than an amount per
year equal to 200% of current annual premiums paid by the Company (which
annual premium the Company represents and warrants to be not more than
$230,000) to maintain or procure insurance coverage pursuant hereto, but in
such case shall purchase as much coverage as possible for such amount.
SECTION 6.8 Notification of Certain Matters. The Company shall
give prompt notice to Purchaser, and Purchaser shall give prompt notice to
the Company, of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
<PAGE>
inaccurate and (ii) any failure of the Company or Purchaser, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.9 Further Action; Reasonable Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto
shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary,
proper or advisable, including under applicable laws and regulations, to
consummate and make effective the Transactions, including but not limited to
(i) cooperation in the preparation and filing of the Offer Documents, the
Schedule 14D-9, the Proxy Statement or any required filings under the HSR Act
and any amendments to any thereof, (ii) using its reasonable best efforts to
make and cooperate in making all required regulatory filings and applications
and to obtain and cooperate in obtaining all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and third parties as are necessary or advisable for the
consummation of the Transactions and to fulfill the conditions to the Offer,
the Merger, the Debt Offer, and the Financing and (iii) using its reasonable
best efforts to oppose, defend against, remove and appeal any injunction,
order, decree or ruling restraining, enjoining or otherwise prohibiting the
Offer, the Merger or any of the other Transactions. In case at any time
after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use their reasonable best efforts to
take all such necessary action.
(b) The Company shall, as soon as reasonably practicable after the
date hereof (and in any event within five business days from the date of
public announcement of the execution hereof), commence a debt tender offer
for its 11 1/2% senior notes due 2002 (the "Senior Notes"), together with a
solicitation of consents to amend the Senior Notes Indenture, dated as of
February 28, 1992, between the Company and Bankers Trust Company, as trustee
(the "Senior Notes Indenture"; such amendment, the "Senior Notes Indenture
Amendment"; and such debt tender offer and consent solicitation,
collectively, the "Debt Offer"). The Debt Offer shall be on the terms and
conditions specified in Annex B hereto or as otherwise agreed by the Company
and Purchaser. Purchaser shall be entitled to be involved in and shall
cooperate with the Company in the Company's preparation of the documents to
be sent to the holders of the Senior Notes in connection with the Debt Offer
(together with any supplements or amendments thereto, the "Debt Offer
Documents"). The Company shall waive any of the conditions to the Debt Offer
and make any other changes in the terms and conditions of the Debt Offer as
may be reasonably requested by Purchaser, and the Company shall not, without
Purchaser's prior written consent, waive any condition to the Debt Offer or
make any changes to the terms and conditions of the Debt Offer. In
determining whether or not to give such consent, Purchaser agrees to act in a
commercially reasonable manner. Purchaser and the Company each agrees
promptly to correct any information provided by it for use in the Debt Offer
Documents that shall have become false or misleading in any material respect,
and the Company further agrees to take all steps necessary to cause the Debt
Offer Documents as so corrected to be disseminated to holders of Senior
Notes. Provided the Company is able to obtain the Financing to consummate
the Debt Offer, and the other conditions of the Debt Offer are met or, at the
<PAGE>
sole discretion of Purchaser, waived, the Company shall accept for payment
and pay for the Senior Notes validly tendered and not withdrawn pursuant to
the Debt Offer simultaneously with the consummation of the Offer.
(c) The Company agrees to provide, and will cause its subsidiaries
and its and their respective officers, employees, representatives and agents
to provide, cooperation in connection with the arrangement and closing of the
financing described in the commitment letter dated November 21, 1997 from The
Chase Manhattan Bank, Chase Securities Inc. and Goldman Sachs Credit Partners
L.P. to, and accepted and agreed by, The Cypress Group L.L.C., including the
attached term sheet (a true and complete copy of which has been provided to
the Company) or any other financing on terms and conditions not significantly
less favorable to or otherwise reasonably acceptable to the Company and
arranged or approved by Purchaser or its affiliates (the "Financing"), to be
consummated contemporaneous with or at or after consummation of the Offer or
the Effective Time in respect of the Transactions, including without
limitation, the negotiation and execution of loan documents, the preparation
of disclosure schedules, the preparation of offering memoranda, private
placement memoranda or other similar documents, participation in meetings,
due diligence sessions and road shows (consistent with such individuals'
responsibilities for the ongoing operations of the Company), the execution
and delivery, with effectiveness no earlier than consummation of the Offer,
of any pledge and security documents, other definitive financing documents,
or other requested certificates or documents as reasonably may be requested
by Purchaser. In addition, in connection with the obtaining of any such
financing, the Company agrees to request opinions of the Company's legal
counsel and "comfort letters" of the Company's accountants reasonably
required in connection with such financing and, at the request of Purchaser,
following the consummation of the Offer, to call for prepayment or
redemption, or to prepay, redeem and/or renegotiate, as the case may be, any
then existing indebtedness of the Company to the extent financing is
available therefor.
(d) If any "fair price" or "control share acquisition" or other
state takeover statute or regulation shall become or be deemed applicable to
this Agreement or any of the Transactions, Purchaser and the Company and
their respective Boards of Directors shall use their best efforts to grant
such approvals and take such actions as are necessary so that the
Transactions may be consummated as promptly as practicable on the terms and
subject to the conditions contemplated hereby and otherwise act to minimize
the effects of any such statute or regulation on the Transactions.
(e) Following the consummation of the Offer, the Company or the
Surviving Corporation, as the case may be, shall make the change in control
offer required under the Convertible Notes Indenture at the times and
pursuant to the procedures provided therein.
SECTION 6.10 Public Announcements. Purchaser and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Offer or the Merger and
shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with its securities exchange.
SECTION 6.11 Cancellation of Common Stock Equivalents. The
Company shall use its commercially reasonable efforts to cause the
cancellation of the Common Stock Equivalents in consideration of a payment in
<PAGE>
cash at the Effective Time to the holders thereof equal to the product of (x)
the number of Shares represented by the Common Stock Equivalents and (y) the
excess of the Merger Consideration over the exercise price per Common Stock
Equivalent.
SECTION 6.12 Disposition of Litigation. The Company and Purchaser
each agrees that it will not settle any litigation against it or any of its
directors by any shareholder or creditor of the Company relating to any of
the Transactions without the prior written consent of the other.
SECTION 6.13 Equity Contribution. Simultaneously with the
consummation of the Offer, the Company will sell to Purchaser, and Purchaser
will purchase from the Company, an aggregate number of Shares specified by
Purchaser up to 5,586,314 Shares (including from treasury or through new
issuance) at a price per Share equal to the Merger Consideration (the "Equity
Contribution"), such Shares to be validly issued, fully paid and
nonassessable, approved for listing on the NYSE and issued and sold free of
preemptive (or similar) rights and any liens, claims or similar encumbrances.
SECTION 6.14. Anti-Dilution. The Company will as promptly as
practicable notify Purchaser if it issues any Shares, whether upon the
exercise, exchange or conversion of securities exercisable or exchangeable
for or convertible into Shares or otherwise. If the Offer is consummated,
the Company agrees that if, at the time of closing of the Offer and the
Equity Contribution or at any time thereafter until the later of (a) the
Effective Time of the Merger and (b) two years from the closing of the Offer
and the Equity Contribution, the number of Shares held by Purchaser shall not
represent at least two-thirds of the outstanding Shares as a result of the
issuance of Shares by the Company, whether upon the exercise, exchange or
conversion of Options, Convertible Notes or other securities exercisable or
exchangeable for or convertible into Shares or otherwise, the Company will
sell (including from treasury or through new issuance) to Purchaser, upon
notice from Purchaser, at a price per share equal to the Merger
Consideration, in cash, such number of validly issued, fully paid and non-
assessable shares of Company Common Stock (which shares shall be approved for
listing on the NYSE if the Shares are then so listed and issued and sold free
of preemptive (or similar) rights and any liens, claims or similar
encumbrances) as may be necessary so that the percentage of outstanding
shares of Company Common Stock held by Purchaser represents at least two-
thirds of the outstanding Shares.
SECTION 6.15. Support Agreement. The Company agrees not to take
any action, and shall direct its directors, officers, employees, transfer
agent, other agents, and representatives not to take any action, which would
permit or facilitate a transfer of record ownership of Shares held by the
Supporting Shareholder in violation of the Support Agreement.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
<PAGE>
(a) If required by the NYBCL, this Agreement shall have been
approved by the affirmative vote of the shareholders of the Company
owning of record at least two-thirds of the outstanding Shares entitled
to vote thereon.
(b) No temporary restraining order, preliminary or permanent
injunction or other order shall have been issued by any court or by any
governmental or regulatory agency, body or authority which prohibits the
consummation of the Merger or any of the other Transactions and which is
in effect at the Effective Time, provided, however, that, in the case of
any such decree, injunction or other order, each of the parties shall
have used reasonable best efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any
decree, injunction or other order that may be entered.
(c) No statute, rule, regulation, executive order, decree, or
other order of any kind (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any United
States or state court or governmental authority which prohibits or
enjoins the consummation of the Merger.
(d) Any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired.
(e) Purchaser shall have accepted for payment and paid for the
Shares tendered pursuant to the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of the Company:
(a) By mutual written consent of Purchaser and the Company;
(b) By Purchaser or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States shall have issued a final injunction, order,
decree or ruling or taken any other final action restraining, enjoining
or otherwise prohibiting the Offer, the Merger or any of the other
Transactions and such order, decree, ruling or other action is or shall
have become final and nonappealable;
(c) By Purchaser or the Company if due to an occurrence or
circumstance which would result in a failure of the Offer Conditions to
be capable of satisfaction, (i) Purchaser shall have terminated the
Offer, (ii) the Offer shall have expired without Purchaser having
accepted Shares for payment pursuant thereto, or (iii) Purchaser shall
not have accepted Shares for payment pursuant to the Offer in accordance
with the terms thereof, unless such failure has been caused by or
results from the breach by the party seeking termination of any of its
representations, covenants or agreements contained in this Agreement;
<PAGE>
(d) By the Company if Purchaser shall have failed to commence the
Offer within five business days of the public announcement thereof
(within the meaning of Rule 14d-2(b) of the Exchange Act) unless the
failure to commence the Offer shall be due to (A) the failure of the
Company to perform in any material respect any of its obligations under
this Agreement then required to be performed or (B) the failure of any
condition to the Offer set forth in Annex A hereto;
(e) By Purchaser or the Company prior to the purchase of the
Shares pursuant to the Offer (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part of
the other party, which breach is not cured within five business days
following written notice given by the terminating party to the party
committing such breach, or which breach, by its nature, cannot be cured
prior to the date on which the Offer expires; or
(f) By either Purchaser or the Company prior to the purchase of
Shares pursuant to the Offer if the Board of Directors of the Company
shall reasonably determine in good faith by a majority vote that an
Acquisition Proposal is more favorable to the Company's shareholders in
the aggregate and from a financial point of view than the transactions
contemplated by this Agreement (including any adjustment to the terms
and conditions of such transactions proposed by Purchaser in response to
such Acquisition Proposal) and shall reasonably determine in good faith
by a majority vote, based upon advice of its outside legal counsel, that
failing to accept such Acquisition Proposal would reasonably be expected
to constitute a breach of the fiduciary duties of the Board and the
Company shall have delivered to Purchaser a written notice of the
determination by the Company's Board of Directors to terminate this
Agreement pursuant to this Section 8.1(f) setting forth a summary of all
material terms of such Acquisition Proposal; provided, however, that the
Company may not terminate this Agreement pursuant to this clause (f)
unless (i) five business days shall have elapsed after delivery to
Purchaser of the notice referred to above, (ii) at the end of such five
business day period the Company's Board of Directors shall continue to
believe that such Acquisition Proposal is more favorable to the
Company's shareholders in the aggregate and from a financial point of
view than the transactions contemplated by this Agreement (including any
adjustment to the terms and conditions of such transactions proposed by
Purchaser in response to such Acquisition Proposal), and (iii)
simultaneously with such termination the Company shall enter into a
definitive acquisition, merger or similar agreement to effect such
Acquisition Proposal and shall make payment of the full reimbursement
required by Section 8.3(a)(i) hereof; or
(g) By Purchaser prior to the purchase of Shares pursuant to the
Offer, if (i) the Board shall have withdrawn or modified (including by
amendment of the Schedule 14D-9) in a manner adverse to Purchaser its
approval or recommendation of the Offer, this Agreement or the Merger or
shall have recommended another Acquisition Proposal, offer or
transaction; or (ii) the Minimum Condition shall not have been satisfied
by the expiration date of the Offer and on or prior to such date (A) any
person (other than Purchaser or its affiliates) shall have made a public
announcement or proposal, or a communication to the Company which
<PAGE>
becomes publicly known, with respect to an Acquisition Proposal which is
superior from a financial point of view to the Offer and the Merger or
(B) any person (including the Company or any of its affiliates or
subsidiaries), other than Purchaser or any of its affiliates, shall have
become the beneficial owner of 20% or more of the Shares.
SECTION 8.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any
party hereto except as set forth in Section 8.3 and Section 9.1; provided,
however, that nothing herein shall relieve any party from liability for any
breach hereof.
SECTION 8.3 Fees and Expenses.
(a) If Purchaser terminates this Agreement pursuant to Section
8.1(f), (g)(i) or (g)(ii)(B) hereof, or if the Company terminates this
Agreement pursuant to Section 8.1(f) hereof or in circumstances that would
have permitted Purchaser to terminate pursuant to Section 8.1(f), (g)(i) or
(g)(ii)(B) hereof, then:
(i) The Company shall reimburse Purchaser and its affiliates for
all reasonable out-of-pocket fees and expenses actually incurred by any
of them or on their behalf in connection with the Offer and the Merger
and the negotiation, preparation, diligence in respect of and
consummation of all Transactions (including, without limitation, fees
and disbursements payable to financing sources, investment bankers,
counsel to Purchaser or its affiliates or any of the foregoing, and
accountants) up to an aggregate maximum reimbursement of $750,000. The
Company shall pay the amounts requested within one business day of such
requests (accompanied by a submission of statements therefor); and
(ii) If (x) such termination is pursuant to Section 8.1(g)(ii)(B)
or in circumstances that would have permitted Purchaser to terminate
pursuant to Section 8.1(g)(ii)(B) or (y) within 12 months of such
termination the Company consummates a transaction contemplated by the
definition of "Acquisition Proposal", then in each case the Company
shall pay to or as directed by Purchaser, within one business day
following such termination, in the case of clause (x) above, or within
one business day following consummation of such transaction, in the case
of clause (y) above, a fee, in cash, of $3 million, provided, however,
that the Company in no event shall be obligated to pay more than one
such fee with respect to all such terminations and transactions.
(b) Except as otherwise specifically provided herein, each party
shall bear its own expenses in connection with this Agreement and the
Transactions.
SECTION 8.4 Amendment. Subject to Section 6.3 and any applicable
law, this Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Effective Time. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior to
the Effective Time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties
<PAGE>
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements set forth in this
Agreement shall terminate upon the purchase of Shares in the Offer or upon
the termination of this Agreement pursuant to Section 8.1, as the case may
be, except that the agreements set forth in Article II, Section 6.6, Section
6.7 and Article IX shall survive the Effective Time and those set forth in
Section 6.4(b), Section 8.3 and Article IX shall survive termination of this
Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person,
by cable, telecopy, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Purchaser:
The Cypress Group
65 East 55th Street, 19th Floor
New York, NY 10022
Attention: David P. Spalding
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Robert E. Spatt, Esq.
if to the Company:
General Host Corporation
c/o Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, MI 43234
Attention: J. Theodore Everingham, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Joseph A. Coco, Esq.
<PAGE>
SECTION 9.3 Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any Shares means a person
who, or any of whose affiliates or associates (as such term is defined
in Rule 12b-2 of the Exchange Act), (i) beneficially owns, directly or
indirectly, such Shares, (ii) has, directly or indirectly, (A) the right
to acquire such Shares (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the
right to vote such Shares pursuant to any agreement, arrangement or
understanding or (iii) has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of such
Shares with any other beneficial owner of such Shares; "beneficially
own" and "beneficial ownership" shall have correlative meanings.
(c) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of
the management policies of a person, whether through the ownership of
stock, power to elect a majority of directors or other managers, as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a
significant segment of the accounting profession in the United States,
in each case applied on a basis consistent with the manner in which the
audited financial statements for the fiscal year of the Company ended
January 26, 1997 were prepared;
(e) "knowledge" of the Company shall include knowledge of the
officers of its Significant Subsidiaries.
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act);
(g) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity; and
<PAGE>
(h) "Significant Subsidiary" has the meaning set forth in
Regulation S-X promulgated by the SEC.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Transactions is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the
end that the Transactions are fulfilled to the fullest extent possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement and the
Confidentiality Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Purchaser may assign
all or any of its rights and obligations hereunder to any affiliate of
Purchaser.
SECTION 9.6 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under
or by reason of this Agreement, except for Sections 6.6(a) and (b) and 6.7,
which are intended to be for the benefit of the persons referred to therein,
and may be enforced by such persons.
SECTION 9.7 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
CYRUS ACQUISITION CORP.
By: /s/ David P. Spalding
Title: President
GENERAL HOST CORPORATION
By: /s/ Harris J. Ashton
Title: Chairman, President & CEO
<PAGE>
ANNEX A to
Agreement and
Plan of Merger
Offer Conditions
The capitalized terms used in this Annex A have the meanings set
forth in the attached Agreement, except that the term "Merger Agreement"
shall be deemed to refer to the attached Agreement and the term "Commission"
shall be deemed to refer to the SEC.
Notwithstanding any other provision of the Offer, Purchaser shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, and may postpone the acceptance for payment
or, subject to the restriction referred to above, payment for any Shares
tendered pursuant to the Offer, and may amend or terminate the Offer as to
any Shares not then paid for if, prior to the expiration of the Offer, (i) a
number of Shares which constitutes more than two-thirds of the voting power
(determined on a fully-diluted basis, without giving effect to potential
dilution resulting from conversion of Convertible Notes which are outstanding
and unconverted at the expiration date of the Offer), on the date of
purchase, of all the securities of the Company entitled to vote generally in
the election of directors or in a merger shall not have been validly tendered
and not properly withdrawn prior to the expiration of the Offer (the "Minimum
Condition") or (ii) at any time on or after the date of the Merger Agreement
and prior to the acceptance for payment of Shares, any of the following
events have occurred:
(a) there shall have been instituted or pending any action or
proceeding brought by any governmental authority before any federal or
state court, or any order or preliminary or permanent injunction entered
in any action or proceeding before any federal or state court or
governmental, administrative or regulatory authority or agency, or any
other action taken, or statute, rule, regulation, legislation,
interpretation, judgment or order enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to Purchaser, the
Company or any subsidiary or affiliate of Purchaser or the Company or to
the Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency which
could reasonably be expected to have the effect of: (i) making illegal,
materially delaying or otherwise directly or indirectly restraining or
prohibiting or making materially more costly the making of the Offer,
the acceptance for payment of, or payment for, some of or all the Shares
by Purchaser or any of its affiliates, or the consummation of any of the
<PAGE>
transactions contemplated by the Merger Agreement or materially delaying
the Merger; (ii) prohibiting or materially limiting the ownership or
operation by the Company or any of its Significant Subsidiaries or
Purchaser or any of Purchaser's affiliates of all or any material portion
of the business or assets of the Company or any of its Significant
Subsidiaries, or compelling Purchaser or any of its affiliates to dispose
of or hold separate all or any material portion of the business or assets
of the Company or any of its Significant Subsidiaries or Purchaser or any
of its affiliates, as a result of the transactions contemplated by the
Offer or the Merger Agreement; (iii) imposing or confirming limitations
on the ability of Purchaser or any of its affiliates effectively to
acquire or hold or to exercise full rights of ownership of Shares,
including without limitation the right to vote any Shares acquired or
owned by Purchaser or any of its affiliates on all matters properly
presented to the shareholders of the Company, including without
limitation the adoption and approval of the Merger Agreement and the
Merger or the right to vote any shares of capital stock of any
subsidiary directly or indirectly owned by the Company; or (iv)
requiring divestiture by Purchaser or any of its affiliates of any
Shares;
(b) there shall have occurred, after the date of the Merger
Agreement, an event that has had a Material Adverse Effect;
(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on the New York
Stock Exchange or in the Nasdaq National Market for a period in excess
of 24 hours (excluding suspensions or limitations resulting solely from
physical damage or interference not relating to monetary conditions),
(ii) a decline of at least 25% in either the Dow Jones Average of
Industrial Stocks or the Standard & Poor's 500 index from the date
hereof, or a material disruption of or material adverse change in
financial, banking or capital market conditions that could materially
adversely affect syndication of loan facilities, (iii) a declaration of
a banking moratorium or any suspension of payments in respect of banks
in the United States, (iv) any limitation (whether or not mandatory) by
any domestic government or governmental, administrative or regulatory
authority or agency on, or any other event that could reasonably be
expected to materially adversely affect the extension of credit by banks
or other lending institutions, (v) a commencement of a war or armed
hostilities or other national or international calamity having a
Material Adverse Effect or materially adversely affecting (or materially
delaying) the consummation of the Offer or any of the other Transactions
or (vi) in the case of any of the foregoing existing at the time of
commencement of the Offer, a material acceleration or worsening thereof;
(d) (i) it shall have been publicly disclosed or Purchaser shall
have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated under
the Exchange Act) of more than 15.0% of the outstanding Shares has been
acquired by any corporation (including the Company or any of its
subsidiaries or affiliates), partnership, person or other entity or
group (as defined in Section 13(d)(3) of the Exchange Act), other than
Purchaser or any of its affiliates, or (ii) (A) the Board of Directors
of the Company or any committee thereof shall have withdrawn or modified
in a manner adverse to Purchaser the approval or recommendation of the
Offer, the Merger or the Merger Agreement, or approved or recommended
<PAGE>
any Acquisition Proposal or any other acquisition of Shares other than
the Offer and the Merger or (B) any such corporation, partnership,
person or other entity or group shall have entered into a definitive
agreement or an agreement in principle with the Company with respect to
an Acquisition Proposal;
(e) any of the representations and warranties of the Company set
forth in the Merger Agreement that are qualified as to materiality shall
not be true and correct, or any such representations and warranties that
are not so qualified shall not be true and correct in any material
respect, in each case as if such representations and warranties were
made at the time of such determination;
(f) the Company shall have failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of the Company to be performed or complied with by
it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance
with its terms or the Offer shall have been terminated with the consent
of the Company;
(h) any waiting periods under the HSR Act applicable to the
purchase of Shares contemplated by the Merger Agreement, including
pursuant to the Offer, the Equity Contribution and the Merger, shall not
have expired or been terminated;
(i) consents in respect of the Senior Note Indenture Amendment on
behalf of Senior Notes representing at least a majority in principal
amount of all outstanding Senior Notes shall not have been validly
tendered and not withdrawn in the Debt Offer, or any other condition to
the Debt Offer shall not have been satisfied or waived in accordance
with the Merger Agreement, or the Senior Note Indenture Amendment shall
not have been executed or shall not become operative immediately
following the consummation of the Debt Offer; or
(j) all consents and approvals of and notices to or filings with
governmental authorities and third parties required in connection with
the Transactions shall not have been obtained or made other than those
the absence of which, individually or in the aggregate, would not have a
Material Adverse Effect or prevent or materially delay consummation of
any of the Transactions.
The foregoing conditions are for the sole benefit of Purchaser and
may be asserted by Purchaser regardless of the circumstances giving rise to
any such condition or may be waived by Purchaser in whole or in part at any
time and from time to time in its sole discretion (subject in each case to
the terms of the Merger Agreement). The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to any other
facts and circumstances, and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time. Any determination by
Purchaser concerning the events described in this Annex A will be final and
binding upon all parties.
<PAGE>
ANNEX B to
Agreement and
Plan of Merger
Summary of Key Debt Offer Terms and Conditions
Transaction: Tender Offer and Consent Solicitation.
Type of Tender: Any and all; subject to minimum majority tender with
receipt of exit consents.
Conditions: Noteholders may not tender without consenting and
may not consent without tendering.
All of the conditions precedent to the Offer as set
forth in Annex A to the Merger Agreement shall have
been satisfied except the condition set forth at
paragraph (i); the Company must have evidence that
such paragraph (i) will be satisfied upon the
Closing of the Debt Offer. Purchaser shall have
accepted Shares for payment simultaneously with the
acceptance for payment of the Senior Notes.
The Financing shall be consummated simultaneously
with the acceptance for payment of the tendered
Senior Notes.
Other conditions typical for transactions of this
type and not inconsistent with the foregoing.
Launch Date: Simultaneous with Offer launch.
Consent Date: 10 business days after launch date, or such later
date on which the requisite consents have been
received.
Expiration Date: 20 business days after launch date, or any later
date to which the Offer is extended.
Consideration: Tender price per Bond: Offer Price plus accrued and
unpaid interest to payment date.
Consent Fee per Bond: $20 per $1,000. Payable only
to noteholders who validly tender (and do not
withdraw) Senior Notes and consents on or prior to
Consent Date.
Total Payment per Bond: Offer Price plus accrued
and unpaid interest to payment date.
Offer Price: $1,036.25 per $1,000.
Exit Consents: Exit consents to (i) eliminate certain restrictive
provisions set forth in Articles 5, 6 and 11 of the
<PAGE>
Indenture in order to permit the Transactions to
proceed, including:
-- Limitation on Restricted Payments;
-- Limitation on Transactions with Affiliates;
-- Limitation on Indebtedness;
-- Limitation on Dividend and Other Payment
Restrictions Affected Restricted Subsidiaries;
-- Restriction on Liens;
-- Limitation on Asset Dispositions;
-- Limitation on Sale or Issuance of Certain
Stock;
-- Limitation on Issuance of Subordinated
Indebtedness;
and (ii) waive certain restrictive provisions set
forth in Articles 5, 6 and 11 of the Indenture in
order to permit the Transactions to proceed,
including:
-- Change of Control;
-- When Company May Merge, Etc.;
-- Events of Default (paragraph (5) (cross-
acceleration) only).
Co-Dealer Managers: Goldman Sachs & Co.
Credit Suisse First Boston Corporation
<PAGE>
ANNEX C to
Agreement and
Plan of Merger
Amendment to Company Certificate of Incorporation
XV. Whenever under the Business Corporation Law or otherwise the
shareholders of the Corporation are required or permitted to take any action
by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of outstanding
shares having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, subject to any limitations
under the Business Corporation Law.
<PAGE>
COMPANY DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF MERGER
BETWEEN
CYPRUS ACQUISITION CORP.
AND
GENERAL HOST CORPORATION
DATED AS OF NOVEMBER 22, 1997
<PAGE>
SCHEDULE 3.3
I. Common Stock Equivalents ("CSEs") - an aggregate of 200,000 currently
outstanding pursuant to the following three agreements:
1. An agreement between Frank's Nursery & Crafts, Inc. and Piccolo
Enterprises, Inc. , dated as of April 24, 1997, providing for the
grant of 100,000 CSEs. Exercise Price is the fair market value of
the Common Stock of the Company as of April 24, 1997.
Expiration dates : 15,000 CSEs expire on each of April 24, 1999,
May, 1, 1999, June 1, 1999, July 1, 1999, August 1, 1999, and
September 1, 1999. 10,000 CSEs expire on October 1, 1999.
2. An agreement between Frank's Nursery & Crafts, Inc. and Silverman
Advertising Design, Inc., dated as of May 7, 1997, providing for
the grant of 50,000 CSEs. Exercise price is $3-3/8. Expiration date
is May 1, 1999.
3. An agreement between Frank's Nursery & Crafts, Inc. and Wergeles &
Associates, dated as of May 7, 1997, providing for the grant of
50,000 CSEs. Exercise price is $3-3/8. Expiration date is May 1,
1999.
II. Options. See attached Exhibit A.
III. There are 31,752,450 shares of the Company's Common Stock reserved for
issuance in connection with Common Stock Purchase Rights provided for
under the Company's Rights Agreement, as amended.
IV. List of wholly-owned subsidiaries of General Host Corporation.
1. Frank's Nursery & Crafts, Inc.
2. Nursery Distributors, Inc. (indirect sub)
3. General Host Holding Corp.
4. AMS Industries, Inc.
5. AMS Salt Industries, Inc. (indirect sub)
6. Bay Resources, Inc.
7. SNG Acquisition Company, Inc.
<PAGE>
Exhibit A
GENERAL HOST CORPORATION
STOCK OPTION ACTIVITY
FISCAL YEAR ENDED
JANUARY 25, 1998
<TABLE>
<CAPTION>
OUTSTANDING DIRECTORS OUTSTANDING
JANUARY 26, STK DIVID CANCELLED NOVEMBER 2, TOTAL
YEAR PRICE 1997 GRANTED ADDL OPTS EXERCISED OR EXPIRED 1997 PROCEEDS
- ---- ----- ----------- ------- --------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 3,0281 3,000 0 0 0 3,000 $9,084
1996 3,0281 600,000 0 0 0 600,000 1,816,875
1997 3,6250 0 50,000 0 0 50,000 181,250
------ ------- ------ --- --- --- --------- ----------
603,000 50,000 0 0 0 653,000 $2,007,209
====== ======= ====== === === === ========= ==========
EXERCISABLE 611,200
=========
2,500,000
OPTIONS AUTHORIZED UNDER THE 1996 STOCK INCENTIVE PLAN
LESS: OPTIONS EXERCISED IN PRIOR YEARS NOT SHOWN IN BEGINNING BALANCE
LESS: OPTIONS GRANTED (653,000)
ADD: CURRENT YEAR OPTION EXERCISES 0
ADD: OPTIONS CANCELLED 0
---------
CURRENTLY AVAILABLE FOR GRANTING 1,847,000
OPTIONS OUTSTANDING 653,000 $2,007,209
========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
------------------------- ---------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 STOCK INCENTIVE PLAN
GABRIEL, 3,000 <F1>6/17/01 3,0281 3,000 6/17/01 -------
RICHARD ------- ------- -------------------------------------
3,000 0 0 0 3,000 40% 1,200
ASHTON,
HARRIS 300,000<F2> 01/13/97 3,0281 300,000 01/13/02 -------
TOWNSEND,
ERNEST 300,000<F2> 01/13/97 3,0281 300,000 01/13/02
------- ------- ------------------------------------- -------
600,000 0 3,0281 0 0 0 600,000 100% 600,000
ROOS, PHIL 50,000 <F1>8/21/97 3,6250 50,000 8/21/02
------- ------------------------------------- -------
50,000 0 0 0 50,000 20% 10,000
------- ------- ------------------------------------- -------
TOTAL 653,000 0 0 0 0 653,000 611,200
======= ======= ===================================== =======
<FN>
<F1> 20% EXERCISABLE IMMEDIATELY. ADDITIONAL 20% ON EACH OF FIRST 4 GRANT ANNIVERSARY DATES.
<F2> IMMEDIATELY EXERCISABLE 100%
TERMINATIONS ARE 90 DAYS FROM DATE OF TERMINATION UNLESS OTHERWISE SPECIFIED.
</TABLE>
<PAGE>
GENERAL HOST CORPORATION
DIRECTORS OPTION PLANS
<TABLE>
<CAPTION>
OUTSTANDING DIRECTORS OUTSTANDING
JANUARY 26, STK DIVID CANCELLED OR NOVEMBER 2, TOTAL
YEAR PRICE 1997 GRANTED ADDL OPTS EXERCISED EXPIRED 1997 PROCEEDS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1984
DIR 8,0661 16,538 0 0 0 16,538 133,397
===================================================================================================
1994
DIR 4,3433 26,250 0 0 0 26,250 114,011
1994
DIR 4,0048 183,750 0 0 0 183,750 735,890
---------------------------------------------------------------------------------------------------
210,000 0 0 0 0 210,000 849,901
===================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
------------------------- ---------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 STOCK INCENTIVE PLAN
- ----------------------------------------------------------------------------------------------------------------------------------
FORTUNATO 16,538 & 6/20/93 8.0661 16,538 100% 16,538
======= ===================================== ======
1994 DIRECTORS STOCK OPTION PLAN
- --------------------------------
ASHTON, KELLY 25,250 <F1>12/08/94 4.3433 26,250 VAR SEE 40% 10,500
NOTE
HOORNSTRA 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
JOHNSON 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
ALDEN 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
FORSTER 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
HARLEY 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
HASKEL 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
NOTE
FORTUNATO,
S.J. 26,250 <F1>10/14/94 4.0048 26,250 VAR SEE 60% 15,750
-------- -------- ------------------------------------ NOTE -------
210,000 0 0 0 0 210,000 120,750
======== ======== ==================================== =======
<FN>
* 20% EXERCISABLE IMMEDIATELY. ADDITIONAL 20% ON EACH OF FIRST 4 GRANT ANNIVERSARY DATES.
& EXERCISABLE 1 YEAR AFTER GRANT.
@ EXERCISABLE 1 YEAR AFTER ORIGINAL GRANT.
# 33-1/3% EXERCISABLE ON GRANT DATE. ADDITIONAL 33-1/3% EACH YEAR THEREAFTER.
## 50% EXERCISABLE ON GRANT DATE. 50% ONE YEAR FROM GRANT DATE.
(1) IMMEDIATELY EXERCISABLE 100%
(2) 20% ON DATE OF GRANT AND 20% THEREAFTER.
(3) 40% ON DATE OF GRANT AND 60% ON 1ST ANNIVERSARY.
^ EXERCISABLE WHEN CLOSING PRICE ON NYSE IS $12.00325/SHARE OR ABOVE FOR 10 CONSECUTIVE BUSINESS DAYS.
THESE OPTIONS ARE ADJUSTED FROM 1994, 1995, 1996 5% STOCK DIVIDENDS LOWERING IT FROM $14/SHARE.
% 20% EXERCISABLE IMMEDIATELY. REMAINING FULLY EXERCISABLE ON 4/23/93; SARS ISSUED IN CONJUNCTION WITH OPTIONS -
300,000 SARS, 60,000 SHARES EXERCISED 12/30/92.
** EXERCISABLE 20% PER YEAR BEGINNING 5/23/94.
<F1> OPTION CONSISTS OF FIVE TRANCHES OF 5,000 SHARES EACH AND BECOMES EXERCISABLE BEGINNING 10/14/95 AND ON
EACH ANNIVERSARY THROUGH 10/14/99. THE OPTION TO EXERCISE EACH TRANCHE (5,000) EXPIRES ON THE FOURTH
ANNIVERSARY EACH TRANCHE BECOMES EXERCISABLE.
TERMINATIONS ARE 90 DAYS FROM DATE OF TERMINATION UNLESS OTHERWISE SPECIFIED.
1984 DIRECTORS PLAN PROVIDES FOR ADDL OPTION BASED UPON STOCK DIVIDENDS.
1994 DIRECTORS PLAN PROVIDES FOR ADDL OPTION BASED UPON STOCK DIVIDENDS.
</TABLE>
<PAGE>
GENERAL HOST CORPORATION
1986 STOCK OPTION PLAN
<TABLE>
<CAPTION>
OUTSTANDING DIRECTORS OUTSTANDING
JANUARY 26, STK DIVID CANCELLED NOVEMBER 2, TOTAL
YEAR PRICE 1997 GRANTED ADDL OPTS EXERCISED OR EXPIRED 1997 PROCEEDS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1967 11.708 5,000 0 5,000 0 0
1988 7.5342 10,000 0 10,000 0 0
1988 6.3996 20,000 0 0 20,000 167,992
1989 6.9742 5,000 0 0 5,000 0 0
1989 6.3633 10,000 0 0 0 10,000 63,633
1990 4.4798 2,500 0 0 0 2,500 11,199
1991 6.9233 17,750 0 0 500 17,250 119,428
1992 6.9233 47,000 0 0 6,500 40,500 280,396
1993 8.1960 74,100 0 0 9,200 64,900 531,918
1994 4.6620 11,000 0 0 10,000 1,000 4,682
1994 4.5548 2,500 0 0 0 2,500 11,387
1994 4.9299 90,000 0 0 90,000 0 0
1994 4.0725 7,500 0 0 7,500 0 0
1994 4.4476 0 0 0 0 0 0
1995 5.8663 1,000 0 0 1,000 0 0
1995 6.5431 55,500 0 0 19,000 36,500 238,824
1995 6.5431 3,750 0 0 750 3,000 19,629
1995 5.5842 5,000 0 0 0 5,000 27,921
1995 3.3844 0 0 0 0 0 0
1995 3.3844 240,000 0 0 0 240,000 812,250
------------------------------------------------------------------------------------
607,600 0 0 0 164,450 443,150 $2,289,240
====================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ---------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 STOCK INCENTIVE PLAN
- -------------------------
BOYD 5,000 @9/24/87 11.7085 5,000 0 9/23/97
------ -----------------------------------
5,000 0 5,000 0 0 100% 0
DICKENSON 5,000 @1/21/88 7.5342 5,000 0 09/23/97
05/30/97 STRANG 5,000 @1/21/88 7.5342 8/30/97 5,000 0 0 9/23/97
------- ----------------------------------
10,000 7.5342 0 10,000 0 0 100% 0
LOVEJOY 20,000 *9/19/88 8.3996 20,000* 09/18/98 100% 20,000
04/11/97 JACKSON 5,000 @6/15/89 6.9742 07/11/97 0 5,000 0 06/14/99
------ ==================================
5,000 0 5,000 0 0 100% 0
SIMPSON 10,000 @7/17/89 6.3633 10,000 07/16/99
------- ----------------------------------
10,000 0 0 0 10,000 100% 10,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HLSENBECK 2,500 *2/21/90 4.4798 2,500 02/21/00
------- ------------------------------------
2,500 0 0 0 2,500 100% 2,500
BOYD 5,000 #6/6/91 6.9233 5,000 06/05/01
LOVEJOY 2,000 #6/6/91 6.9233 2,000 06/05/01
GUNDERSON 1,000 #6/6/91 6.9233 1,000 06/05/01
JONES, R. 1,000 #6/6/91 6.9233 1,000 06/05/01
PONCE DELEON 2,500 #6/6/91 6.9233 2,500 06/05/01
BLACK, RON 750 #6/6/91 6.9233 750 06/05/01 100% 12,250
DEWOLF, K. 500 $6/6/91 6.9233 500 06/05/01
KULAS, C. 500 $6/6/91 6.9233 500 06/05/01
DIPILLA, M. 500 $6/6/91 6.9233 500 06/05/01
5/30/97 TAYLOR, D. 500 $6/6/91 6.9233 8/30/97 500 0 06/05/01
LAFRANCE, G. 500 $6/6/91 6.9233 500 06/05/01
TERM 12 SUTA, R. 500 $6/6/91 6.9233 500 06/05/01
STEINMAN, BILL 500 $6/6/91 6.9233 500 06/05/01
NARUP, M. 500 $6/6/91 6.9233 500 06/05/01
ZMIKLEY, R. 500 $6/6/91 6.9233 500 06/05/01
DURENBERGER, G 500 $6/6/91 6.9233 500 06/05/01
LAMONTAINE, P. 500 $6/6/91 6.9233 500 06/05/01 100% 5,000
------ -------- ---------------------------------
17,750 0 0 500 0 17,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOYD,W. 2,000 @7/17/92 6.9233 2,000 07/17/02
HLSENBECK 2,000 @7/17/92 6.9233 2,000 07/17/02
LOVEJOY, R. 2,000 @7/17/92 6.9233 2,000 07/17/02
SIMPSON, J. 2,000 @7/17/92 6.9233 2,000 07/17/02
05/30/97 STRANG, D. 2,000 @7/17/92 6.9233 08/30/92 2,000 0 07/17/02
DICKENSON, E. 1,500 @7/17/92 6.9233 1,500 07/17/02
DUCKMAN, L. 1,500 @7/17/92 6.9233 1,500 07/17/02
GUNDERSON, J. 1,500 @7/17/92 6.9233 1,500 07/17/02
04/11/97 JACKSON, E. 1,500 @7/17/92 6.9233 07/11/97 1,500 0 07/17/02
PONCE
DELEON, F. 1,500 @7/17/92 6.9233 1,500 07/17/02
DEWOLF, K. 1,000 @7/17/92 6.9233 1,500 07/17/02
DURENBERGER, G. 1,000 @7/17/92 6.9233 1,000 07/17/02
LAMONTAINE, P. 1,000 @7/17/92 6.9233 1,000 07/17/02
NARUP, M. 1,000 @7/17/92 6.9233 1,000 07/17/02
BIERAUGEL, B. 1,000 @7/17/92 6.9233 1,000 07/17/02
02/20/97 CUMMINGS, P. 1,000 @7/17/92 6.9233 05/20/97 1,000 0 07/17/02
DANIELSON, B. 1,000 @7/17/92 6.9233 1,000 07/17/02
GREGGO, P. 1,000 @7/17/92 6.9233 1,000 07/17/02
HUBBARD, J. 1,000 @7/17/92 6.9233 1,000 07/17/02
HUBSCHER, T. 1,000 @7/17/92 6.9233 1,000 07/17/02
KOTCHER, P. 1,000 @7/17/92 6.9233 1,000 07/17/02
LITCHY, R. 1,000 @7/17/92 6.9233 1,000 07/17/02
MALOPY,G. 1,000 @7/17/92 6.9233 1,000 07/17/02
MEYER, R. 1,000 @7/17/92 6.9233 1,000 07/17/02
OWEN, C. 1,000 @7/17/92 6.9233 1,000 07/17/02
01/10/97 SLIS, M. 1,000 @7/17/92 6.9233 1,000 07/17/02
STEINMAN, W. 1,000 @7/17/92 6.9233 1,000 07/17/02
STRAIT, W. 1,000 @7/17/92 6.9233 1,000 07/17/02
THOMPSON, P. 1,000 @7/17/92 6.9233 1,000 07/17/02
ZMIKEY, R. 1,000 @7/17/92 6.9233 1,000 07/17/02
ZONA, A. 1,000 @7/17/92 6.9233 1,000 07/17/02
DIPILLA, M. 1,000 @7/17/92 6.9233 1,000 07/17/02
FARHAR, J. 1,000 @7/17/92 6.9233 1,000 07/17/02
03/07/97 KUEHNE, R. 1,000 @7/17/92 6.9233 06/07/97 1,000 0 07/17/02
KULAS, C. 1,000 @7/17/92 6.9233 1,000 07/17/02
LAFRANCE, G. 1,000 @7/17/92 6.9233 1,000 07/17/02
05/30/97 TAYLOR, D. 1,000 @7/17/92 6.9233 08/30/97 1,000 0 07/17/02
BLACK, R. 500 @7/17/92 6.9233 500 07/17/02
JONES, R. 500 @7/17/92 6.9233 500 07/17/02
09/25/97 PIERCE, C. 500 @7/17/92 6.9233 12/25/97 500 07/17/02
TERM 12/9 SUTA, R. 500 @7/17/92 6.9233 500 07/17/02
ZALEWSKI, M. 500 @7/17/92 6.9233 500 07/17/02
------ --------------------------------
47,000 0 6,500 0 40,500 100% 40,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOYD, W. 10,000 ^03/03/93 8.1960 10,000 03/02/98
LOVEJOY, R. 7,500 ^03/03/93 8.1960 7,500 03/02/98
SIMPSON, J. 7,500 ^03/03/93 8.1960 7,500 03/02/98
HLSENBECK, S. 5,000 ^03/03/93 8.1960 5,000 03/02/98
05/30/97 STRANG, D. 5,000 ^03/03/93 8.1960 8/30/97 5,000 0 03/02/98
DICKENSON, E. 2,000 ^03/03/93 8.1960 2,000 03/02/98
DIPILLA, M 1,000 ^03/03/93 8.1960 1,000 03/02/98
05/30/97 TAYLOR, D. 1,000 ^03/03/93 8.1960 08/30/97 1,000 0 03/02/98
FARHAT, J. 500 ^03/03/93 8.1960 500 03/02/98
03/07/97 KUEHNE, R. 500 ^03/03/93 8.1960 08/07/97 500 0 03/02/98
KULAS, C. 500 ^03/03/93 8.1960 500 03/02/98
LAFRANCE, G. 500 ^03/03/93 8.1960 500 03/02/98
PONCE
DELEON, F. 2,500 ^03/03/93 8.1960 2,500 03/02/98
DEWOLF, K. 2,000 ^03/03/93 8.1960 2,000 03/02/98
LAMONTAINE, P. 2,000 ^03/03/93 8.1960 2,000 03/02/98
DURENBERGER,
G. 1,000 ^03/03/93 8.1960 1,000 03/02/98
GREGGO, P. 1,000 ^03/03/93 8.1960 1,000 03/02/98
NARUP, M. 1,000 ^03/03/93 8.1960 1,000 03/02/98
OWEN, C. 1,000 ^03/03/93 8.1960 1,000 03/02/98
STEINMAN, W. 1,000 ^03/03/93 8.1960 1,000 03/02/98
STRAIT, W. 1,000 ^03/03/93 8.1960 1,000 03/02/98
02/20/97 CUMMINGS, P. 750 ^03/03/93 8.1960 05/20/97 750 0 03/02/98
DANIELSON, B. 750 ^03/03/93 8.1960 750 03/02/98
HUBBARD, J. 750 ^03/03/93 8.1960 750 03/02/98
HUBSCHER, T. 750 ^03/03/93 8.1960 750 03/02/98
JASKIEWICZ, E. 750 ^03/03/93 8.1960 750 03/02/98
KOTCHER, P. 750 ^03/03/93 8.1960 750 03/02/98
LAROCCA, M. 750 ^03/03/93 8.1960 750 03/02/98
LITCHY, R. 750 ^03/03/93 8.1960 750 03/02/98
LOWE, D. 750 ^03/03/93 8.1960 750 03/02/98
MALOPY, G. 750 ^03/03/93 8.1960 750 03/02/98
MCCARTHY, B. 750 ^03/03/93 8.1960 750 03/02/98
MEYER, R. 750 ^03/03/93 8.1960 750 03/02/98
MOORE, K. 750 ^03/03/93 8.1960 750 03/02/98
01/10/97 SLIS, M. 750 ^03/03/93 8.1960 04/10/97 750 0 03/02/98
THOMPSON, P. 750 ^03/03/93 8.1960 750 03/02/98
ZMKLY, R. 750 ^03/03/93 8.1960 750 03/02/98
ZONA, A. 750 ^03/03/93 8.1960 750 03/02/98
STEMPEN, P. 750 ^03/03/93 8.1960 750 03/02/98
DUCKMAN, L. 1,000 ^03/03/93 8.1960 1,000 03/02/98
HERZOG, J. 1,000 ^03/03/93 8.1960 1,000 03/02/98
04/11/97 JACKSON, E. 1,000 ^03/03/93 8.1960 07/11/97 1,000 0 03/02/98
BLACK, R. 500 ^03/03/93 8.1960 500 03/02/98
JONES, R. 500 ^03/03/93 8.1960 500 03/02/98
09/25/97 PIERCE, C. 500 ^03/03/93 8.1960 12/25/97 500 03/02/98
TERM 12/9 SUTA, R. 500 ^03/03/93 8.1960 500 03/02/98
ZALEWSKI, M. 500 ^03/03/93 8.1960 500 03/02/98
BACCI, C. 200 ^03/03/93 8.1960 200 03/02/98
<PAGE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/29/97 BOGULSLASKI, C. 200 ^03/03/93 8.1960 12/29/97 200 03/02/98
GAWLOSKI, P. 200 ^03/03/93 8.1960 200 03/02/98
KROPINSKI, A. 200 ^03/03/93 8.1960 200 03/02/98
MARCY, C. 200 ^03/03/93 8.1960 200 03/02/98
NOBLE, R. 200 ^03/03/93 8.1960 200 03/02/98
PURCI, W. 200 ^03/03/93 8.1960 200 03/02/98
01/17/97 SAWYERS, J. 200 ^03/03/93 8.1960 04/17/97 200 0 03/02/98
------ ----------------------------------
74,100 0 9,200 0 64,900 0% 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01/13/97 HESSLER,
SCOTT 90,000 **05/19/9 4.9299 4/13/97 90,000 0 05/19/99
-----------------------------------
0 90,000 0 0 0% 0
DICKENSON,
ERIC 1,000(1) 7/15/94 4.6620 1,000 07/16/99 100% 1,000
02/06/97 HALEY,
JOSEPH 10,000 *07/15/94 4.6620 05/06/97 10,000 0 07/16/99 60% 0
-------- ------ -----------------------------------
11,000 0 0 10,000 0 1,000
F. PONCE
DELEON 2,500 *08/19/94 4.5548 2,500 08/20/99
-------- ------ -----------------------------------
2,500 0 0 0 0 2,500 80% 2,000
02/05/96 FRESE,
RUSSELL 0 *08/29/9 4.4476 06/06/96 0 08/30/99 60% 0
02/13/97 COX, CAROL 7,500 *1/16/95 4.0725 05/13/97 7,500 0 01/17/00 60% 0
MICHAEL
12/27/96 MELANIPHY, 1,000 * 5/1/96 5.8663 03/27/97 1,000 0 05/02/00
-------- -----------------------------------
1,000 0 1,000 0 0 40% 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01/13/97 HESSLER,
SCOTT 10,000 *6/08/95 6.5431 4/13/97 10,000 0 06/09/00
LOVEJOY,
ROBERT 3,000 *6/08/95 6.5431 3,000 06/09/00
SIMPSON,
JAMES 3,000 *6/08/95 6.5431 3,000 06/09/00
02/06/97 HALEY, JOSEPH 5,000 *6/08/95 6.5431 05/06/97 5,000 0 06/09/00
HILSENBECK,
SUE 1,000 *6/08/95 6.5431 1,000 06/09/00
PONCE, DELEON 3,000 *6/08/95 6.5431 3,000 06/09/00
DICKENSON,
ERIC 2,000 *6/08/95 6.5431 2,000 06/09/00
GREGGO,
PATRICK 2,500 *6/08/95 6.5431 2,500 06/09/00
OWEN, CHRIS 2,000 *6/08/95 6.5431 2,000 06/09/00
STRAIT,
WILLIAM 2,500 *6/08/95 6.5431 2,500 06/09/00
ISON, JOHN 1,000 *6/08/95 6.5431 1,000 06/09/00
BLACK, RON 1,500 *6/08/95 6.5431 1,500 06/09/00
DUCKMAN, LEN 1,000 *6/08/95 6.5431 1,000 06/09/00
GAWLOWSKI,
PAT 500 *6/08/95 6.5431 500 06/09/00
HERZOG, JULIE 500 *6/08/95 6.5431 500 06/09/00
04/11/97 JACKSON, ED 500 *6/08/95 6.5431 07/11/97 500 0 06/09/00
LAMONTAINE,
PAUL 1,000 *6/08/95 6.5431 1,000 06/09/00
01/17/97 SAWYERS, JOHN 500 *6/08/95 6.5431 04/17/97 500 0 06/09/00
LOSEK, DAVE 500 *6/08/95 6.5431 500 06/09/00
ZALEWSKI, MIKE 500 *6/08/95 6.5431 500 06/09/00
DIPILLA,
MARIA 2,000 *6/08/95 6.5431 2,000 06/09/00
FARHAT, JANET 500 *6/08/95 6.5431 500 06/09/00
KULAS, CASIMER 500 *6/08/95 6.5431 500 06/09/00
CROSS, CRAIG 1,000 *6/08/95 6.5431 1,000 06/09/00
<PAGE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LAFRANCE,
GREG 1,000 *6/08/95 6.5431 1,000 06/09/00
12/20/96 WULLEUMIER,
LESLIE 500 *6/08/95 6.5431 03/20/97 500 0 06/09/00
STEMPEN, PETE 500 *6/08/95 6.5431 500 06/09/00
LOMBARDO, LISA 500 *6/08/95 6.5431 500 06/09/00
MAHY, DERALD 500 *6/08/95 6.5431 500 06/09/00
STEINMAN, BILL 500 *6/08/95 6.5431 500 06/09/00
09/12/97 STEINMAN, BRIAN 500 *6/08/95 6.5431 12/12/97 500 06/09/00
MOORE, KEL 500 *6/08/95 6.5431 500 06/09/00
SEATON, GEORGE 500 *6/08/95 6.5431 500 06/09/00
12/20/96 SIEBERT, JOE 500 *6/08/95 6.5431 03/20/97 500 0 06/09/00
11/13/96 COZZOLINO, JOHN 500 *6/08/95 6.5431 02/13/97 500 0 06/09/00
BACCI, CHARLIE 500 *6/08/95 6.5431 500 06/09/00
01/10/97 SLIS, MIKE 500 *6/08/95 6.5431 04/10/97 500 0 06/09/00
MARCY, CHERYL 1,000 *6/08/95 6.5431 1,000 06/09/00
06/13/97 FARINA, ARNOLD 500 *6/08/95 6.5431 09/13/97 500 0 06/09/00
NOBLE, RUDIE 500 *6/08/95 6.5431 500 06/09/00
PUROL, WAYNE 500 *6/08/95 6.5431 500 06/09/00
04/04/97 GEORGE, JOSEPH 500 *6/08/95 6.5431 07/04/97 500 0 06/09/00
------ ----------------------------------
55,500 0 19,000 0 36,500 60% 21,900
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CANCELLED OR EXPIRED EXERCISEABLE
-------------------- ------------
TERM BEGINNING GRANT CANCEL EXER- NO OUTSTAN- EXPIRA-
DATE OPTIONEE BALANCE DATE GRANTED PRICE DATE CISED REGRANT REGRANT DING TION % AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KUMAS, RUTH 250 (3)06/08/95 6.5431 250 06/09/00
LOE, DAVE 250 (3)06/08/95 6.5431 250 06/09/00
ZMIGLY, ROBERT 250 (3)06/08/95 6.5431 250 06/09/00
02/20/91 CUMMINGS, PAT 250 (3)06/08/95 6.5431 06/20/97 250 0 06/09/00
DANIELSON, BRETT 250 (3)06/08/95 6.5431 250 06/09/00
THOMPSON, PAULA 250 (3)06/08/95 6.5431 250 06/09/00
KINTIGH, DEBORAH 250 (3)06/08/95 6.5431 250 06/09/00
MOMAI-AN,
MARGARET 250 (3)06/08/95 6.5431 250 06/09/00
MCCARTHY, BARB 250 (3)06/08/95 6.5431 250 06/09/00
MEYER, RON 250 (3)06/08/95 6.5431 250 06/09/00
06/06/97 SCHRADER, JAY 250 (3)06/08/95 6.5431 09/08/97 250 0 06/09/00
DURENBERGER, G. 250 (3)06/08/95 6.5431 250 06/09/00
LAROCCA, MARK 250 (3)06/08/95 6.5431 250 06/09/00
MALOPY, GREG 250 (3)06/08/95 6.5431 250 06/09/00
05/30/97 DANZA, SAL 250 (3)06/08/95 6.5431 08/30/97 250 0 06/09/00
------ -------------------------------------------
3,750 0 0 750 0 3,000 100% 3,000
EVERYINGHAM,
T. 5,000 *07/11/96 5.5842 5,000 07/12/00 60% 3,000
ASHTON, HARRIS 0(1) 01/25/96 3.3644 0 12/02/96 100% 0
ASHTON,
HARRIS 240,000(1) 01/25/96 3.3844 240,000 04/23/02 100% 240,000
------ ------- ------------------------------------------- -------
TOTAL 607,600 0 0 164,450 0 443,150 361,150
====== ======= =========================================== =======
</TABLE>
<PAGE>
SCHEDULE 3.5
Section 3.5(iii)
The following agreements and/or mortgages contain change in control
provisions which could conflict with or result in a breach or violation or
constitute an event of default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of material
benefit under, or give rise to termination , amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of the Company or its Significant Subsidiaries:
METLIFE
1. Commercial Mortgage, Security Agreement, Assignment of Leases and Rents
and Fixture Filing dated as of August 31, 1995 by and between Frank's
Nursery & Crafts, Inc. ("Frank's") and MetLife Capital Financial
Corporation ("MetLife").
2. Security Agreement dated as of August 31, 1995 by and between Frank's
and MetLife.
3. Assignment of Rents and Leases dated as of August 31, 1995 by and
between Frank's and MetLife.
4. Guaranty dated as of August 31, 1995 by the Company in favor of MetLife.
5. The following arrangements with MetLife: (a) Promissory notes in the
original principal amounts of $975,000, $937,000, $825,000 and $825,000;
(b) related Commercial Mortgages on properties located in Merrilville,
Indiana, Columbus, Indiana, South Bend, Indiana and Michigan City
Indiana, respectively; (c) related Security Agreements; (d) related
Assignments of Rents and Leases; (e) related Guaranties, all dated
August 31, 1995 and governed by Indiana law; (f) Borrower's Certificate
dated August 31, 1995; and (g) Certificate of Hazardous Substances,
dated August 31, 1995.
6. The following arrangements with MetLife: (a) Promissory notes in the
original principal amounts of $660,000, $675,000, $690,000 and $825,000;
(b) related Commercial Mortgages on properties located in Waukegan,
Illinois, Evergreen Park, Illinois, St. Charles, Illinois and
Naperville, Illinois, respectively; (c) related Security Agreements; (d)
related Assignments of Rents and Leases; and (e) related Guaranties, all
dated August 31, 1995 and governed by Illinois law.
7. The following arrangements with MetLife: (a) A promissory note in the
original principal amount of $855,000; (b) related Commercial Mortgage
on property located in Coon Rapids, Minnesota; (c) related Security
Agreement; (d) related Assignment of Rents and Leases; and (e) related
Guaranty, all dated August 31, 1995 and governed by Minnesota law.
8. The following arrangements with MetLife: (a) A promissory note in the
original principal amount of $1,200,000; (b) related Commercial Mortgage
on property located in Franklin, Ohio; (c) related Security Agreement;
<PAGE>
(d) related Assignment of Rents and Leases; and (e) related Guaranty,
all dated August 31, 1995 and governed by Ohio law.
9. The following arrangements with MetLife: (a) Promissory notes in the
original principal amounts of $1,125,000 and $1,125,000; (b) related
Commercial Mortgages on properties located in Clinton Township, Michigan
and Canton Township, Michigan, respectively; (c) related Security
Agreements; (d) related Assignments of Rents and Leases; and (e) related
Guaranties, all dated August 31, 1995 and governed by Michigan law.
MIDLAND
1. Promissory Note in the original principal amount of $682,878 dated March
14, 1996 from Frank's Nursery & Crafts, Inc. ("Frank's") to Midland Loan
Services, L.P. ("Midland") relating to the Grand Rapids, MI store.
2. Mortgage, Security Agreement and Assignment of Leases and Rents dated as
of March 14, 1996 by and between Frank's and Midland relating to the
Grand Rapids, MI store.
3. Assignment of Rents and Leases dated as of March 14, 1996 by and between
Frank's and Midland relating to the Grand Rapids, MI store.
4. Guaranty dated as of March 14, 1996 by the Company in favor of Midland
relating to the Grand Rapids, MI store.
5. Escrow Agreement dated as of March 14, 1996 by and between Frank's and
Midland in its capacities as lender and escrow agent relating to the
Grand Rapids, MI store.
6. The following arrangements with Midland: (a) Promissory notes in the
original principal amounts of $867,548, $862,893, $857,318 and $883,802;
(b) related Mortgages on properties located in Libertyville, Illinois,
Lake Zurich, Illinois, Crystal Lake, Illinois and Schaumburg, Illinois,
respectively; (c) related Assignments of Rents and Leases; (d) related
Guaranties; (e) related Escrow Agreements, all dated January 26, 1996
and governed by Illinois law; (f) Borrower's Certificate dated January
26, 1996; and (g) Environmental Indemnity Agreement dated January 26,
1996.
7. The following arrangements with Midland: (a) Promissory notes in the
original principal amounts of $726,793 and $1,330,423; (b) related
Mortgages on properties located in Battle Creek, Michigan and Bloomfield
Township, Michigan, respectively; (c) related Assignments of Rents and
Leases; (d) related Guaranties; (e) related Escrow Agreements, all dated
January 26, 1996 and governed by Michigan law; (f) Borrower's
Certificate dated January 26, 1996; and (g) Environmental Indemnity
Agreement dated January 26, 1996.
8. The following arrangements with Midland: (a) Promissory notes in the
original principal amounts of $956,708, $909,974 and $849,344; (b)
related Mortgages on properties located in Roseville, Minnesota, Eden
Prairie, Minnesota and Eagan, Minnesota, respectively; (c) related
Assignments of Rents and Leases; (d) related Guaranties; (e) related
Escrow Agreements, all dated January 26, 1996 and governed by Minnesota
law; (f) Borrower's Certificate dated January 26, 1996; and (g)
Environmental Indemnity Agreement dated January 26, 1996.
<PAGE>
9. The following arrangements with Midland: (a) Promissory notes in the
original principal amounts of $730,026, $734,319 and $753,432; (b)
related Mortgages on properties located in Bridgeton, Missouri, St.
Charles, Missouri and St. Charles, Missouri, respectively; (c) related
Assignments of Rents and Leases; (d) related Guaranties; (e) related
Escrow Agreements, all dated January 26, 1996 and governed by Missouri
law; (f) Borrower's Certificate dated January 26, 1996; and (g)
Environmental Indemnity Agreement dated January 26, 1996.
10. The following arrangements with Midland: (a) Promissory notes in the
original principal amounts of $1,280,990, $1,379,474 and $1,316,019; (b)
related Mortgages on properties located in Deptford, New Jersey,
Bridgewater, New Jersey and Bricktown, New Jersey, respectively; (c)
related Assignments of Rents and Leases; (d) related Guaranties; (e)
related Escrow Agreements, all dated January 26, 1996 and governed by
New Jersey law; (f) Borrower's Certificate dated January 26, 1996; and
(g) Environmental Indemnity Agreement dated January 26, 1996.
11. The following arrangements with Midland: (a) A promissory note in the
original principal amount of $1,373,432; (b) related Mortgage on
property located in Staten Island, New York; (c) related Assignment of
Rents and Leases; (d) related Guaranty; (e) related Escrow Agreement,
all dated January 26, 1996 and governed by New York law; (f) Borrower's
Certificate dated January 26, 1996; and (g) Environmental Indemnity
Agreement dated January 26, 1996.
12. The following arrangements with Midland: (a) A promissory note in the
original principal amount of $892,829; (b) related Mortgage on property
located in Brookhaven, Pennsylvania; (c) related Assignment of Rents and
Leases; (d) related Guaranty; (e) related Escrow Agreement, all dated
January 26, 1996 and governed by Pennsylvania law; (f) Borrower's
Certificate dated January 26, 1996; and (g) Environmental Indemnity
Agreement dated January 26, 1996.
13. The following arrangements with Midland: (a) Amended and Restated
Promissory Note in the original principal amount of $2,583,273.69 dated
as of December 1, 1995 from Frank's to Midland Commercial Financing
Corp; (b) related Mortgages dated as of October 16, 1995, as amended as
of December 1, 1995 on properties located in Okemos, Michigan and
Joliet, Illinois; (c) related Assignments of Rents and Leases dated as
of October 16, 1995, as amended as of December 1, 1995; (d) Amended and
Restated Guaranty dated as of December 1, 1995 from the Company in favor
of Midland Commercial Financing Corp.; (e) related Escrow Agreements
dated as of October 13, 1995; (f) Borrower's Certificate dated January
26, 1996; and (g) Environmental Indemnity Agreement dated January 26,
1996.
PEOPLES
1. Mortgage Note in the original principal amount of $4,950,000 dated
January 25, 1996 from Frank's to People's Bank ("Peoples").
2. Mortgage Deed and Security Agreement dated as of January 25, 1996 by and
between Frank's and People's.
<PAGE>
3. Assignment of Rents and Leases dated as of January 25, 1996 by and
between Frank's and People's.
4. Guaranty and Indemnity Agreement dated as of January 25, 1996 by the
Company in favor of People's.
5. Escrow Agreement dated as of January 25, 1996 by and among Frank's,
People's and Commonwealth Land Title Insurance Company.
6. The following arrangements with Peoples: (a) Mortgage and Security
Agreement on property located in Kingston, New York; and (b) Assignment
of Rents and Leases, each dated as of January 25, 1996 and governed by
New York law.
FIRST UNION
1. Mortgage, Security Agreement and Assignment of Leases and Rents dated as
of April 22, 1996 by and between Frank's and First Union National Bank
of North Carolina ("First Union").
2. First Amendment to Mortgage and Security Agreement dated as of May 1,
1996 by and between Frank's and First Union.
3. Guaranty dated as of April 22, 1996 by the Company in favor of First
Union.
4. The following arrangements with First Union: (a) Promissory Notes in the
original principal amount of $683,000 and $657,000; (b) related
Mortgages, Security Agreements and Assignments of Leases and Rents on
properties located in Louisville, Kentucky and Louisville, Kentucky; and
(c) related Guaranty, all dated as of April 22, 1996 and governed by
Kentucky law.
5. The following arrangements with First Union: (a) Promissory Notes in the
original principal amount of $849,000 and $659,000; (b) related
Mortgages, Security Agreements and Assignments of Leases and Rents on
properties located in Flint, Michigan and Grand Rapids, Michigan; (c)
related Guaranty, all dated as of April 22, 1996 and governed by
Michigan law; and (d) Hazardous Substances Agreement dated April 22,
1996.
6. The following arrangements with First Union: (a) A Promissory Note in
the original principal amount of $865,000; (b) related Mortgage,
Security Agreement and Assignment of Leases and Rents on property
located in Cincinnati, Ohio;(c) related Guaranty, all dated as of April
22, 1996 and governed by Ohio law; and (d) Hazardous Substances
Agreement dated April 22, 1996.
NATIONAL REALTY FUNDING
1. The following arrangements with National Realty Funding, L.L.C.
relating to store # 601: (a) promissory note in the original
principal amount of $1,625,000; (b) First Mortgage, Assignment of
Rent, Security, Agreement and Fixture Filing dated August, 19,
1997; (c) Assignment of Rents, Leases and Profits dated August 19,
<PAGE>
1997; (d) Guaranty Agreement dated August 19, 1997; (e)
Completion/Repair Escrow and Security Agreement dated August 19,
1997; (f) Borrower's Certificate of Representations and Warranties
dated August 19, 1997; (g) Environmental Escrow Agreement dated
August 19, 1997; and (h) Environmental Indemnity Agreement dated
August 19, 1997.
NAD REALTY
1. Mortgage dated August 4, 1994 made to N.A.D. Realty Co. Inc.
relating to store #610.
2. Mortgage Note in the original principal sum of $891,000 (current
principal amount is $368,413.49)
3. In a sale lease back transaction of the Store #601 Frank's will be
paying of the Mortgage and Mortgage Note and each of the above two
documents will be terminated.
<PAGE>
SCHEDULE 3.6
5. The Mortgaged-Backed Credit Agreement dated as of November 29, 1996,
between Comerica Bank and the Company and Frank's Nursery & Crafts,
Inc., as amended by the First Amendment to the Mortgage-Backed Credit
Agreement dated as of June 13, 1997, between the Company and Frank's
Nursery & Crafts, Inc. and Comerica Bank, as further amended by the
Second Amendment to Mortgage-Backed Credit Agreement dated as of July
25, 1997, between the Company and Frank's Nursery & Crafts, Inc. and
Comerica Bank.
<PAGE>
SCHEDULE 3.8
1. Store #644 - Newburg, New York. On February 25, 1997, Frank's entered
into a sale-leaseback with Coburgh, L.L.C., a New York limited liability
company. Coburgh paid Frank's $2,750,000 and Frank's entered into a
triple net lease for 20 years with four five-year options. Rent for the
entire term, including options, is $275,000. From the closing date
through August 24, 1998, Coburgh has the right to terminate the lease by
giving Frank's 6 months prior written notice. Upon receipt of this
notice, Frank's can shorten the period to 2 months. After August 24,
1998, Frank's may purchase the property for $2,475,000. On November 18,
1997, Neil Borden, an officer of Coburgh, contacted the Company to ask
if Frank's would be willing to set a termination date. The Company has
not yet responded to this request.
2. Store #601 - Huntington, New York. On August 26, 1997, Frank's granted
a mortgage to National Realty Funding, L.C., a Missouri limited
liability corporation. The principal amount due under the Promissory
Note is $1,625,000 at an interest rate of 9.10% payable on or before
September 1, 2007. At closing, Frank's received $1,526,864.08, the
principal sum adjusted after prorations. Also at closing, Frank's
entered into escrow agreements to perform building repair and
environmental work. This work is nearly completed and Frank's is
entitled to receive $58,500.00.
3. Store #239 - Claymount, Delaware. On October 14, 1997, Frank's entered
into a Lease Termination Agreement with its landlord, Northowne, Inc., a
Delaware corporation, acting as Trustee under a Trust Agreement dated
July 10, 1967. On October 14, 1997, Landlord paid Frank's $1,500,000.00
and placed $1,500,000 in escrow. On October 27, 1997, the lease
terminated and Frank's received the escrow, along with $2,209.19,
representing interest earned on the escrow.
4. Store #291 - Centereach, New York. On October 30, 1997, Frank's entered
into a sale-leaseback with Frany Realty Co., LLC, a Delaware limited
liability company. Frany paid Frank's $2,700,000 and Frank's has a
triple net lease for 20 years along with four five-year options. Rent
is calculated using an 11.25% cap rate with 10% increases every five
years. The cap rate will increase to 11.50% if the White Plains
transaction closes.
5. Store #610 - White Plains, New York. On October 30, 1997 Frank's signed
an Agreement for Sale of Real Estate with S&D Realty, LLC, a Delaware
limited liability company, for the sale-leaseback of the referenced
store. S&D will pay $4,300,000 and Frank's will enter into a triple net
lease for 22 years along with four five-year options. Rent is
calculated using an 11.50% cap rate with 10% increases every five years.
Closing is scheduled for December 22, 1997.
6. Third quarter operating results previously disclosed to Purchaser and
The Cypress Group. Period 9 and Period 10 financial information
previously disclosed to Purchaser and The Cypress Group.
7. The accelerated amortization in the third quarter of 1997 costs of
certain system software.
<PAGE>
SCHEDULE 3.9
Principal Financial Securities, Inc. & Loeb Partners Corp. v. Sunbelt Nursery
Group, Inc., General Host Corp., Lyndale Garden Center, Inc. and Timothy
Duoss, District Court of Tarrant County, Texas
<PAGE>
SCHEDULE 3.10
Section 3.10(a)
Cudahy Hourly Employee Pension Plan
General Host Corporation Profit Sharing and Savings Plan
Group Insurance Plan for General Host & Its Subsidiaries
Business Travel Accident Insurance Plan for Employees of General Host
Corporation
Personal Accident Insurance Plan
General Host Corporation Medical Plan
General Host Corporation Premium Conversion Plan
General Host Corporation 1986 Stock Incentive Plan
General Host Corporation 1996 Stock Incentive Plan
General Host Corporation Directors' Stock Option Plan
General Host Corporation 1994 Non-Employee Directors Stock Option Plan
Stock Purchase Plan
Vacation Policy
Paid Holidays
Floating Holidays
Bereavement Pay
Jury and Witness Duty
Short-term Disability Benefits
Salary Continuation Plan
Discounted Employee Purchases
General Release, Settlement and Termination Agreement between Frank's Nursery
& Crafts, Inc. and Local 337, International Brotherhood of Teamsters dated
January 17, 1997
Director Retirement Policy
Employment Agreement between General Host Corporation and Harris J. Ashton
made as of January 1, 1992; and First Amendment thereto made as of June 30,
1997
Letters to Phil Roos dated August 14, 1997 and August 21, 1997 from Frank's
Nursery & Crafts
Letter to Raymond E. Boley dated September 24, 1997 from Frank's Nursery &
Crafts
Letter to Christine Morrisroe dated August 25, 1997 from Frank's Nursery &
Crafts
Trust Agreement made as of November 1, 1989 between General Host Corporation
and William F. Downey, as Trustee of the trust created under Agreement dated
August 9, 1989 between Harris J. Ashton, Grantor, and William F. Downey,
Trustee
Severance obligations to the following terminated employees:
Donna Taylor - $1,038.47 per week; payments end January 2, 1998;
Chris Bogulaski - $807.70 per week; payments end February 6, 1998; and
<PAGE>
Dave Strang - $3,884.62 every two weeks; payments end December 4,
1997.
Forgiveness of debt as follows:
As previously disclosed to Purchaser, from January 1, 1997 to the date
hereof, the Company has forgiven (in the case of item (i)) or will
forgive upon a change in control of the Company (in the case of item
(ii)) the following individuals the indicated amounts with respect to
loans made to them to facilitate the exercise of Options:
(i) During the second quarter of 1997: Ashton - $1,248,868; and
(ii) On July 7, 1997, the following amounts, plus interest, plus
defraying the Company's tax withholding obligation to the extent
shown in the examples attached to the July 7, 1997 letter to each
individual: Boyd - $44,744.21; Dickenson - $5,108,25; Herzog -
$15,097.51; Hilsenbeck - $14,943.93; Simpson - $90,351.05;
Lovejoy -$151,613.83.
Severance Agreements (of which the Purchaser has received the following
written summary and which Company will confirm in a subsequent writing with
the respective individuals):
General Host Corporation (the "Company") has severance agreements
with the following four executives (the "Executives") of the
Company and its subsidiary, Frank's Nursery & Crafts, Inc. (the
"Subsidiary"):
Robert M. Lovejoy, Jr. -
Vice President and Treasurer of the Company and the Subsidiary;
James R. Simpson -
Vice President and Controller of the Company and Vice President
Finance of the Subsidiary;
J. Theodore Everingham -
Vice President, General Counsel and Secretary of the Company and
Vice President and General Counsel of the Subsidiary; and
Ernest W. Townsend -
Executive Vice President of the Company and President and Chief
Operating Officer of the Subsidiary.
The primary provisions of the severance agreements are as follows:
1. Severance benefits are payable only in the event of a qualifying
termination of employment which occurs between the date of the execution
of the Merger Agreement and the first anniversary of the Effective Time
(as defined in the Merger Agreement).
2. Qualifying terminations of employment will consist only of either
termination by the Company without "Cause" (as defined below) or
termination by the Executive with "Good Reason" (as defined below).
3. Within five days after a qualifying termination of an Executive's
employment, the Company will pay the Executive a lump sum, based on the
Executive's "Salary" (defined as the higher of the Executive's base
salary immediately prior to the execution of the Merger Agreement or the
Executive's base salary immediately prior to his termination of
employment). In the case of Mr. Lovejoy, the lump sum will equal one
<PAGE>
year's Salary. In the case of Messrs. Simpson, Everingham and Townsend,
the lump sum will equal six months' Salary.
4. The Company will also pay all COBRA premiums for and provide to each
Executive who has a qualifying termination of employment continuing
medical insurance benefits which are substantially similar to the
benefits provided him immediately prior to the date of execution of the
Merger Agreement (including any coverage for spouse and dependents) for
a period of one year.
5. "Cause" shall mean (i) the willful and continued failure by the
Executive to substantially perform his duties after a specific written
demand for substantial performance is delivered to the Executive by the
Board of Directors, or (ii) the willful engaging by the Executive in
conduct which is demonstrably injurious to the Company, the Surviving
Corporation or its subsidiaries.
6. "Good Reason" shall mean any of the following: (i) a reduction in
the Executive's base salary; (ii) the assignment of any duties
inconsistent with the Executive's position (as described above) or a
substantial adverse alteration in the nature or status of the
Executive's responsibilities, or (iii) relocation of the Executive's
primary place of employment to a location more than twenty-five miles
from the Executive's principal place of employment immediately prior
to the date of execution of the Merger Agreement.
<PAGE>
Section 3.10(e)
Obligation to Directors with respect to life insurance pursuant to resolution
of the Board of Directors:
Until all Directors serving on November 21, 1997 (the "Current Directors")
have terminated their service as Directors, the Company shall take all
commercially reasonable steps to continue to make third-party life
insurance company coverage available to each Current Director who continues
to serve as a Director on a basis no less favorable (including, without
limitation, face amount of coverage and allocation of cost) than the
current basis, and the Company shall use its best efforts to maintain the
feature of its group life insurance policy which enables a Director whose
service is terminated to obtain continuing life insurance in the same face
amount as his coverage immediately prior to termination without a physical
examination, at the insurer's normal individual rates and at the expense
of the Director;
Obligation to certain Directors with respect to retirement benefit pursuant
to Director Retirement Policy and resolution of the Board of Directors:
Each non-employee Director whose "Eligibility Date" (as defined in the
Director Retirement Policy) has occurred prior to November 21, 1997 shall
receive, upon his respective future termination of service as a Director,
whenever occurring, annual retainer fees in the respective amount and
manner and for the respective period of time provided by the Director
Retirement Policy.
<PAGE>
SCHEDULE 3.11
1. See attached schedule.
<PAGE>
FRANK'S NURSERY & CRAFTS, INC.
STATUS OF TAX AUDITS
<TABLE>
<CAPTION>
SALES TAX-OPEN TAX YEARS
- ------------------------
STATE OF
-----------------------------------------------------------------------------------------
CT DE FL IL IN KY MA MD MI MN MO NJ NY OH PA VA
FYE/LMT YRS 3 5 3 3 4 3 4 4 3.5 3 4 3 4 5 3 3
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JAN 98 X X X X X X X X P2 X X X X X X X
JAN 97 X X X X X X X X X X X X P4 X X
JAN 96 X X X X X X X X X X X P3 P5 X
JAN 95 P1 X X X X X X X X X X X
JAN 94 L X X X
X Open Year
L Extended statute of limitation for period 11/93 through 8/97 to 6/96
P1 Closed through 12/94
P2 Closed through 06/97
P3 Closed through 05/95
P4 Closed through 12/98
P5 Closed through 09/30/95
</TABLE>
<TABLE>
<CAPTION>
INCOME TAX-OPEN TAX YEARS
- -------------------------
JURISDICTION
----------------------------------------------------------------------------------------------------------------------
CT DE FL IL IN KY MA MD MI MN MO NJ NY OH PA VA US NYC PHILLY KY MI OH
CITIES CITIES CITIES
FYE/LMT YRS 3 3 5 3 3 4 3 4 4 3.5 3 4 3 4 5 3 3 3 5 4 4 4
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JAN 98 X X X X X X X X X X X X X X X X X X X X X X
JAN 97 X X X X X X X X X X X X X X X X X X X X X X
JAN 96 X X X X X X T1 X T2 X X X X X X X X X X X X X
JAN 95 X X X X X X T1 X T2 X X X X X X X X X X X X X
JAN 94 X X X T2 X X E2 X X X X X X
JAN 93 X E1 X U X
JAN 92 U
X Open Year
E1 Extended statute of limitation for year ended 1/93 to 12/97
E2 Extended statute of limitation for year ended 1/94 to 6/98
T1 Oral statement by auditor of no change. No written confirmation.
T2 Settlement with no change. Awaiting confirmation.
U Unsettled audit.
</TABLE>
<TABLE>
<CAPTION>
CURRENT AUDITS UNDERWAY
- -----------------------
JURISDICTION
----------------------------------------------------------------------------------------------------------------------
CT DE FL IL IN KY MA MD MI MN MO NJ NY OH PA VA US NYC PHILLY KY MI OH
CITIES CITIES CITIES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales & Use X
Income/ X X X
Franchise
</TABLE>
<PAGE>
GENERAL HOST AND SUBSIDIARIES OTHER THAN FRANK'S
STATUS OF TAX AUDITS
<TABLE>
<CAPTION>
INCOME TAX-OPEN TAX YEARS
- -------------------------
JURISDICTION
---------------------------------------------------------------------------------------------------
AZ CT DE FL IL KS LA MI NJ NY NYC US
FYE/LMT YRS 3 3 3 5 3 3 4 4 4 3 3 3
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JAN 98 X X X X X X X X X X X X
JAN 97 X X X X X X X X X X X X
JAN 96 X X X X X X X X X X X X
JAN 95 X X X X X X X X X X X X
JAN 94 X X X X X
JAN 93 X
X Open Year
</TABLE>
General Host's consolidated Federal return was last audited for the year ended
January 31, 1998. The above jurisdictions represent the group on a combined
basis. Separate members are not included in every jurisdiction.
All years for General Host and subsidiaries, other than Frank's, are open for
the years that falls within the statute of limitations (See limits above).
<TABLE>
<CAPTION>
CURRENT AUDITS UNDERWAY
- -----------------------
JURISDICTION
-------------------------------------------------------------------------------------------------
AZ CT DE FL IL KS LA MI NJ NY NYC US
3 3 3 5 3 3 4 4 4 3 3 3
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General Host 02/01/93-01/30/94 X
</TABLE>
<PAGE>
SCHEDULE 3.14
1. The Mortgaged-Backed Credit Agreement dated as of November 29, 1996,
between Comerica Bank and the Company and Frank's Nursery & Crafts,
Inc., as amended by the First Amendment to the Mortgage-Backed Credit
Agreement dated as of June 13, 1997, between the Company and Frank's
Nursery & Crafts, Inc. and Comerica Bank, as further amended by the
Second Amendment to Mortgage-Backed Credit Agreement dated as of July
25, 1997, between the Company and Frank's Nursery & Crafts, Inc. and
Comerica Bank.
<PAGE>
SCHEDULE 3.16
Section 3.16(a)
Recent Real Estate Transactions
1. Store #644 - Newburg, New York. On February 25, 1997, Frank's entered
into a sale-leaseback with Coburgh, L.L.C., a New York limited liability
company. Coburgh paid Frank's $2,750,000 and Frank's entered into a
triple net lease for 20 years with four five-year options. Rent for the
entire term, including options, is $275,000. From the closing date
through August 24, 1998, Coburgh has the right to terminate the lease by
giving Frank's 6 months prior written notice. Upon receipt of this
notice, Frank's can shorten the period to 2 months. After August 24,
1998, Frank's may purchase the property for $2,475,000. On November 18,
1997, Neil Borden, an officer of Coburgh, contacted the Company to ask
if Frank's would be willing to set a termination date. The Company has
not yet responded to this request.
2. Store #601 - Huntington, New York. On August 26, 1997, Frank's granted
a mortgage to National Realty Funding, L.C., a Missouri limited
liability corporation. The principal amount due under the Promissory
Note is $1,625,000 at an interest rate of 9.10% payable on or before
September 1, 2007. At closing, Frank's received $1,526,864.08, the
principal sum adjusted after prorations. Also at closing, Frank's
entered into escrow agreements to perform building repair and
environmental work. This work is nearly completed and Frank's is
entitled to receive $58,500.00.
3. Store #239 - Claymount, Delaware. On October 14, 1997, Frank's entered
into a Lease Termination Agreement with its landlord, Northowne, Inc., a
Delaware corporation, acting as Trustee under a Trust Agreement dated
July 10, 1967. On October 14, 1997, Landlord paid Frank's $1,500,000.00
and placed $1,500,000 in escrow. On October 27, 1997, the lease
terminated and Frank's received the escrow, along with $2,209.19,
representing interest earned on the escrow.
4. Store #291 - Centereach, New York. On October 30, 1997, Frank's entered
into a sale-leaseback with Frany Realty Co., LLC, a Delaware limited
liability company. Frany paid Frank's $2,700,000 and Frank's has a
triple net lease for 20 years along with four five-year options. Rent
is calculated using an 11.25% cap rate with 10% increases every five
years. The cap rate will increase to 11.50% if the White Plains
transaction closes.
5. Store #610 - White Plains, New York. On October 30, 1997 Frank's signed
an Agreement for Sale of Real Estate with S&D Realty, LLC, a Delaware
limited liability company, for the sale-leaseback of the referenced
store. S&D will pay $4,300,000 and Frank's will enter into a triple net
lease for 22 years along with four five-year options. Rent is
calculated using an 11.50% cap rate with 10% increases every five years.
Closing is scheduled for December 22, 1997.
Mortgages and other Encumbrances (See also encumbrance granted above under
paragraph 2, Store #601)
<PAGE>
I. Met Life
1. Commercial Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing dated as of August 31, 1995 by and between
Frank's Nursery & Crafts, Inc. ("Frank's") and MetLife Capital
Financial Corporation ("MetLife").
2. Security Agreement dated as of August 31, 1995 by and between
Frank's and MetLife.
3. Assignment of Rents and Leases dated as of August 31, 1995 by and
between Frank's and MetLife.
4. Guaranty dated as of August 31, 1995 by the Company in favor of
MetLife.
5. The following arrangements with MetLife: (a) Promissory notes in
the original principal amounts of $975,000, $937,000, $825,000 and
$825,000; (b) related Commercial Mortgages on properties located in
Merrilville, Indiana, Columbus, Indiana, South Bend, Indiana, and
Michigan City, Indiana, respectively; (c) related Security
Agreements; (d) related Assignments of Rents and Leases; (e)
related Guaranties, all dated August 31, 1995 and governed by
Indiana law; (f) borrower's certificate dated August 31, 1995; and
(g) certificate of hazardous substances dated August 31, 1995.
6. The following arrangements with MetLife: (a) Promissory notes in
the original principal amounts of $660,000, $675,000, $690,000 and
$825,000; (b) related Commercial Mortgages on properties located in
Waukegan, Illinois, Evergreen Park, Illinois, St. Charles, Illinois
and Naperville, Illinois, respectively; (c) related Security
Agreements; (d) related Assignments of Rents and Leases; (e)
related Guaranties, all dated August 31, 1995 and governed by
Illinois law; (f) borrower's certificate dated August 31, 1995 and
(g) certificate of hazardous substances dated August 31, 1995.
7. The following arrangements with MetLife: (a) A promissory note in
the original principal amount of $855,000; (b) related Commercial
Mortgage on property located in Coon Rapids, Minnesota; (c) related
Security Agreement; (d) related Assignment of Rents and Leases; (e)
related Guaranty, all dated August 31, 1995 and governed by
Minnesota law; (f) borrower's certificate dated August 31, 1995 and
(g) certificate of hazardous substances dated August 31, 1995.
8. The following arrangements with MetLife: (a) A promissory note in
the original principal amount of $1,200,000; (b) related Commercial
Mortgage on property located in Franklin, Ohio; (c) related
Security Agreement; (d) related Assignment of Rents and Leases; (e)
related Guaranty, all dated August 31, 1995 and governed by Ohio
law; (f) borrower's certificate dated August 31, 1995 and (g)
certificate of hazardous substances dated August 31, 1995.
9. The following arrangements with MetLife: (a) Promissory notes in
the original principal amounts of $1,125,000 and $1,125,000; (b)
related Commercial Mortgages on properties located in Clinton
Township, Michigan and Canton Township, Michigan, respectively; (c)
related Security Agreements; (d) related Assignments of Rents and
<PAGE>
Leases; (e) related Guaranties, all dated August 31, 1995 and
governed by Michigan law; (f) borrower's certificate dated August
31, 1995 and (g) certificate of hazardous substances dated August
31, 1995.
II. Peoples
1. Mortgage Note in the original principal amount of $4,950,000 dated
January 25, 1996 from Frank's to People's Bank ("Peoples").
2. Mortgage Deed and Security Agreement dated as of January 25, 1996
by and between Frank's and People's.
3. Assignment of Rents and Leases dated as of January 25, 1996 by and
between Frank's and People's.
4. Guaranty and Indemnity Agreement dated as of January 25, 1996 by
the Company in favor of People's.
5. Escrow Agreement dated as of January 25, 1996 by and among Frank's,
People's and Commonwealth Land Title Insurance Company.
6. The following arrangements with Peoples: (a) Mortgage and Security
Agreement on property located in Kingston, New York; and (b)
Assignment of Rents and Leases, each dated as of January 25, 1996
and governed by New York law.
III. Midland
1. Promissory Note in the original principal amount of $682,878 dated
March 14, 1996 from Frank's Nursery & Crafts, Inc. ("Frank's") to
Midland Loan Services, L.P. ("Midland") relating to the Grand
Rapids, MI store.
2. Mortgage, Security Agreement and Assignment of Leases and Rents
dated as of March 14, 1996 by and between Frank's and Midland
relating to the Grand Rapids, MI store.
3. Assignment of Rents and Leases dated as of March 14, 1996 by and
between Frank's and Midland relating to the Grand Rapids, MI store.
4. Guaranty dated as of March 14, 1996 by the Company in favor of
Midland relating to the Grand Rapids, MI store.
5. Escrow Agreement dated as of March 14, 1996 by and between Frank's
and Midland in its capacities as lender and escrow agent relating
to the Grand Rapids, MI store.
6. The following arrangements with Midland: (a) Promissory notes in
the original principal amounts of $867,548, $862,893, $857,318 and
$883,802; (b) related Mortgages on properties located in
Libertyville, Illinois, Lake Zurich, Illinois, Crystal Lake,
Illinois and Schaumburg, Illinois, respectively; (c) related
Assignments of Rents and Leases; (d) related Guaranties; (e)
related Escrow Agreements, all dated January 26, 1996 and governed
<PAGE>
by Illinois law; (f) borrower's certificate dated January 26, 1996;
and (g) Environmental Indemnity Agreement dated January 26, 1996.
7. The following arrangements with Midland: (a) Promissory notes in
the original principal amounts of $726,793 and $1,330,423; (b)
related Mortgages on properties located in Battle Creek, Michigan
and Bloomfield Township, Michigan, respectively; (c) related
Assignments of Rents and Leases; (d) related Guaranties; (e)
related Escrow Agreements, all dated January 26, 1996 and governed
by Michigan law; (f) borrower's certificate dated January 26, 1996;
and (g) Environmental Indemnity Agreement dated January 26, 1996.
8. The following arrangements with Midland: (a) Promissory notes in
the original principal amounts of $956,708, $909,974 and $849,344;
(b) related Mortgages on properties located in Roseville,
Minnesota, Eden Prairie, Minnesota and Eagan, Minnesota,
respectively; (c) related Assignments of Rents and Leases; (d)
related Guaranties; (e) related Escrow Agreements, all dated
January 26, 1996 and governed by Minnesota law;(f) borrower's
certificate dated January 26, 1996; and (g) Environmental Indemnity
Agreement dated January 26, 1996.
9. The following arrangements with Midland: (a) Promissory notes in
the original principal amounts of $730,026, $734,319 and $753,432;
(b) related Mortgages on properties located in Bridgeton, Missouri,
St. Charles, Missouri and St. Charles, Missouri, respectively; (c)
related Assignments of Rents and Leases; (d) related Guaranties;
(e) related Escrow Agreements, all dated January 26, 1996 and
governed by Missouri law;(f) borrower's certificate dated January
26, 1996; and (g) Environmental Indemnity Agreement dated January
26, 1996.
10. The following arrangements with Midland: (a) Promissory notes in
the original principal amounts of $1,280,990, $1,379,474 and
$1,316,019; (b) related Mortgages on properties located in
Deptford, New Jersey, Bridgewater, New Jersey and Bricktown, New
Jersey, respectively; (c) related Assignments of Rents and Leases;
(d) related Guaranties; (e) related Escrow Agreements, all dated
January 26, 1996 and governed by New Jersey law; (f) borrower's
certificate dated January 26, 1996; and (g) Environmental Indemnity
Agreement dated January 26, 1996.
11. The following arrangements with Midland: (a) A promissory note in
the original principal amount of $1,373,432; (b) related Mortgage
on property located in Staten Island, New York; (c) related
Assignment of Rents and Leases; (d) related Guaranty; (e) related
Escrow Agreement, all dated January 26, 1996 and governed by New
York law; (f) borrower's certificate dated January 26, 1996; and
(g) Environmental Indemnity Agreement dated January 26, 1996.
12. The following arrangements with Midland: (a) A promissory note in
the original principal amount of $892,829; (b) related Mortgage on
property located in Brookhaven, Pennsylvania; (c) related
Assignment of Rents and Leases; (d) related Guaranty; (e) related
Escrow Agreement, all dated January 26, 1996 and governed by
Pennsylvania law; (f) borrower's certificate dated January 26,
<PAGE>
1996; and (g) Environmental Indemnity Agreement dated January 26,
1996.
13. The following arrangements with Midland: (a) Amended and Restated
Promissory Note in the original principal amount of $2,583,273.69
dated as of December 1, 1995 from Frank's to Midland Commercial
Financing Corp; (b) related Mortgages dated as of October 16, 1995,
as amended as of December 1, 1995 on properties located in Okemos,
Michigan and Joliet, Illinois; (c) related Assignments of Rents and
Leases dated as of October 16, 1995, as amended as of December 1,
1995; (d) Amended and Restated Guaranty dated as of December 1,
1995 from the Company in favor of Midland Commercial Financing
Corp.; (e) related Escrow Agreements dated as of October 13, 1995;
(f) borrower's certificate dated January 26, 1996; and (g)
Environmental Indemnity Agreement dated January 26, 1996.
IV. First Union
1. Mortgage, Security Agreement and Assignment of Leases and Rents
dated as of April 22, 1996 by and between Frank's and First Union
National Bank of North Carolina ("First Union").
2. First Amendment to Mortgage and Security Agreement dated as of May
1, 1996 by and between Frank's and First Union.
3. Guaranty dated as of April 22, 1996 by the Company in favor of
First Union.
4. The following arrangements with First Union: (a) Promissory Notes
in the original principal amount of $683,000 and $657,000; (b)
related Mortgages, Security Agreements and Assignments of Leases
and Rents on properties located in Louisville, Kentucky and
Louisville, Kentucky; (c) related Guaranty, all dated as of April
22, 1996 and governed by Kentucky law; and (d) Hazardous Substance
Agreements, dated April 22, 1996.
5. The following arrangements with First Union: (a) Promissory Notes
in the original principal amount of $849,000 and $659,000; (b)
related Mortgages, Security Agreements and Assignments of Leases
and Rents on properties located in Flint, Michigan and Grand
Rapids, Michigan; (c) related Guaranty, all dated as of April 22,
1996 and governed by Michigan law; and (d) Hazardous Substance
Agreements, dated April 22, 1996.
6. The following arrangements with First Union: (a) A Promissory Note
in the original principal amount of $865,000; (b) related Mortgage,
Security Agreement and Assignment of Leases and Rents on property
located in Cincinnati, Ohio; (c) related Guaranty, all dated as of
April 22, 1996 and governed by Ohio law; and (d) Hazardous
Substance Agreements, dated April 22, 1996.
V. Comerica
1. Mortgage-backed Credit Agreement in the aggregate face amount of
$40,000,000 dated as of November 29, 1996 by and between the
Company, Frank's Nursery & Crafts, Inc. ("Frank's") and Comerica
Bank ("Comerica").
<PAGE>
2. First Amendment to Mortgage-Backed Credit Agreement dated as of
June 13, 1997, between the Company and Frank's Nursery & Crafts,
Inc. and Comerica Bank.
3. Second Amendment to Mortgage-Backed Credit Agreement dated as of
July 25, 1997, between the Company and Frank's Nursery & Crafts,
Inc. and Comerica Bank.
4. Mortgage-Backed Note in the original principal amount of
$25,000,000 dated as of November 29, 1996 by and between the
Company, Frank's and Comerica.
5. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement dated as of November 29,
1996 by and between Frank's and Comerica.
6. Guaranty dated as of November 29, 1996 by the Company in favor of
Comerica.
7. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Milford, Connecticut, dated November 29, 1996 and governed by
Connecticut law.
8. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in St.
Petersburg, Florida, New Port Richey, Florida, Largo, Florida,
Tampa, Florida, Tampa, Florida, Bradenton, Florida and Clearwater,
Florida, all dated November 29, 1996 and governed by Florida law.
9. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Bedford Park, Illinois, dated November 29, 1996 and governed by
Illinois law.
10. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in Fort
Wayne, Indiana, Fort Wayne, Indiana and Mishawaka, Indiana, all
dated November 29, 1996 and governed by Indiana law.
11. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Florence, Kentucky, dated November 29, 1996 and governed by
Kentucky law.
12. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Owings Mills, Maryland, dated November 29, 1996 and governed by
Maryland law.
13. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Tauton, Massachusetts, Brockton, Massachusetts, Hadley,
Massachusetts, Springfield, Massachusetts and Westfield,
Massachusetts, all dated November 29, 1996 and governed by
Massachusetts law.
<PAGE>
14. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Dearborn Heights, Michigan, Saginaw, Michigan, Saginaw, Michigan,
Utica, Michigan, Grandville, Michigan, Flint, Michigan, Warren,
Michigan, Bay City, Michigan, Lincoln Park, Michigan, Portgage,
Michigan, Lansing, Michigan and Norton Shores, Michigan, all dated
November 29, 1996 and governed by Michigan law.
15. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Bloomington, Minnesota, Blain, Minnesota and St. Paul, Minnesota
all dated November 29, 1996 and governed by Minnesota law.
16. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Ballwin, Missouri, dated November 29, 1996 and governed by Missouri
law.
17. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in Sea
Girt, New Jersey, West Long Beach Branch, New Jersey, Kenvil, New
Jersey, Hazlet, New Jersey and Howell, New Jersey, all dated
November 29, 1996 and governed by New Jersey law.
18. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Columbus, Ohio, Columbus, Ohio, Columbus, Ohio, Toledo, Ohio,
Toledo, Ohio, Northwood, Ohio, Springfield, Ohio, Cincinnati, Ohio,
Cincinnati, Ohio and Huber Heights, Ohio, all dated November 29,
1996 and governed by Ohio law.
19. Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Philadelphia, Pennsylvania and Exton, Pennsylvania, both dated
November 29, 1996 and governed by Pennsylvania law.
VI National Realty Funding
1. The following arrangements with National Realty Funding, L.L.C.
relating to store # 601: (a) promissory note in the original
principal amount of $1,625,000; (b) First Mortgage, Assignment of
Rent, Security, Agreement and Fixture Filing dated August, 19,
1997; (c) Assignment of Rents, Leases and Profits dated August 19,
1997; (d) Guaranty Agreement dated August 19, 1997; (e)
Completion/Repair Escrow and Security Agreement dated August 19,
1997; (f) Borrower's Certificate of Representations and Warranties
dated August 19, 1997; (g) Environmental Escrow Agreement dated
August 19, 1997; and (h) Environmental Indemnity Agreement dated
August 19, 1997.
VII NAD Realty
1. Mortgage dated August 4, 1994 made to N.A.D. Realty Co. Inc.
relating to store #610.
<PAGE>
2. Mortgage Note in the original principal sum of $891,000 (current
principal amount is $368,413.49)
3. In a sale lease back transaction of the Store #601 Frank's will be
paying of the Mortgage and Mortgage Note and each of the above two
documents will be terminated.
Section 3.16(c)
20. Store #644 - Newburg, New York. On February 25, 1997, Frank's
entered into a sale-leaseback with Coburgh, L.L.C., a New York
limited liability company. Coburgh paid Frank's $2,750,000 and
Frank's entered into a triple net lease for 20 years with four
five-year options. Rent for the entire term, including options, is
$275,000. From the closing date through August 24, 1998, Coburgh
has the right to terminate the lease by giving Frank's 6 months
prior written notice. Upon receipt of this notice, Frank's can
shorten the period to 2 months. After August 24, 1998, Frank's may
purchase the property for $2,475,000. On November 18, 1997, Neil
Borden, an officer of Coburgh, contacted the Company to ask if
Frank's would be willing to set a termination date. The Company
has not yet responded to this request.
21. Store #610 - White Plains, New York. On October 30, 1997 Frank's
signed an Agreement for Sale of Real Estate with S&D Realty, LLC, a
Delaware limited liability company, for the sale-leaseback of the
referenced store. S&D will pay $4,300,000 and Frank's will enter
into a triple net lease for 22 years along with four five-year
options. Rent is calculated using an 11.50% cap rate with 10%
increases every five years. Closing is scheduled for December 22,
1997.
22. Store #291 - Centereach, New York. Frany Realty Co., LLC, a
Delaware limited liability company has a right of first refusal to
purchase an adjoining parcel that is not currently being used as
part of Store #291.
<PAGE>
SCHEDULE 3.19
1. Five-year loans to Scott A. Hesler of $54,625.00 (with annual 6%
interest rate) to cover the exercise price of an option to purchase
10,000 shares of General Host Corporation stock and $4,990.19 to pay out
related income tax withholding obligations.
2. Extension of the following notes, granted to finance the purchase of
General Host Corporation stock, of seven key employees for five years
from maturities in September and October 1995:
Previous
Employee Amount Maturity Date
Bill Boyd $24,137.44 10/08/95
Eric Dickenson 5,108.25 10/09/95
Sue Hilsenbeck 4,944.75 10/21/95
Ed Jackson 9,582.50 10/09/95
Jim Simpson 19,088.80 09/25/95
Dave Strang 4,412.00 10/30/95
Ron Taylor 4,662.19 10/11/95
3. Exchange by Frank's Nursery & Crafts, Inc. of Harris J. Ashton's
$628,956 principal amount promissory note (with annual 6.00 interest
rate) payable to Frank's Nursery & Crafts, Inc., dated February 6,
1992, due August 22, 1995 for a new promissory note payable to
Frank's Nursery & Crafts, dated August 22, 1995, due August 22, 2000
in the same principal and interest rate.
4. Payment of Harris J. Ashton's $1,356,252.50 note (with 6.00 annual
interest rate) payable to General Host Corporation, dated March 21,
1991, due March 6, 1996 with the proceeds of a loan to him from
Frank's Nursery & Crafts, which loan was evidenced by his promissory
note dated March 6, 1996, payable to Frank's Nursery & Crafts on or
before March 6, 2001, in the principal amount equal to the unpaid
principal balance of the old note, bearing interest at the same rate
and containing substantially the same terms as the old note.
5. Extension of Robert M. Lovejoy, Jr.'s stock purchase loan with the
principal amount of $38,337.50 under the Key Employee Loan Program of
General Host Corporation for five years from April 4, 1996.
6. Issuance of options under the 1986 Stock Incentive Plan to Harris J.
Ashton to purchase 540,000 shares of General Host Corporation stock
at an exercise price per share equal to the average of the highest
and lowest selling prices of one share of General Host's common stock
on the New York Stock Exchange - Composition Transactions Index on
the date of grant, conditioned upon his surrender and cancellation of
then outstanding options for the same number of shares at higher
prices.
7. Extension of the following notes given to finance the purchases of
General Host Corporation stock under the Key Employee Loan Program of
General Host Corporation for five years from maturities in March and
April 1997:
<PAGE>
Previous
Employee Principal Amount Maturity Date
William C. Boyd $20,606.77 03/23/97
Susan M. Hilsenbeck 9,999.18 03/15/97
Robert M. Lovejoy, Jr. 49,851.33 03/08/97
James R. Simpson 21,394.25 04/06/97
8. Reduction of the aggregate principal amount of the following three
outstanding promissory notes to Harris J. Ashton to an amount equal
to the aggregate fair market value on June 2, 1997 of the shares of
Common Stock of General Host Corporation purchased with the proceeds
of such notes:
Date of Original Principal
Existing Note Amount of Existing Note
12/30/92 $ 495,000.00
08/22/95 628,956.00
12/30/96 1,356,252.50
_____________
$2,480,208.50
9. Approval of forgiveness of the following outstanding notes to key
employees of the General Host Corporation and Frank's Nursery &
Crafts in the event of a change of control of the Corporation:
Name of Date of Original Principal
Employee Existing Note Amount of Note
William C. Boyd 10/09/95 $ 24,137.44
03/23/97 20,606.77
_________
44,744.21
Eric H. Dickenson 10/10/95 5,108.25
Julie Herzog 07/26/94 15,097.51
Susan M. Hilsenbeck 10/21/95 4,944.75
03/15/97 9,999.18
_________
14,943.93
Robert M. Lovejoy, Jr. 03/22/93 40,675.00
11/30/94 22,750.00
04/04/96 38,337.50
03/08/97 49,851.33
__________
151,613.83
James R. Simpson 05/26/94 31,740.00
03/13/95 18,128.00
09/25/95 19,088.80
04/06/97 21,394.25
_________
90,351.05
10. On June 30, 1997 the Employment Agreement dated January 1, 1992,
between the Corporation and Harris J. Ashton was amended to provide
for a three year extension from its expected expiration on December
31, 1997; a 5% increase in his base salary each year of such extended
period and reimbursement for any attorney's fees and related out-of-
pocket expenses that he incurred in connection with negotiation of
the new agreement.
<PAGE>
Schedule 3.21
Other information not relating to brokers finders or investment bankers:
The Company entered into an engagement letter with Skadden, Arps,
Slate, Meagher & Flom LLP on November 10, 1997 pursuant to which the Company
agreed to a fee ranging between $1.5 million and $2 million, plus
reimbursement of charges and disbursements.
Exhibit 4.1
FRANK'S NURSERY & CRAFTS, INC.
Series A AND Series B
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
INDENTURE
_____________________________
Dated as of February 26, 1998
_____________________________
BANKERS TRUST COMPANY
Trustee
_________
<PAGE>
CROSS-REFERENCE TABLE*
Act Section Indenture Section
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(i)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06;
12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03;
12.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05;
12.02
(A)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . 16
Section 1.03. Trust Indenture Act Definitions . . . . . . . . . 16
Section 1.04. Rules of Construction . . . . . . . . . . . . . . 17
ARTICLE 2. THE NOTES . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . 17
Section 2.02. Execution and Authentication . . . . . . . . . 18
Section 2.03. Registrar and Paying Agent . . . . . . . . . . 19
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . 19
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . 20
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . 20
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . 31
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . 31
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . 32
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . 32
Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . 32
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . 32
Section 2.13. CUSIP Numbers. . . . . . . . . . . . . . . . . 32
ARTICLE 3. REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . 33
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . 33
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . 33
Section 3.03. Notice of Redemption . . . . . . . . . . . . . 33
Section 3.04. Effect of Notice of Redemption . . . . . . . . 34
Section 3.05. Deposit of Redemption Price. . . . . . . . . . 34
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . 34
Section 3.07. Optional Redemption . . . . . . . . . . . . . . 35
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . 35
Section 3.09. Offer to Purchase by Application of Excess
Proceeds . . . . . . . . . . . . . . . . . . 35
ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . 37
Section 4.02. Maintenance of Office or Agency . . . . . . . . 37
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . 38
Section 4.04. Compliance Certificate . . . . . . . . . . . . 38
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . 39
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . 39
Section 4.07. Restricted Payments . . . . . . . . . . . . . . 39
Section 4.08. Dividend and Other Payment Restrictions
Affecting Subsidiaries . . . . . . . . . . . 41
Section 4.09. Incurrence of Indebtedness and Issuance of
Preferred Stock . . . . . . . . . . . . . . . 42
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . 44
Section 4.11. Transactions with Affiliates . . . . . . . . . 45
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>
Section 4.13. Sale and Leaseback Transactions. . . . . . . . 46
Section 4.14. Corporate Existence . . . . . . . . . . . . . . 47
Section 4.15. Offer to Repurchase Upon Change of Control. . . 47
Section 4.16. Limitation on Other Senior Subordinated
Debt . . . . . . . . . . . . . . . . . . . . 48
Section 4.17. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries . . . . . . . . . . . 48
Section 4.18. Issuances and Sales of Equity Interests in
Wholly Owned Restricted Subsidiaries . . . . 48
Section 4.19. Money for Payments to Be Held In Trust . . . . 49
ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . 50
Section 5.01. Merger, Consolidation, or Sale of Assets . . . 50
Section 5.02. Successor Corporation Substituted . . . . . . . 51
ARTICLE 6. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . 51
Section 6.01. Events of Default. . . . . . . . . . . . . . . 51
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . 52
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . 53
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . 53
Section 6.05. Control by Majority . . . . . . . . . . . . . . 54
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . 54
Section 6.07. Rights of Holders of Notes to Receive
Payment . . . . . . . . . . . . . . . . . . . 54
Section 6.08. Collection Suit by Trustee . . . . . . . . . . 54
Section 6.09. Trustee May File Proofs of Claim . . . . . . . 55
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . 55
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . 55
ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . 56
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . 57
Section 7.03. Individual Rights of Trustee . . . . . . . . . 57
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . 57
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . 58
Section 7.06. Reports by Trustee to Holders of the Notes . . 58
Section 7.07. Compensation and Indemnity . . . . . . . . . . 58
Section 7.08. Replacement of Trustee . . . . . . . . . . . . 59
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . 60
Section 7.10. Eligibility; Disqualification . . . . . . . . . 60
Section 7.11. Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . 60
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . 60
Section 8.01. Option to Effect Legal Defeasance or
Covenant Defeasance . . . . . . . . . . . . . 60
Section 8.02. Legal Defeasance and Discharge . . . . . . . . 60
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . 61
Section 8.04. Conditions to Legal or Covenant Defeasance . . 61
Section 8.05. Deposited Money and Government Securities
to be Held in Trust; Other Miscellaneous
Provisions . . . . . . . . . . . . . . . . . 62
Section 8.06. Repayment to Company . . . . . . . . . . . . . 63
<PAGE>
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . 63
Section 8.08. Survival . . . . . . . . . . . . . . . . . . . 63
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . 64
Section 9.01. Without Consent of Holders of Notes . . . . . . 64
Section 9.02. With Consent of Holders of Notes . . . . . . . 64
Section 9.03. Compliance with Trust Indenture Act . . . . . . 66
Section 9.04. Revocation and Effect of Consents . . . . . . . 66
Section 9.05. Notation on or Exchange of Notes . . . . . . . 66
Section 9.06. Trustee to Sign Amendments, etc. . . . . . . . 66
ARTICLE 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . 67
Section 10.01. Agreement to Subordinate . . . . . . . . . . . 67
Section 10.02. Certain Definitions . . . . . . . . . . . . . . 67
Section 10.03. Liquidation; Dissolution; Bankruptcy . . . . . 68
Section 10.04. Default on Designated Senior Debt . . . . . . . 68
Section 10.05. Acceleration of Notes . . . . . . . . . . . . . 69
Section 10.06. When Distribution Must Be Paid Over . . . . . . 69
Section 10.07. Notice by Company. . . . . . . . . . . . . . . 70
Section 10.08. Subrogation . . . . . . . . . . . . . . . . . . 70
Section 10.09. Relative Rights . . . . . . . . . . . . . . . . 70
Section 10.10. Subordination May Not Be Impaired by
Company . . . . . . . . . . . . . . . . . . . 70
Section 10.11. Distribution or Notice to Representative . . . 70
Section 10.12. Rights of Trustee and Paying Agent . . . . . . 71
Section 10.13. Authorization to Effect Subordination. . . . . 71
ARTICLE 11. SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . 71
Section 11.01. Satisfaction and Discharge of Indenture . . . . 71
Section 11.02. Application of Trust Money . . . . . . . . . . 72
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 72
Section 12.01. Trust Indenture Act Controls . . . . . . . . . 72
Section 12.02. Notices . . . . . . . . . . . . . . . . . . . . 73
Section 12.03. Communication by Holders of Notes with
Other Holders of Notes . . . . . . . . . . . 74
Section 12.04. Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . 74
Section 12.05. Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . . . . 74
Section 12.06. Rules by Trustee and Agents . . . . . . . . . . 75
Section 12.07. No Personal Liability of Directors,
Officers, Employees and Stockholders. . . . . 75
Section 12.08. Governing Law . . . . . . . . . . . . . . . . . 75
Section 12.09. No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . 75
Section 12.10. Successors . . . . . . . . . . . . . . . . . . 75
Section 12.11. Severability . . . . . . . . . . . . . . . . . 75
Section 12.12. Counterpart Originals . . . . . . . . . . . . . 75
Section 12.13. Table of Contents, Headings, etc. . . . . . . . 75
<PAGE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
<PAGE>
INDENTURE dated as of February 26, 1998 between Frank's Nursery &
Crafts, Inc., a Michigan corporation (the "Company"), and Bankers Trust
Company, a New York banking corporation, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the
10 1/4% Series A Senior Subordinated Notes due 2008 (the "Series A Notes")
and, if and when issued in exchange for the Series A Notes as provided in the
Registration Rights Agreement, the 10 1/4% Series B Senior Subordinated Notes
due 2008 (the "Series B Notes" and, together with the Series A Notes, the
"Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, or
assumed by such other Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Additional Notes" means up to $135.0 million in aggregate
principal amount of Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof.
"Adjusted Consolidated Assets" means at any time the total amount
of assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), after deducting
therefrom all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items), all as set forth on the
consolidated balance sheet of the Company and its Restricted Subsidiaries as
of the end of the most recent fiscal quarter for which financial statements
are available prior to the date of determination.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
<PAGE>
"Agent" means any Registrar, Paying Agent or co-registrar.
"all or substantially all" shall have the meaning given such phrase
in the Revised Model Business Corporation Act.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
"Acquisition Corp." means Cyrus Acquisition Corp., a New York
corporation, formed by Cypress.
"Acquisition Corp. Investment" means in December 1997, the
investment in Acquisition Corp. by the Investors.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of
a sale and leaseback), excluding sales of services and products in the
ordinary course of business consistent with past practices (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of Section 4.15 hereof and/or the
provisions of Section 5.01 hereof and not by the provisions of Section 4.10
hereof) and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) the transfer of used, surplus or obsolete equipment in the ordinary
course of business, (iv) the sale and leaseback of any assets within 90 days
of the acquisition of such assets and (v) a Restricted Payment that is
permitted by Section 4.07 hereof will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company,
or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
<PAGE>
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than one year from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (ii) and (iii) above entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within one year after the date of acquisition and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following
events:
(i) prior to the first public equity offering, the Principals
cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of the Company,
whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities or otherwise (for purposes of
this clause (i) and clause (ii) below, the Principals shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation")
so long as the Principals beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent corporation);
(ii) on or after the first public equity offering, any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than one or more Principals, is or becomes the beneficial owner
(as defined in clause (i) above, except that for purposes of this clause
(ii) such person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right
<PAGE>
is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting
Stock of the Company; provided, however, that the Principals
beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company than such other person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors
(for the purposes of this clause (ii), such other person shall be deemed
to beneficially own any Voting Stock of a specified corporation held by
a parent corporation, if such other person is the beneficial owner (as
defined in this clause (ii)), directly or indirectly, of more than 35%
of the voting power of the Voting Stock of such parent corporation and
the Principals beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of
such parent corporation);
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of
the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of 662/3% of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office; or
(iv) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the Company,
or the sale of all or substantially all the assets of the Company to
another Person (other than a Person that is controlled by the
Principals), and, in the case of any such merger or consolidation, the
securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of
the Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent,
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation.
"Company" means Frank's Nursery & Crafts, Inc. and any and all
successors thereto.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in computing such Consolidated Net Income, (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale, (ii) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
<PAGE>
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations), plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period, minus
(v) non-cash items increasing such Consolidated Net Income for such period,
(other than accruals of income in the ordinary course of business in respect
of future cash payments), in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization and other non-cash expenses of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained) and
without direct or indirect restriction pursuant to the terms of its charter
and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary
or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or a
Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and
(v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of
any date, the sum of (a) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date, plus (b)
the respective amounts reported on such Person's balance sheet as of such
date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
such dividends may be declared and paid only out of net earnings in respect
<PAGE>
of the year of such declaration and payment, but only to the extent of any
cash received by such Person upon issuance of such preferred stock, less (i)
all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within twelve months after the acquisition of such business) subsequent
to the date of this Indenture in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (ii) all investments as
of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments) and (iii) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, in each case, determined in accordance with GAAP.
"Convertible Notes" means Holdings' 8% Convertible Subordinated
Notes due 2002.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 hereof or such other address as to
which the Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior Credit Facility)
or commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes
are first issued and authenticated under this Indenture shall be deemed to
have been incurred on such date in reliance on the exception provided by
clause (i) of the definition of Permitted Debt.
"Cypress" means The Cypress Group L.L.C. and its affiliates.
"Debt Tender" means in December 1997, pursuant to the Merger
Agreement, the debt tender offer and consent solicitation for at least a
majority in principal amount of the Senior Notes.
"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name
of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A-1 hereto except that such Note shall not bear the
Global Note Legend and shall not have the "Schedule of Exchanges of Interests
in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof
as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to
the applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
<PAGE>
obligation or otherwise, or is redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after
the date on which the Notes mature; provided, however, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof
have the right to require the Company to repurchase such Capital Stock upon
the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the
Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth
in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness in existence on the date
hereof (other than Indebtedness under Credit Facilities), until such
Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii)
the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person
or one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
<PAGE>
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related
financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall
be calculated without giving effect to clause (iii) of the proviso set forth
in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Former Shares" means, as of the commencement of the Tender Offer,
all of the outstanding shares of Holdings Common Stock.
"GAAP" means generally accepted accounting principles in the United
States of America set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on the date hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
<PAGE>
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantor" means any Restricted Subsidiary that shall have
guaranteed, pursuant to a supplemental indenture and the requirements
therefor set forth in this Indenture, the payment of all principal of, and
interest and premium, if any, on, the Notes and all other amounts payable
under the Notes or this Indenture, which guarantee shall be subordinate to
all Senior Debt and pari passu with or senior to all other Indebtedness of
such Restricted Subsidiary.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means FNC Holdings Inc. (formerly known as General Host
Corporation) and its successors.
"Holdings Common Stock" means the common stock of Holdings, $1.00
par value per share.
"IAI Global Note" means the global Note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, (i) any
indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) all indebtedness of others secured by
a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and (iii) to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount
of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness issued with original issue
discount, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
<PAGE>
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" means $115.0 million in aggregate principal amount
of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed
to have made an Investment on the date of any such sale or disposition equal
to the fair market value of the Equity Interests of such Subsidiary not sold
or disposed of.
"Investors" means Cypress Merchant Banking Partners L.P., Cypress
Offshore Partners and Joseph R. Baczko, the new Chairman, President and Chief
Executive Officer of Holdings and the Company.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Merger" means the merger of Acquisition Corp. with and into
Holdings (with Holdings as the surviving corporation).
<PAGE>
"Merger Agreement" means the Agreement and Plan of Merger, dated as
of November 22, 1997, between Holdings and Acquisition Corp.
"Merger Consideration" means, with respect to the conversion of
Former Shares into the right to receive cash pursuant to the Merger
Agreement, $5.50 in cash per Former Share.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on
such gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or non-recurring gain (but not loss), together with any related provision for
taxes on such extraordinary or non-recurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness
(other than the Notes) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and (iii) as to
which the lenders have been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company,
any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall
include Euroclear and Cedel).
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to the businesses of the Company on the
date of this Indenture.
"Permitted Investments" means (i) any Investment in the Company or
in a Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment
in Cash Equivalents; (iii) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (a)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company;
(iv) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10 hereof; (v) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (vi) any Investment existing on the date of this Indenture; (vii)
payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (viii) loans
or advances to employees made in the ordinary course of business consistent
with past practices of the Company or any Restricted Subsidiary, but in any
event not to exceed $2.0 million in the aggregate outstanding at any one
time; (ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; and (x) other
Investments in any Person (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (x) that are
at the time outstanding, not to exceed $10.0 million.
<PAGE>
"Permitted Liens" means (i) Liens securing Senior Debt or Guarantor
Senior Debt of the Company and its Restricted Subsidiaries that was permitted
by the terms of this Indenture to be incurred; (ii) Liens in favor of the
Company or any of its Restricted Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure the performance
of statutory, regulatory, contractual or warranty requirements, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date
hereof; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefore; (viii) statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof; (ix) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (x) judgment Liens not giving rise to an
Event of Default; (xi) easements, rights-of-way, zoning restrictions and
other similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the business
of the Company or any of its Restricted Subsidiaries; (xii) any interest or
title of a lessor under any Capital Lease Obligations; (xiii) purchase money
Liens to finance property or assets of the Company or any Restricted
Subsidiary of the Company acquired in the ordinary course of business; (xiv)
Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods; (xv) Liens securing
reimbursement obligations with respect to commercial letters of credit which
encumber documents and other property relating to such letters of credit and
products and proceeds thereof; (xvi) Liens securing Hedging Obligations that
are otherwise permitted to be incurred under this Indenture; (xvii) leases or
subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries;
(xviii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; and (xix) Liens incurred in the ordinary course
of business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $2.0 million at any one time
outstanding.
<PAGE>
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of and is subordinated in right of payment
to the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business).
"Preferred Stock," of any person, means Capital Stock of such
Person of any class or series (however designated) that ranks prior, as to
payment of dividends or as to the distribution of assets upon any voluntary
or involuntary liquidation, dissolution or winding up of such Person, to
shares of Capital Stock of any other class or series of such Person.
"Principals" means Cypress Merchant Banking Partners L.P., Cypress
Offshore Partners L.P., Cypress Garden Ltd. and any Person who on the date of
this Indenture is an Affiliate of any of the foregoing.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the
other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time and, with respect to any
Additional Notes, one or more registration rights agreements between the
Company and the other parties thereto, as such agreement(s) may be amended,
modified or supplemented from time to time, relating to rights given by the
Company to the purchasers of Additional Notes to register such Additional
Notes under the Securities Act.
<PAGE>
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a Regulation S Temporary Global
Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note
in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to
the outstanding principal amount of the Regulation S Temporary Global Note
upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note
in the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary
or its nominee, issued in a denomination equal to the outstanding principal
amount of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust and Agency Group of the Trustee (or
any successor group of the Trustee) 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 such officer's knowledge of and familiarity with the particular
subject.
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined
in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
"Senior Credit Facility" means that certain credit agreement, dated
as of December 24, 1997, by and among the Company, Acquisition Corp.,
Holdings, the lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent, Syndication Agent, Collateral Agent, Issuing Bank and
Swingline Lender and Goldman Sachs Credit Partners L.P., as Documentation
Agent, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Senior Notes" means Holdings' 11 1/2% Senior Notes due 2002.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date of this Indenture.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantee" means any guarantee of the obligations of
the Company under this Indenture and the Notes by any Person in accordance
with the provisions of this Indenture pursuant to a supplemental indenture
substantially in the form attached hereto as Exhibit E.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Tender Offer" means in December 1997, pursuant to the Merger
Agreement, the tender offer to purchase all of the Former Shares of Holdings
Common Stock.
"Transactions" means the Tender Offer, the Debt Tender, the
Acquisition Corp. Investment, the Merger, the consummation of the Senior
Credit Facility and all other transactions related thereto.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture
and thereafter means the successor serving hereunder.
<PAGE>
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in the
form of Exhibit A-1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the
name of the Depositary, representing a series of Notes that do not bear the
Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries; and
(e) has at least one director on its Board of Directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under
the Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
<PAGE>
Section 1.02. Other Definitions.
Defined in
Term Section
______________ _____________
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.10
"Authentication Order" 2.02
"Change of Control Offer" 4.15
"Change of Control Payment" 4.15
"Change of Control Payment Date" 4.15
"Covenant Defeasance" 8.03
"Designated Senior Debt" 10.02
"Event of Default" 6.01
"Excess Proceeds" 4.10
"Guaranteed Debt" 4.17
"Guarantor Senior Debt" 10.02
"incur" 4.09
"Legal Defeasance" 8.02
"Offer Amount" 3.09
"Offer Period" 3.09
"Paying Agent" 2.03
"Payment Blockage Notice" 10.04
"Permitted Debt" 4.09
"Permitted Junior Securities" 10.02
"Purchase Date" 3.09
"Registrar" 2.03
"Representative" 10.02
"Restricted Payments" 4.07
"Senior Bank Debt" 10.02
"Senior Debt" 10.02
Section 1.03. Trust Indenture Act Definitions.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
<PAGE>
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;(5) provisions apply to successive events and
transactions; and
(5) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections
or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) General.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Series B Notes, to be
issued in exchange for the Series A Notes in accordance with the Registration
Rights Agreement, shall be in the same form as the Series A Notes but, the
Series B Notes shall not bear the legend set forth in Section 2.06(g)(i)
hereof and shall omit reference to Liquidated Damages and the Registration
Rights Agreement. The Notes may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of $1,000
and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company and
the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby. However, to the
extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes.
Notes issued in global form shall be substantially in the form of
Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form
of Exhibit A-1 attached hereto (but without the Global Note Legend thereon
and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to
time endorsed thereon and that the aggregate principal amount of outstanding
<PAGE>
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the
aggregate principal amount of outstanding Notes represented thereby shall be
made by the Trustee or the Note Custodian, at the direction of the Trustee,
in accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.
(c) Temporary Global Notes.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall
be deposited on behalf of the purchasers of the Notes represented thereby
with the Trustee, at its New York office, as custodian for the Depositary,
and registered in the name of the Depositary or the nominee of the Depositary
for the accounts of designated agents holding on behalf of Euroclear or Cedel
Bank, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Restricted Period shall be terminated upon the
receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial
ownership of 100% of the aggregate principal amount of the Regulation S
Temporary Global Note (except to the extent of any beneficial owners thereof
who acquired an interest therein during the Restricted Period pursuant to
another exemption from registration under the Securities Act and who will
take delivery of a beneficial ownership interest in a 144A Global Note or an
IAI Global Note bearing a Private Placement Legend, all as contemplated by
Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the
Company. Following the termination of the Restricted Period, beneficial
interests in the Regulation S Temporary Global Note shall be exchanged for
beneficial interests in Regulation S Permanent Global Notes pursuant to the
Applicable Procedures. Simultaneously with the authentication of
Regulation S Permanent Global Notes, the Trustee shall cancel the
Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global
Notes may from time to time be increased or decreased by adjustments made on
the records of the Trustee and the Depositary or its nominee, as the case may
be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the
"General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel
Bank shall be applicable to transfers of beneficial interests in the
Regulation S Temporary Global Note and the Regulation S Permanent Global
Notes that are held by Participants through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
<PAGE>
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by
two Officers (an "Authentication Order"), authenticate Notes for original
issue up to the aggregate principal amount stated in paragraph 4 of the
Notes. The aggregate principal amount of Notes outstanding at any time may
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or
an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company shall notify the Trustee in writing of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act
as such. The Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global
Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit
of Holders or the Trustee all money held by the Paying Agent for the payment
of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making
any such payment. While any such default continues, the Trustee may require
a Paying Agent to pay all money held by it to the Trustee. The Company at
any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
the Company or a Subsidiary) shall have no further liability for the money.
If the Company or a Subsidiary acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent. Upon any bankruptcy or reorganization proceedings
relating to the Company, the Trustee shall serve as Paying Agent for the
Notes.
<PAGE>
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
the Holders of Notes and the Company shall otherwise comply with TIA
Section 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to
the Depositary or to another nominee of the Depositary, the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee notice from the Depositary
that it is unwilling or unable to continue to act as Depositary or that it is
no longer a clearing agency registered under the Exchange Act and, in either
case, a successor Depositary is not appointed by the Company within 120 days
after the date of such notice from the Depositary or (ii) the Company in its
sole discretion determines that the Global Notes (in whole but not in part)
should be exchanged for Definitive Notes and delivers a written notice to
such effect to the Trustee; provided that in no event shall the Regulation S
Temporary Global Note be exchanged by the Company for Definitive Notes prior
to (x) the expiration of the Restricted Period and (y) the receipt by the
Registrar of the documents referred to in clauses (i) and (ii) of Section
2.01(c). Upon the occurrence of either of the preceding events in (i) or
(ii) above, Definitive Notes shall be issued in such names as the Depositary
shall instruct the Trustee in writing. Global Notes also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Note authenticated and delivered in exchange for, or in lieu of, a
Global Note or any portion thereof, pursuant to this Section 2.06 or Section
2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and
shall be, a Global Note. A Global Note may not be exchanged for another Note
other than as provided in this Section 2.06(a), however, beneficial interests
in a Global Note may be transferred and exchanged as provided in Section
2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes.
The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Notes also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
<PAGE>
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest
in the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided,
however, that prior to the expiration of the Restricted Period,
transfers of beneficial interests in the Temporary Regulation S Global
Note may not be made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Beneficial interests in
any Unrestricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note. No written orders or instructions shall be required to be
delivered to the Trustee or the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Depositary either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount equal
to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above, provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of the documents referred to in clauses (i) and (ii) of Section 2.01(c).
Upon consummation of an Exchange Offer by the Company in accordance with
Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
<PAGE>
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or
the Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications and certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by
any holder thereof for a beneficial interest in an Unrestricted Global
Note or transferred to a Person who takes delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note if the exchange
or transfer complies with the requirements of Section 2.06(b)(ii) above
and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal or via the
Depositary's book-entry system that it is not (1) a broker-dealer,
(2) a Person participating in the distribution of the Exchange
Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement as certified in writing by the Company;
(C) such transfer is effected by a Restricted Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement as certified in writing by
the Company; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
<PAGE>
form of a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company so requests an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for
a Restricted Definitive Note or to transfer such beneficial interest to
a Person who takes delivery thereof in the form of a Restricted
Definitive Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;
<PAGE>
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h)
hereof, and the Company shall execute and the Trustee shall authenticate
and deliver to the Person designated in the instructions a Definitive
Note in the appropriate principal amount. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.06(c) shall be registered in such name or names and in
such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.06(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of the documents referred to in clauses (i) and (ii) of Section 2.01(c),
except in the case of a transfer complying with Section 2.06(c)(i)
(other than Section 2.06(c)(i)(C)).
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to
a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies
in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
<PAGE>
the Exchange Notes or (3) a Person who is an affiliate (as defined
in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement as certified in writing by the Company;
(C) such transfer is effected by a Restricted Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement as certified in writing by
the Company; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item
(1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Company so requests an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest
in an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive Note,
then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Company shall execute and the Trustee
shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to
this Section 2.06(c)(iii) shall be registered in such name or names and
in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
<PAGE>
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred
to a QIB in accordance with Rule 144A, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(1) thereof;
(C) if such Restricted Definitive Note is being transferred
to a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred
to an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred
to the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case of
clause (B) above, the 144A Global Note, in the case of clause (c) above,
the Regulation S Global Note, and in all other cases, the IAI Global
Note.
<PAGE>
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Restricted Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit C hereto, including the certifications in
item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit B hereto, including the certifications in
item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company so requests an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a request for such an exchange
or transfer, the Trustee shall cancel the applicable Unrestricted
<PAGE>
Definitive Note and increase or cause to be increased the aggregate
principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest in a Global Note is effected pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note
has not yet been issued, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee
shall authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of Definitive Notes so
transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes.
Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied
by a written instruction of transfer in form satisfactory to the Registrar
duly executed by such Holder or by his attorney, duly authorized in writing.
In addition, the requesting Holder shall provide any additional
certifications, documents and information, as applicable, required pursuant
to the following provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes.
Any Restricted Definitive Note may be transferred to and registered in
the name of Persons who take delivery thereof in the form of a
Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A, then
the transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof
for an Unrestricted Definitive Note or transferred to a Person or
Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
<PAGE>
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Restricted Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company so requests, an Opinion of Counsel in form reasonably acceptable
to the Company to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order in accordance with Section 2.02 hereof, the Trustee
shall authenticate (i) one or more Series B Notes which shall be Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount
of the beneficial interests in the Restricted Global Notes tendered for
acceptance by Persons that certify in the applicable Letters of Transmittal
that (x) they are not broker-dealers, (y) they are not participating in a
distribution of the Exchange Notes and (z) they are not affiliates (as
defined in Rule 144) of the Company, and accepted for exchange in the
Exchange Offer and (ii) Series B Notes which shall be Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently
with the issuance of such Notes, the Trustee shall cause the aggregate
principal amount of the applicable Restricted Global Notes to be reduced
accordingly, and the Company shall execute and the Trustee shall authenticate
<PAGE>
and deliver to the Persons designated by the Holders of Definitive Notes so
accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER
JURISDICTIONS."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION
2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV)
THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
<PAGE>
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular Global
Note have been exchanged for Definitive Notes or a particular Global Note has
been redeemed, repurchased or canceled in whole and not in part, each such
Global Note shall be returned to or retained and canceled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation,
if any beneficial interest in a Global Note is exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial
interest in another Global Note or for Definitive Notes, the principal amount
of Notes represented by such Global Note shall be reduced accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such reduction; and if
the beneficial interest is being exchanged for or transferred to a Person who
will take delivery thereof in the form of a beneficial interest in another
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05
hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at
the opening of business 15 days before the day of the mailing of notice
of redemption under Section 3.02 hereof and ending at the close of
<PAGE>
business on such day, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (c) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving payment of principal of and
interest on such Notes and for all other purposes, and none of the
Trustee, any Agent or the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile, followed by an original by mail.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company
and the Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, the Company shall issue and the Trustee, upon
receipt of an Authentication Order, shall authenticate a replacement Note if
the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient
in the judgment of the Trustee and the Company to protect the Company, the
Trustee, any Agent and any authenticating agent from any loss that any of
them may suffer if a Note is replaced. Each of the Trustee and the Company
may charge for its expenses (including 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) in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.09 hereof,
a Note does not cease to be outstanding because the Company or an Affiliate
of the Company holds the Note; however, Notes held by the Company or a
Subsidiary of the Company shall not be deemed to be outstanding for purposes
of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
<PAGE>
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by
the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
shall be considered as though not outstanding, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee, upon receipt of an Authentication Order, shall
authenticate temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes but may have variations that the Company considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary
Notes.Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy canceled Notes in accordance with its customary procedures.
Certification of the destruction of all canceled Notes shall be delivered to
the Company. The Company may not issue new Notes to replace Notes that it
has paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Company shall notify
the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Note and the date of the proposed payment. The Company shall
fix or cause to be fixed each such special record date and payment date,
provided that no such special record date shall be less than 10 days prior to
the related payment date for such defaulted interest. At least 15 days before
<PAGE>
the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall
mail or cause to be mailed to Holders a notice that states the special record
date, the related payment date and the amount of such interest to be paid.
Section 2.13. CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use CUSIP numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption
and that reliance may be placed only on the other identification numbers
printed on the Notes, and any such redemption shall not be affected by any
defect in or the omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the clause of this Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Notes to be redeemed, (iv) the redemption price
(including any accrued interest), (v) in the case of a redemption pursuant to
Section 3.07(b), certification that such redemption complies with such
Section and (vi) the CUSIP numbers of the Notes to be redeemed.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes
to be redeemed shall be selected, unless otherwise provided herein, not less
than 30 nor more than 60 days prior to the redemption date by the Trustee
from the outstanding Notes not previously called for redemption.The Trustee
shall promptly notify the Company in writing of the Notes selected for
redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed. Notes and portions of Notes
selected shall be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
<PAGE>
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price (including any accrued interest);
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion shall be issued upon cancellation of the
original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to
the redemption date (unless a shorter notice period is agreed to by the
Trustee), an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional. Failure to give notice or any defect in the notice to any
Holder shall not affect the validity of the notice to any other Holder.
Section 3.05. Deposit of Redemption Price.
Prior to 10 a.m. on the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money in immediately available
funds sufficient to pay the redemption price of and accrued interest on all
Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any money deposited with the Trustee or the
<PAGE>
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.If the
Company complies with the provisions of the preceding paragraph, on and after
the redemption date, interest shall cease to accrue on the Notes or the
portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose
name such Note was registered at the close of business on such record date.
If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided
in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in the following paragraph, the Notes will
not be redeemable at the Company's option prior to March 1, 2003. Thereafter,
the Notes will be subject to redemption at any time or from time to time at
the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of the years
indicated below:
Percentage of
Principal
Year Amount
_____ _____________
2003 . . . . . . . . . . . . . . . . 105.125%
2004 . . . . . . . . . . . . . . . . 102.562%
2005 and thereafter . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, prior to March 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under this Indenture at a redemption price of 110.25% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds
of one or more public offerings of Capital Stock of (i) the Company or (ii)
Holdings to the extent the net cash proceeds thereof are (a) contributed to
the Company as a capital contribution to the common equity of the Company or
(b) used to purchase Equity Interests of the Company (in either case, other
than Disqualified Stock); provided that (i) at least 65% of the aggregate
principal amount of the Notes remain outstanding immediately after the
occurrence of each such redemption (excluding Notes held by the Company and
its Subsidiaries) and (ii) each such redemption shall occur within 90 days
after the date of the closing of any such offering of Capital Stock of the
Company.
<PAGE>
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall
be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close
of business on such record date, and no additional interest shall be payable
to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders,
with a copy to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
<PAGE>
completed, or transfer by book-entry transfer, to the Company, a depositary,
if appointed by the Company, or a Paying Agent at the address specified in
the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. on the Purchase Date, the Company shall, to
the extent lawful, accept for payment, on a pro rata basis to the extent
necessary, the Offer Amount or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Notes tendered, and shall deliver to the Trustee an Officers' Certificate
stating that such Notes or portions thereof were accepted for payment by the
Company in accordance with the terms of this Section 3.09. The Company, the
Depositary or the Paying Agent, as the case may be, shall promptly (but in
any case not later than five days after the Purchase Date) mail or deliver to
each tendering Holder an amount equal to the purchase price of the Notes
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Note, and the Trustee, upon written
request from the Company shall authenticate and mail or deliver such new Note
to such Holder, in a principal amount equal to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest and Liquidated Damages, if any, on the Notes on
the dates and in the manner provided in the Notes. Principal, premium, if
any, and interest and Liquidated Damages, if any, shall be considered paid on
the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited
by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest and Liquidated
<PAGE>
Damages, if any, then due. The Company shall pay all Liquidated Damages, if
any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to the then applicable interest rate on the Notes to the extent lawful;
it shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue installments of interest and Liquidated
Damages (without regard to any applicable grace period) at the same rate to
the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee
of the location, and any change in the location, of such office or agency.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
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 the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with
Section 2.03 hereof.
Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company will furnish to the
Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if the Company was required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its consolidated Subsidiaries (showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of operations
of the Company and its Restricted Subsidiaries separate from the financial
information and results of operations of the Unrestricted Subsidiaries of the
Company) and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current
<PAGE>
reports that would be required to be filed with the SEC on Form 8-K if the
Company was required to file such reports, in each case, within the time
periods specified in the SEC's rules and regulations. In addition, following
the consummation of the Exchange Offer contemplated by the Registration
Rights Agreement, whether or not required by the rules and regulations of the
SEC, the Company will file a copy of all such information and reports with
the SEC for public availability within the time periods specified in the
SEC's rules and regulations (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. The Company shall at all times comply with TIA
Section 314(a).
(b) For so long as any Notes remain outstanding, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best
of his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to
take with respect thereto) and that to the best of his or her knowledge no
event has occurred and remains in existence by reason of which payments on
account of the principal of or interest, if any, on the Notes is prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto. For purposes of
this paragraph, such compliance shall be determined without regard to any
period of grace or requirement of notice provided under this Indenture.
(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default, an Officers' Certificate specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Notes.
<PAGE>
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted
to the Trustee, but shall suffer and permit the execution of every such power
as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of
its Restricted Subsidiary's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company or any Restricted Subsidiary) or to any direct or indirect holders of
the Company's Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection
with any merger or consolidation involving the Company) any Equity Interests
of the Company or any direct or indirect parent of the Company (other than
any such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated
to the Notes, except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph),
is less than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the date of this
Indenture to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
<PAGE>
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company as a contribution to its common equity
capital or from the issue or sale since the date of this Indenture of Equity
Interests of the Company (other than Disqualified Stock) or from the issue or
sale of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (iii) 50% of any
dividends received by the Company or a Wholly Owned Restricted Subsidiary
after the date of this Indenture from an Unrestricted Subsidiary of the
Company, to the extent that such dividends were not otherwise included in
Consolidated Net Income of the Company for such period, plus (iv) to the
extent that any Restricted Investment that was made after the date of this
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount
of such Restricted Investment, plus (v) to the extent that any Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary after the date of this
Indenture, the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Indenture; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any Equity Interests of the Company or subordinated
Indebtedness of the Company or any Guarantor in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Restricted Subsidiary of the Company to the holders of its
Equity Interests on a pro rata basis; (v) (a) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management or Board of
Directors pursuant to any management equity subscription agreement, stock
option agreement or other similar agreement and (b) the payment of dividends
to Holdings to permit Holdings to repurchase, redeem, or otherwise acquire or
retire for value any Equity Interests of Holdings or any Restricted
Subsidiary of Holdings held by any member of Holdings' (or any of its
Restricted Subsidiaries') management or Board of Directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction;
(vi) following the initial public offering of common stock of the Company or
Holdings, the payment of dividends by the Company in an aggregate amount in
any year not to exceed 6% of the aggregate net cash proceeds received by the
Company in connection with such initial public offering and any subsequent
<PAGE>
public offering of common stock of the Company or Holdings; provided,
however, that no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (vii) repurchases of Capital
Stock deemed to occur upon exercise of stock options if such Capital Stock
represents a portion of the exercise price of such options; (viii) any
payment by the Company to Holdings to permit Holdings to pay any federal,
state, local or other taxes that are then actually due and owing by Holdings;
(ix) the payment of dividends to Holdings to the extent required to pay
general corporate and overhead expenses incurred by Holdings; provided that
such amounts shall not exceed $1.0 million in any twelve-month period; (x)
the payment of dividends to Holdings to permit Holdings to redeem its Senior
Notes and Convertible Notes; (xi) the payment of dividends to Holdings to
permit Holdings to pay any Merger Consideration and any transaction costs in
connection with the Transactions; provided that such amounts shall not exceed
$5.0 million in the aggregate; (xii) the payment of dividends to Holdings to
permit Holdings to pay financial advisory, financing, underwriting or
placement fees to Cypress and its Affiliates; (xiii) the payment of dividends
to Holdings to permit Holdings to pay any employment, noncompetition,
compensation or confidentiality arrangements entered into with its employees
in the ordinary course of business; (xiv) the payment of dividends to
Holdings to permit Holdings to pay fees and indemnities to directors and
officers of Holdings; and (xv) other Restricted Payments in an aggregate
amount not to exceed $10.0 million.
The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation.
Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the definition of an Unrestricted Subsidiary,
it shall thereafter cease to be an Unrestricted Subsidiary for purposes of
this Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under
Section 4.09 hereof, the Company shall be in default of such Section). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under Section
4.09 hereof, calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence immediately following such
designation.
<PAGE>
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) Existing Indebtedness as in effect on the
date of this Indenture, (b) the Senior Credit Facility as in effect as of the
date of this Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings are
no more restrictive with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facility as in effect
on the date of this Indenture, (c) this Indenture, the Notes, the Exchange
Notes and the Subsidiary Guarantees, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (f)
by reason of customary non-assignment or subletting provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described
in clause (iii) above on the property so acquired, (h) in the case of clause
(iii) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages, (i) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or disposition,
or (j) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) or issue any shares of Disqualified
Stock and will not permit any of its Subsidiaries to incur Indebtedness or
issue shares of preferred stock; provided, however, that, so long as no
<PAGE>
Default or Event of Default has occurred and is continuing, the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been
at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the Disqualified Stock had been issued at the beginning
of such four-quarter period.
The provisions of the first paragraph of this covenant shall not
apply to the incurrence of any of the following (collectively, "Permitted
Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness
under one or more Credit Facilities in an aggregate principal amount at any
time outstanding not to exceed $195.0 million (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Company and the Guarantors thereunder), less the aggregate amount of all
Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant
to clause (i) of the second paragraph of Section 4.10 hereof;
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes, the Exchange Notes and any Subsidiary Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by this Indenture
to be incurred by the first paragraph of this Section 4.09, or by clauses
(ii), (iii), (iv), (vi), (vii), (viii), (ix), (x) and (xii) of this Section
4.09;
(v) the incurrence of Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that (a)
if the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full of all Obligations with
respect to the Notes and (b) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Company or a Wholly Owned Restricted Subsidiary, and any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary, shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(vii) the incurrence by any of the Company's Restricted Subsidiaries of
Indebtedness or Preferred Stock incurred and outstanding on or prior to the
<PAGE>
date on which such Restricted Subsidiary was acquired by the Company(other
than Indebtedness or preferred stock incurred in connection with, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company); provided that the principal amount (or accreted
value, as applicable) or aggregate liquidation preference, as applicable, of
such Indebtedness or Preferred Stock, as the case may be, together with any
other outstanding Indebtedness and Preferred Stock incurred pursuant to this
clause (vii) does not exceed $5.0 million;
(viii) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness (including Capital Lease Obligations) financing the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets), in each case, incurred no more than 180 days after such
purchase, lease or improvement of such property in respect of such
Indebtedness; provided, however, at the time of the incurrence of such
Indebtedness and after giving effect thereto, the aggregate principal amount
of all Indebtedness incurred pursuant to this clause (viii) and then
outstanding shall not exceed the greater of $10.0 million and 10% of Adjusted
Consolidated Assets;
(ix) the incurrence by the Company of Indebtedness in connection with
the acquisition of a Permitted Business in respect of such Indebtedness;
provided, however, that the aggregate amount of Indebtedness incurred
pursuant to this clause (ix) and then outstanding shall not exceed $20.0
million;
(x) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
covenant;
(xi) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary
of the Company that was not permitted by this clause (xi); and
(xii) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness in an aggregate principal amount which, together with all other
Indebtedness of the Company outstanding on the date of such incurrence (other
than Indebtedness permitted by clauses (i) through (xi) above or the first
paragraph of this covenant) does not exceed $30.0 million; provided that the
aggregate principal amount of Indebtedness incurred by Restricted
Subsidiaries of the Company pursuant to this clause (xii) and then
outstanding shall not exceed $2.0 million.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses
or pursuant to the first paragraph hereof. Accrual of interest, the accretion
of accreted value, the payment of interest on any Indebtedness in the form of
<PAGE>
additional Indebtedness with the same terms and the payment of dividends on
preferred stock in the form of additional shares of the same class of
preferred stock will not be deemed to be an incurrence of Indebtedness or an
issuance of preferred stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in the Fixed Charges of the
Company as accrued.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash;
provided that the amount of (a) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or
such Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or any guarantee thereof)
that are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary
from further liability and (b) any securities, notes or other obligations
received by the Company or such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted
by the Company or such Restricted Subsidiary into cash (to the extent of the
cash received) shall be deemed to be cash for purposes of this provision.
Notwithstanding the immediately preceding paragraph, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraph if (i) the Company or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets or
other property sold, issued or otherwise disposed of (as evidenced by a
resolution of the Company's Board of Directors set forth in an Officers'
Certificate delivered to the Trustees), and (ii) at least 75% of the
consideration for such Asset Sale constitutes assets or other property of a
kind usable by the Company and its Restricted Subsidiaries in a Permitted
Business; provided that any consideration not constituting assets or property
of a kind usable by the Company and its Restricted Subsidiaries in a
Permitted Business on the date of such Asset Sale received by the Company or
any of its Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net
Proceeds subject to the provisions of the immediately succeeding paragraph.
Within 270 days of the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to repay
Senior Debt (and to correspondingly reduce commitments with respect thereto
in the case of revolving borrowings) or (ii) to the acquisition of a
controlling interest in a Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
<PAGE>
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase, in accordance with the procedures set forth in Article
3 of this Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
To the extent that the provisions of any securities laws or
regulations conflict with the Asset Sale provisions of this Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Asset Sale
provisions of this Indenture by virtue thereof.
Section 4.11. Transactions with Affiliates.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an
opinion as to the fairness to the Company of such Affiliate Transaction from
a financial point of view issued by an accounting, appraisal or investment
banking firm of national standing.
(b) The provisions of the foregoing paragraph (a) shall not
prohibit (i) any Restricted Payment permitted to be paid pursuant to Section
4.07 hereof, (ii) any issuance of securities, or other payments, benefits,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, stock options and stock ownership plans approved
by the Board of Directors of the Company, (iii) the grant of stock options or
similar rights to employees and directors of the Company pursuant to plans
approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $2.0
million in the aggregate outstanding at any one time, (v) the payment of
<PAGE>
reasonable fees to directors of the Company and its Restricted Subsidiaries
who are not employees of the Company or its Restricted Subsidiaries, (vi) any
payment by the Company to Holdings to permit Holdings to pay any federal,
state, local or other taxes that are then actually due and owing by Holdings,
(vii) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of the Company and its
Restricted Subsidiaries, in each case, in the ordinary course of business,
(viii) any employment, compensation, noncompetition or confidentiality
agreement entered into by the Company and its Restricted Subsidiaries with
its employees in the ordinary course of business, (ix) the payment by the
Company of fees, expenses and other amounts to Cypress and its Affiliates in
connection with the Merger; provided that the aggregate amount paid under
this clause (ix) shall not exceed $5.0 million, (x) payments by the Company
or any of its Restricted Subsidiaries to Cypress and its Affiliates made
pursuant to any financial advisory, financing, underwriting or placement
agreement, or in respect of other investment banking activities, in each
case, as determined by the Board of Directors in good faith, (xi) any
agreement as in effect as of the date of this Indenture or any amendment or
replacement thereto or any transaction contemplated thereby so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders of the Notes in any material respect than the original agreement as
in effect on the date of this Indenture, and (xii) any Affiliate Transaction
between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries of the Company.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness or trade payables on any asset now owned
or hereafter acquired, or any income or profits therefrom or assign or convey
any right to receive income therefrom, except Permitted Liens.
Section 4.13. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and the Guarantors may enter into a sale and leaseback
transaction if (i) the Company or such Guarantor could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof and (b) incurred
a Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal
to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction
and (iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in compliance
with, Section 4.10 hereof.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
<PAGE>
documents (as the same may be amended from time to time) of the Company or
any such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, 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
adverse in any material respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company will
be obligated to make an offer (a "Change of Control Offer") to each Holder of
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the
Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 75 days from the date such notice is mailed
(the "Change of Control Payment Date"), pursuant to the procedures required
by this Indenture and described in such notice. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
(b) On the Change of Control Payment Date, the Company will, to
the extent lawful, (i) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent in immediately available funds an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered
and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to
complying with the provisions of this covenant, but in any event within 90
days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of
Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.15,
the Company shall not be required to make a Change of Control Offer following
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
<PAGE>
forth in this Section 4.15 and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
Section 4.16. Limitation on Other Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company shall not directly or indirectly incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes and (ii) no Guarantor will incur
any Indebtedness that is subordinate or junior in right of payment to its
Guarantor Senior Debt and senior in any respect in right of payment to such
Guarantor's Subsidiary Guarantee.
Section 4.17. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries.
(a) The Company shall not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness
of any other Restricted Subsidiary (in each case, the "Guaranteed Debt")
unless (i) if such Restricted Subsidiary is not a Guarantor, such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
this Indenture providing for a Subsidiary Guarantee of payment of the Notes
by such Restricted Subsidiary, (ii) if the Notes or the Subsidiary Guarantee
(if any) of such Restricted Subsidiary are subordinated in right of payment
to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee
with respect to the Guaranteed Debt substantially to the same extent as the
Notes or the Subsidiary Guarantee are subordinated to the Guaranteed Debt
under this Indenture, (iii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Notes or the Subsidiary Guarantee (if
any) of such Restricted Subsidiary, any such guarantee of such Restricted
Subsidiary with respect to the Guaranteed Debt shall be subordinated in right
of payment to such Restricted Subsidiary's Subsidiary Guarantee with respect
to the Notes substantially to the same extent as the Guaranteed Debt is
subordinated to the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, (iv) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee, and (v) such Restricted
Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect
that (A) such Subsidiary Guarantee of the Notes has been duly executed and
authorized and (B) such Subsidiary Guarantee of the Notes constitutes a
valid, binding and enforceable obligation of such Restricted Subsidiary,
except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating
to fraudulent transfers) and except insofar as enforcement thereof is subject
to general principles of equity.
(b) Notwithstanding the foregoing and the other provisions of this
Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any
Person not an Affiliate of the Company, of all of the Company's Capital Stock
in, or all or substantially all the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by this Indenture) or
(ii) the release or discharge of the guarantee which resulted in the creation
<PAGE>
of such Subsidiary Guarantee, except a discharge or release by or as a result
of payment under such guarantee.
Section 4.18. Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries.
The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests
in such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof, and (ii) will not permit any Wholly
Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company.
Section 4.19. Money for 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 of the principal, premium, interest or
Liquidated Damages, if any, with respect to the Notes, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal, premium, interest or Liquidated Damages, if any, so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided, and will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal, premium,
interest or Liquidated Damages, if any, with respect to the Notes, deposit
with a Paying Agent a sum in same day funds (or New York Clearing House funds
if such deposit is made prior to the date on which such deposit is required
to be made) sufficient to pay the principal, premium, interest or Liquidated
Damages, if any, so becoming due (or at the option of the Company, payment of
interest may be mailed by check to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes; provided
that all payments with respect to Notes represented by one or more permanent
global Notes will be paid by wire transfer of immediately available funds to
the account of the Depository Trust Company or any successor thereto) such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium, interest or Liquidated Damages, if any, 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,
premium, if any, or interest on Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
<PAGE>
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal,
premium, interest or Liquidated Damages, if any;
(c) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with
the provisions of this Indenture relating to the duties, rights and
obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon
the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect
to such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal, premium,
interest or Liquidated Damages, if any, with respect to a Note and remaining
unclaimed for two years after such principal, premium, if any, or interest
has become due and payable shall be paid to the Company at the request of the
Company or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note 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, shall at the expense of the Company cause notice to be
promptly sent to each Holder 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 any unclaimed balance of such money then remaining
will be repaid to the Company.
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes, this Indenture and the
<PAGE>
Registration Rights Agreement pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the
case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (a) will have Consolidated Net Worth immediately after
the transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction and (b) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof. Notwithstanding clause (iv) above, the
Company may consolidate with or merge with or into (A) another Person if such
Person is a single purpose corporation that has not conducted any business or
incurred any Indebtedness or other liabilities and such transaction is being
consummated solely to change the state of incorporation of the Company or (B)
Holdings; provided, however, that, in the case of clause (B), (x) Holdings
shall not have owned any assets other than assets owned by Holdings on the
date of this Indenture, including the Capital Stock of the Company (and other
immaterial assets incidental to its ownership of such Capital Stock) or
conducted any business other than owning the Capital Stock of the Company,
(y) Holdings shall not have any Indebtedness or other liabilities (other than
ordinary course liabilities incidental to its ownership of the Capital Stock
of the Company) and (z) immediately after giving effect to such consolidation
or merger, the Company, Holdings or the Person formed by or surviving such
consolidation or merger (if other than the Company or Holdings) shall have a
pro forma Fixed Charge Coverage Ratio that is not less than the Fixed Charge
Coverage Ratio of the Company immediately prior to such consolidation or
merger.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all
of the assets of the Company in accordance with Section 5.01 hereof, the
successor corporation formed by such consolidation or into or with which the
Company is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted
for (so that from and after the date of such consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation
and not to the Company), and may exercise every right and power of the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; provided, however, that the predecessor
Company shall not be relieved from the obligation to pay the principal of and
interest on the Notes except in the case of a sale of all of the Company's
assets that meets the requirements of Section 5.01 hereof.
<PAGE>
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
"Event of Defaults" are:
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by Article 10 hereof);
(ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by Article 10 hereof);
(iii) failure by the Company or any Restricted Subsidiary for 30 days
to comply with Sections 3.09, 4.07, 4.09, 4.10, 4.15 or Article 5 hereof;
(iv) failure by the Company or any Restricted Subsidiary for 60 days
after written notice by the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes to comply with any of its
other agreements in this Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of this Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more;
(vi) failure by the Company or any of its Significant Subsidiaries to
pay final judgments aggregating in excess of $25.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(vii) except as permitted by this Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Guarantor,
or any Person acing on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee;
(viii) the Company or any of its Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary pursuant to
or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a custodian of it or for all or
substantially all of its property,<PAGE>
(d) makes a general assignment for the benefit of its creditors,
or
(e) generally is not paying its debts as they become due; or
(ix) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary in an involuntary case;
(b) appoints a custodian of the Company or any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary or for all or substantially all of the property
of the Company or any of its Restricted Subsidiaries that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company or any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary;and the order or decree remains unstayed and in
effect for 60 consecutive days.However, a default under clauses (iii),
(iv) and (vi) of this Section 6.01 will not constitute an Event of
Default until the Trustee or the holders of 25% in aggregate principal
amount of the outstanding Notes notify the Company of the Default and
the Company does not cure such Default within the time specified after
receipt of such notice.
Section 6.02. Acceleration.
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately upon which the
Notes shall become immediately due and payable. Notwithstanding the
foregoing, if an Event of Default specified in clause (viii) or (ix) of
Section 6.01 hereof occurs with respect to the Company, any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, all outstanding Notes shall be due and payable
immediately without further action or notice. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal,
interest or premium that has become due solely because of the acceleration)
have been cured or waived.
If an Event of Default occurs by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent
premium shall also become and be immediately due and payable, to the extent
permitted by law, anything in this Indenture or in the Notes to the contrary
<PAGE>
notwithstanding. If an Event of Default occurs prior to March 1, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on March 1 of the years
set forth below, as set forth below (expressed as a percentage of the
aggregate principal amount to the date of payment that would otherwise be due
but for the provisions of this sentence):
Percentage of
Principal
Year Amount
_____ ______________
1998 . . . . . . . . . . . . . . . . 115.377%
1999 . . . . . . . . . . . . . . . . 112.814%
2001 . . . . . . . . . . . . . . . . 110.251%
2002 . . . . . . . . . . . . . . . . 107.688%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest and Liquidated Damages, if any, on the Notes or to enforce
the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any,
or interest on, the Notes (including in connection with an offer to
purchase). 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 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes
or that may involve the Trustee in personal liability.
<PAGE>
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due
dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in
its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and,
to the extent lawful, interest and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and
<PAGE>
distribute any money or other property payable or deliverable on any such
claims and any custodian 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 to the Trustee any amount due to 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 7.07 hereof.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. 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 Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages,
if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.The Trustee may fix a record date and payment date
for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 does not apply to a suit by the Trustee, a
suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by
Holders of more than 10% in principal amount of the then outstanding Notes.
<PAGE>
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to this
Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse
to perform any duty and shall be under no obligation to exercise any of its
rights and powers under this Indenture at the request of any Holders, unless
such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
<PAGE>
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel of its selection and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and
7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
<PAGE>
Section 7.05. Notice of Defaults.
(a) The Trustee shall not be deemed to have notice of any Default
or Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such
a default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Notes and this Indenture.
(b) If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal
of, premium, if any, or interest on any Note, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the
Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each March 1 beginning with the March 1
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall
also transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on
any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as
the parties shall agree from time to time. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust.
The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with
the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
may be attributable to its negligence or bad faith. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Failure
by the Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee
<PAGE>
shall cooperate in the defense. The Trustee may have separate counsel and
the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 and any Lien
arising hereunder, shall survive resignation or removal of the Trustee,
discharge pursuant to Article 8 and the satisfaction and discharge of this
Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(viii) or (ix) hereof occurs, the
expenses and the compensation for the services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA
Section 313(b)(2) to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of
Notes of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the
<PAGE>
then outstanding Notes may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10 hereof, such Holder of a Note may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee,
provided all sums owing to the Trustee hereunder have been paid and subject
to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement
of the Trustee pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States
of America or of any state thereof that is authorized under such laws to
exercise corporate trustee power, that is subject to supervision or
examination by federal or state authorities and that has a combined capital
and surplus of at least $100.0 million as set forth in its most recent
published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject
to TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
<PAGE>
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors, if any,
shall, subject to the satisfaction of the conditions set forth in Section
8.04 hereof, be deemed to have been discharged from their respective
obligations with respect to all outstanding Notes and Subsidiary Guarantees
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company and
any Guarantor shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes and any Subsidiary
Guarantees, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all of their
respective obligations under such Notes, Subsidiary Guarantees and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to
receive solely from the trust fund described in Section 8.04 hereof, and as
more fully set forth in such Section 8.04, payments in respect of the
principal of and premium, interest and Liquidated Damages, if any, on such
Notes when such payments are due, (b) the Company's obligations with respect
to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the
Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from their respective obligations under the covenants
contained in Article 5 and in Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11,
4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof with respect to the outstanding
Notes and Subsidiary Guarantees on and after the date the conditions set
forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and
the Notes and the Subsidiary Guarantees, if any, shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall
not be deemed outstanding for accounting purposes). For this purpose,
Covenant Defeasance means that, with respect to the outstanding Notes and
Subsidiary Guarantees, the Company and each Guarantor may omit to comply with
and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of
any reference elsewhere herein to any such covenant or by reason of any
reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an
Event of Default under Section 6.01 hereof, but, except as specified above,
the remainder of this Indenture and such Notes and Subsidiary Guarantees
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
<PAGE>
6.01(iii) through 6.01(vii) and 6.01(viii) (but only with respect to a
Significant Subsidiary) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes and Subsidiary
Guarantees:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium and
Liquidated Damages, if any, and interest on the outstanding Notes on the
stated maturity thereof or on the applicable redemption date, as the case may
be;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Notes pursuant to this Article
8 concurrently with such incurrence) or insofar as Sections 6.01(viii) or
6.01(ix) hereof are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture and other than a Default
or Event of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Notes pursuant
to this Article 8 concurrently with such incurrence) to which the Company or
<PAGE>
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on
the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of
the outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held
by it as provided in Section 8.04 hereof which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed
<PAGE>
for two years after such principal, and premium, if any, or interest has
become due and payable shall be paid to the Company on its request or (if
then held by the Company) shall be discharged from such trust; and the Holder
of such Note shall thereafter, as a secured creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may
at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), 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 to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.02 or 8.03 hereof, as the case may be; provided, however,
that, if the Company makes any payment of principal of, premium, if any, or
interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
Section 8.08. Survival.
The Trustee's rights under this Article 8 shall survive termination
of this Indenture.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 hereof, the Company, a Guarantor (with
respect to a Subsidiary Guarantee or this Indenture) and the Trustee may
amend or supplement this Indenture, the Notes or any Subsidiary Guarantee
without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof
(including the related definitions) in a manner that does not materially
adversely affect any Holder;
(c) to provide for the assumption of the Company's or any
Guarantor's obligations to the Holders of the Notes by a successor to the
Company or a Guarantor pursuant to Article 5 hereof;
<PAGE>
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof;
(g) to allow any Guarantor to execute a supplemental indenture
and/or a Subsidiary Guarantee with respect to the Notes; or
(h) to evidence acceptance of appointment by a successor trustee.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors, if any, in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this Indenture and to make
any further appropriate agreements and stipulations that may be therein
contained, but the Trustee shall not be obligated to enter into such amended
or supplemental indenture that affects its own rights, duties or immunities
under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company, a
Guarantor (with respect to a Subsidiary Guarantee or the Indenture to which
it is a party) and the Trustee may amend or supplement this Indenture
(including Section 3.09, 4.10 and 4.15 hereof), the Notes and the Subsidiary
Guarantees with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes (including Additional Notes,
if any) then outstanding voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes,
except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including
Additional Notes, if any) voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes). Without the consent of at least 662/3% in principal amount
of the Notes then outstanding (including consents obtained in connection with
a tender offer or exchange offer for, or purchase of, such Notes), no waiver
or amendment to this Indenture may make any change in the provisions of
Article 10 hereof that adversely affects the rights of any Holder of Notes.
Section 2.08 hereof shall determine which Notes are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
<PAGE>
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental indenture unless such amended or supplemental
indenture directly affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Notes
(including Additional Notes, if any) then outstanding voting as a single
class may waive compliance in a particular instance by the Company with any
provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the redemption
of the Notes, other than provisions relating to Sections 3.09 or 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium or Liquidated Damages, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including Additional Notes, if any) and a waiver of the payment default that
resulted from such acceleration;
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, interest or Liquidated Damages, if any,
on the Notes;
(g) waive a redemption payment with respect to any Note, other
than a payment required by Section 3.09 or 4.15 hereof;
(h) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or this Indenture, except in accordance with the terms
of this Indenture; or
<PAGE>
(i) make any change in the foregoing amendment and waiver
provisions.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall
be set forth in a amended or supplemental indenture that complies with the
TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of
a Note and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note, even if notation of
the consent is not made on any Note. However, any such Holder of a Note or
subsequent Holder of a Note may revoke the consent as to its Note if the
Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or
waiver becomes effective in accordance with its terms and thereafter binds
every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental indenture
until the Board of Directors approves it. In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject
to Section 7.01 hereof) shall be fully protected in relying upon an Officer's
Certificate and an Opinion of Counsel stating that the execution of such
amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees,
that the principal of and premium, interest and Liquidated Damages, if any,
with respect to the Notes are subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment in full
in cash or Cash Equivalents of all Senior Debt of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
<PAGE>
guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt. The foregoing provisions regarding subordination are solely for
the purpose of defining the relative rights of the holders of the Senior Debt
on the one hand and the Holders on the other hand. Such provisions shall be
enforceable by the holders of Senior Debt directly against the Holders (and
their successors and assigns). This Article 10 shall constitute a continuing
offer to all persons who become holders of, or continue to hold, Senior Debt
(whether such Senior Debt was created or acquired before or after the
issuance of the Notes).
Section 10.02. Certain Definitions.
"Designated Senior Debt" means (i) so long as the Senior Bank Debt
is outstanding, any Indebtedness outstanding under the Senior Bank Debt and
(ii) at any time after the Senior Bank Debt is no longer outstanding, any
other Senior Debt or Guarantor Senior Debt permitted under this Indenture the
principal amount of which is $15.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Guarantor Senior Debt" means with respect to any Guarantor (i) all
Indebtedness of such Guarantor outstanding under Credit Facilities and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
Guarantor permitted to be incurred under the terms of this Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is subordinated in right of payment to the Subsidiary Guarantee of
such Guarantor and (iii) all Obligations of such Guarantor with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing,
Guarantor Senior Debt will not include (a) any liability for federal, state,
local or other taxes owed or owing by such Guarantor, (b) any Indebtedness of
such Guarantor to any of its Subsidiaries or other Affiliates, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of this
Indenture.
"Permitted Junior Securities" means Equity Interests in the Company
or debt securities of the Company or the relevant Guarantor that are
subordinated to all Senior Debt (and any debt securities issued in exchange
for Senior Debt) or Guarantor Senior Debt (and any debt securities issued in
exchange for Guarantor Senior Debt), as applicable, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt or the Subsidiary Guarantees are subordinated to Guarantor Senior Debt,
as applicable, pursuant to this Indenture.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"Senior Bank Debt" means all Obligations under or in respect of the
Senior Credit Facility, together with any refunding, refinancing or
replacement, in whole or in part, of such Indebtedness.
"Senior Debt" of the Company means (i) all Indebtedness of the
Company outstanding under Credit Facilities and all Hedging Obligations with
respect thereto, (ii) any other Indebtedness of the Company permitted to be
incurred under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to the Notes and (iii) all Obligations of the Company with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt of the Company will not include (a) any liability for
<PAGE>
federal, state, local or other taxes owed or owing by the Company, (b) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(c) any trade payables or (d) any Indebtedness that is incurred in violation
of this Indenture.
A "distribution" may consist of cash, securities or other property,
by set-off or otherwise.
Section 10.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
in an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash or Cash Equivalents of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt, regardless of whether
such interest is an allowable claim in such proceedings) before Holders of
the Notes shall be entitled to receive any payment with respect to the Notes
(except that Holders may receive (i) Permitted Junior Securities and
(ii) payments and other distributions made from any defeasance trust created
pursuant to Section 8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided
in subsection (1) above) are paid in full in cash or Cash Equivalents, any
distribution to which Holders would be entitled but for this Article 10 shall
be made to holders of Senior Debt (except that Holders of Notes may receive
(i) Permitted Junior Securities and (ii) payments and other distributions
made from any defeasance trust created pursuant to Section 8.01 hereof), as
their interests may appear.
Section 10.04. Default on Designated Senior Debt.
The Company may not make any payment or distribution to the Trustee
or any Holder in respect of Obligations with respect to the Notes and may not
acquire from the Trustee or any Holder any Notes for cash or property (other
than (a) Permitted Junior Securities and (b) payments and other distributions
made from any defeasance trust created pursuant to Section 8.01 hereof) until
all principal and other Obligations with respect to the Senior Debt have been
paid in full if:
(i) a default in the payment of any principal or other
Obligations with respect to Designated Senior Debt occurs and is
continuing; or
(ii) a default, other than a payment default, on Designated
Senior Debt occurs and is continuing that then permits holders of the
Designated Senior Debt to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from the
trustee, agent or other representative of the holders of Designated
Senior Debt, or the holders of Designated Senior Debt or the Company.
If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for purposes of this Section
10.04 unless and until (i) at least 360 days shall have elapsed since
<PAGE>
the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium and Liquidated
Damages, if any, and interest on the Notes that have come due have been
paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent consecutive
Payment Blockage Notice unless such default shall have been waived for a
period of not less than 180 consecutive days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon:
(1) in the case of a payment default, the date upon which the
default is cured or waived, or
(2) in the case of a nonpayment default, the earlier of the date
on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received if the
maturity of such Designated Senior Debt has not been accelerated, if this
Article 10 otherwise permits the payment, distribution or acquisition at the
time of such payment or acquisition.
Section 10.05. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Debt as provided in this Article 10.
Section 10.06. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of
any Obligations with respect to the Notes at a time when such payment is
prohibited by Section 10.03 or 10.04 hereof, such payment shall be held by
the Trustee or such Holder, in trust for the benefit of, and shall be paid
forthwith over and delivered, upon written request, to the holders of Senior
Debt as their interests may appear or their Representative under the
indenture or other agreement (if any) pursuant to which such Senior Debt may
have been issued, as their respective interests may appear, for application
to the payment of all Obligations with respect to Senior Debt remaining
unpaid to the extent necessary to pay such Obligations in full in cash or
Cash Equivalents in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Debt, and shall not be liable to
any such holders if the Trustee shall pay over or distribute to or on behalf
of Holders or the Company or any other Person money or assets to which any
holders of Senior Debt shall be entitled by virtue of this Article 10, except
if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
<PAGE>
Section 10.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure
to give such notice shall not affect the subordination of the Notes to the
Senior Debt as provided in this Article 10.
Section 10.08. Subrogation.
After all Senior Debt is paid in full in cash or Cash Equivalents
and all commitments to lend thereunder have been terminated and until the
Notes are paid in full, Holders of Notes shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Notes) to the rights
of holders of Senior Debt to receive distributions applicable to Senior Debt
to the extent that distributions otherwise payable to the Holders of Notes
have been applied to the payment of Senior Debt. A distribution made under
this Article 10 to holders of Senior Debt that otherwise would have been made
to Holders of Notes is not, as between the Company and Holders, a payment by
the Company on the Notes.
Section 10.09. Relative Rights.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest and Liquidated Damages, if any, on the Notes in
accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors
of the Company other than their rights in relation to holders of Senior Debt;
or
(3) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights
of holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay principal of
or interest on a Note on the due date, the failure shall nevertheless be a
Default or Event of Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the subordination
of the Indebtedness evidenced by the Notes shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company
or any Holder to comply with this Indenture.
Section 10.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders
of Senior Debt, the distribution may be made and the notice given to their
Representative.
<PAGE>
Upon any payment or distribution of assets of the Company referred
to in this Article 10, the Trustee and the Holders of Notes shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction
or upon any certificate of such Representative or of the liquidating trustee
or agent or other Person making any distribution to the Trustee or to the
Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Debt and other
Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge
of the existence of any facts that would prohibit the making of any payment
or distribution by the Trustee, and the Trustee and the Paying Agent may
continue to make payments on the Notes, unless the Trustee shall have
received at its Corporate Trust Office at least five Business Days prior to
the date of such payment written notice of facts that would cause the payment
of any Obligations with respect to the Notes to violate this Article 10.
Only the Company or a Representative may give the notice. Nothing in this
Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof. Nothing in this Section 10.12 is intended
to or shall relieve any Holder of Notes from the obligations imposed under
Section 10.06 with respect to other distributions received in violation of
the provisions hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file
a proper proof of claim or proof of debt in the form required in any
proceeding referred to in Section 6.09 hereof at least 30 days before the
expiration of the time to file such claim, the Representatives are hereby
authorized to file an appropriate claim for and on behalf of the Holders of
the Notes.
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and will cease to be of further
effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and Notes
for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the Trustee for
cancellation; or
<PAGE>
(b) (i) all such Notes not theretofore delivered to such Trustee
for cancellation have become due and payable by reason of
the making of a notice of redemption or otherwise or will
become due and payable within one year and the Company or
a Guarantor, if any, has irrevocably deposited or caused
to be deposited with such Trustee as trust funds in trust
an amount of money sufficient to pay and discharge the
entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation for principal,
premium, accrued interest and Liquidated Damages, if any,
to the date of maturity or redemption;
(ii) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur as
a result of such deposit and such deposit will not result
in a breach or violation of, or constitute a default
under, any other instrument to which the Company or a
Guarantor, if any, is a party or by which the Company or
a Guarantor, if any, is bound;
(iii) the Company or a Guarantor, if any, has paid or
caused to be paid all sums payable by it under this
Indenture; and
(iv) the Company has delivered irrevocable instructions to the
Trustee under this Indenture to apply the deposited money
toward the payment of such Notes at maturity or the
redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and
an Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Section 11.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 4.19
hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof
shall be held in trust and applied by it, in accordance with the provisions
of the Notes and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to Persons entitled thereto, of the principal (and
premium, if any), interest and Liquidated Damages, if any, for whose payment
such money has been deposited with the Trustee.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 hereof 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 Notes
shall be revived and reinstated as though such deposit had occurred pursuant
to Section 11.01 hereof; provided that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
Government Securities held by the Trustee or Paying Agent.
<PAGE>
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control.
Section 12.02. Notices.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the others' address:
If to the Company and/or any Guarantor:
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Telecopier No.: (313) 366-8425
Attention: J. Theodore Everingham, Esq.
Effective March 23, 1998:
Frank's Nursery & Crafts, Inc.
1175 West Long Lake Road
Troy, Michigan 48098
Telecopier No.: (248) 712-7336
Attention: J. Theodore Everingham, Esq.
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier No.: (212) 455-2502
Attention: Vincent Pagano, Esq.
If to the Trustee:
Bankers Trust Company
Four Albany Street, Fourth Floor
New York, New York 10006
Telecopier No.:(212) 250-6961\6392
Attention: Corporate Trust & Agency Group
The Company, any Guarantor or the Trustee, by notice to the others
may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
<PAGE>
acknowledged, if telecopied; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also
be so mailed to any Person described in TIA Section 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder
or any defect in it shall not affect its sufficiency with respect to other
Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the
provisions of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
<PAGE>
(c) a statement that, in the opinion of such Person, he or she has
or they have 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 satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Subsidiary Guarantees, this Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Section 12.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 12.10. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
Section 12.11. Severability.
In case any provision in this Indenture or in the Notes 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.
<PAGE>
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 12.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
<PAGE>
[Indenture signature pages(s) follow]
<PAGE>
[Indenture signature pages(s)]
Dated as of February 26, 1998
Frank's Nursery & Crafts, Inc.
By: /s/ Joseph R. Baczko
_________________________
Name: Joseph R. Baczko
Title: Chairman of the Board,
President and
Chief Executive Officer
Bankers Trust Company,
as Trustee
By: /s/ Susan Johnson
_______________________
Name: Susan Johnson
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
(Face of Note)
[Insert the Global Note Legend, if applicable pursuant to the provisions of
the Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the
provisions of the Indenture]
CUSIP/CINS U3546PAA4
10 1/4% [Series A][Series B] Senior Subordinated Notes due 2008
No. 1 $113,500,000
Frank's Nursery & Crafts, Inc.
promises to pay to Cede & Co.
or registered assigns, the principal sum of One Hundred Thirteen Million Five
Hundred Thousand
Dollars on March 1, 2008.
Interest Payment Dates: March 1 and September 1.
Record Dates: February 15 and August 15.
Frank's Nursery & Crafts, Inc.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
This is one of the
Notes referred to in the
within-mentioned Indenture:
Bankers Trust Company,
as Trustee
By:______________________________ Dated:
Name:
Title:
<PAGE>
(Back of Note)
10 1/4% [Series A][Series B] Senior Subordinated Notes due 2008
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Frank's Nursery & Crafts, Inc., a Michigan
corporation (the "Company"), promises to pay interest on the principal amount
of this Note at 10 1/4% per annum from February 26, 1998 until maturity and
shall pay the Liquidated Damages payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company shall pay
interest and Liquidated Damages semi-annually on March 1 and September 1 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is
no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the
next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be September 1, 1998. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue principal and premium, if any, from time to time on demand at a
rate that is the rate then in effect; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the February 15 or
August 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages
may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages on, all Global Notes and all other
Notes the Holders of which shall have provided wire transfer instructions to
the Company or the Paying Agent. Such payment shall be 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.
3. Paying Agent and Registrar. Initially, Bankers Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
<PAGE>
4. Indenture. The Company issued the Notes under an Indenture
dated as of February 26, 1998 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for
a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $250.0 million in aggregate principal amount plus amounts,
if any, issued to pay Liquidated Damages on outstanding Notes as set forth in
Paragraph 2 hereof.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company's option prior to March 1,
2003. Thereafter, the Notes will be subject to redemption at any time or
from time to time at the option of the Company, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
March 1 of the years indicated below:
Percentage of
Principal
Year Amount
_____ _______________
1003 . . . . . . . . . . . . . . . . . . . 105.125%
2004 . . . . . . . . . . . . . . . . . . . 102.562%
2005 and thereafter . . . . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, prior to March 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under this Indenture at a redemption price of 110.25 % of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds
of one or more public offerings of Capital Stock of (i) the Company or (ii)
Holdings to the extent the net cash proceeds thereof are (a) contributed to
the Company as a capital contribution to the common equity of the Company or
(b) used to purchase Equity Interests of the Company (in either case, other
than Disqualified Stock); provided that (i) at least 65% of the aggregate
principal amount of the Notes remain outstanding immediately after the
occurrence of each such redemption (excluding Notes held by the Company and
its Subsidiaries) and (ii) each such redemption shall occur within 90 days
after the date of the closing of any such offering of Capital Stock of the
Company.
6. Mandatory Redemption. Except as set forth in paragraph 7
below, the Company shall not be required to make mandatory redemption
payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
<PAGE>
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the "Change of Control Payment"). Within 30 days following
any Change of Control, the Company shall mail a notice to each Holder setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
(b) Within 270 days of the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (i) to
repay Senior Debt (and to correspondingly reduce commitments with respect
thereto in the case of revolving borrowings) or (ii) to the acquisition of a
controlling interest in a Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase, in accordance with the procedures set forth in Article
3 of the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected
for redemption, except for the unredeemed portion of any Note being redeemed
in part. Also, the Company need not exchange or register the transfer of any
Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding Interest
Payment Date.
<PAGE>
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture, the Notes or any Subsidiary Guarantee may be
amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the then outstanding Notes (and Additional
Notes, if any,) voting as a single class, and any existing default or
compliance with any provision of the Indenture, the Notes or any Subsidiary
Guarantee may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (and Additional Notes, if
any,) voting as a single class. Without the consent of any Holder of a Note,
the Indenture, the Notes or any Subsidiary Guarantee may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the
Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture, or to allow any Guarantor to
execute a supplemental indenture to the Indenture.
12. Defaults and Remedies.
Events of Default include: (i) the failure to pay interest on, or
Liquidated Damages, if any, with respect to the Notes, when the same becomes
due and payable if the default continues for a period of 30 days, (whether or
not such payment shall be prohibited by Article 10 of the Indenture); (ii)
the failure to pay the principal on any Notes when such principal becomes due
and payable, at maturity, upon redemption or otherwise, whether or not such
payment shall be prohibited by Article 10 of the Indenture; (iii) failure by
the Company or any Restricted Subsidiary for 30 days to comply with Sections
3.09, 4.07, 4.09, 4.10, 4.15 or Article 5 of the Indenture; (iv) failure by
the Company or any Restricted Subsidiary for 60 days after written notice by
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture
or the Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more; (vi) failure by the Company or
any of its Significant Subsidiaries to pay final judgments aggregating in
excess of $25.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture, any
Subsidiary Guarantee is held in any judicial proceeding to be unenforceable
<PAGE>
or invalid or shall cease for any reason to be in full force and effect or
any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any of the Company's Restricted Subsidiaries that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary. However, a
default under clauses (iii), (iv) and (vi) will not constitute an Event of
Default until the Trustee or the holders of 25% in aggregate principal amount
of the outstanding Notes notify the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Notes will become due and payable without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the then outstanding Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. Subordination. The Company agrees, and each Holder by
accepting this Note agrees, that the principal of and premium, interest and
Liquidated Damages, if any, with respect to this Notes are subordinated in
right of payment, to the extent and in the manner provided in Article 10 of
the Indenture, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt of the Company (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
14. Trustee Dealings with Company. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such, shall
not have any liability for any obligations of the Company or any Guarantor
under the Notes, any Subsidiary Guarantee or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Notes.
<PAGE>
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. 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).
18. Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Initial Notes shall have all the
rights set forth in the Registration Rights Agreement or, in the case of
Additional Notes, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have the rights set forth in one or more registration
rights agreements, if any, between the Company and the other parties thereto,
relating to rights given by the Company to the purchasers of any Additional
Notes.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed
on the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Attention: J. Theodore Everingham, Esq.
Effective March 23, 1998:
Frank's Nursery & Crafts, Inc.
1175 West Long Lake Road
Troy, Michigan 48098
Attention: J. Theodore Everingham, Esq.
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
Section 4.10 Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE<F1>
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a
part of another Global Note or Definitive Note for an interest in this Global
Note, have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global Note authorized officer
in Principal in Principal following such of
Amount of this Amount of this decrease Trustee or
Date of Exchange Global Note Global Note (or increase) Note Custodian
<S> <C> <C> <C> <C>
____________________
<FN>
<F1> This should be included only if the Note is issued in global form.
</TABLE>
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE
HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE
SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK,
NEW YORK) ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
<PAGE>
CUSIP/CINS U3546PAA3
10 1/4% [Series A][Series B] Senior Subordinated Notes due 2008
No. 1 $1,500,000
Frank's Nursery & Crafts, Inc.
promises to pay to Cede & Co.
or registered assigns, the principal sum of One Hundred Thirteen Million Five
Hundred Thousand
Dollars on March 1, 2008.
Interest Payment Dates: March 1 and September 1.
Record Dates: February 15 and August 15.
Frank's Nursery & Crafts, Inc.
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
This is one of the
Notes referred to in the
within-mentioned Indenture:
Bankers Trust Company,
as Trustee
By:______________________________ Dated:
Name:
Title:
<PAGE>
(Back of Regulation S Temporary Global Note)
10 1/4% [Series A][Series B] Senior Subordinated Notes due 2008
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. Interest. Frank's Nursery & Crafts, Inc., a Michigan
corporation (the "Company"), promises to pay interest on the principal amount
of this Note at 10 1/4% per annum from February 26, 1998 until maturity and
shall pay the Liquidated Damages payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company shall pay
interest and Liquidated Damages semi-annually on March 1 and September 1 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is
no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the
next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be September 1, 1998. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue principal and premium, if any, from time to time on demand at a
rate that is the rate then in effect; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one
or more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Notes under the Indenture.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the February 15 or
August 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages
may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages on, all Global Notes and all other
Notes the Holders of which shall have provided wire transfer instructions to
the Company or the Paying Agent. Such payment shall be 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.
<PAGE>
3. Paying Agent and Registrar. Initially, Bankers Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture
dated as of February 26, 1998 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for
a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $250.0 million in aggregate principal amount plus amounts,
if any, issued to pay Liquidated Damages on outstanding Notes as set forth in
Paragraph 2 hereof.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company's option prior to March 1,
2003. Thereafter, the Notes will be subject to redemption at any time or from
time to time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 1 of the
years indicated below:
Percentage of
Principal
Year Amount
_____ ______________
1003 . . . . . . . . . . . . . . . . . . . 105.125%
2004 . . . . . . . . . . . . . . . . . . . 102.562%
2005 and thereafter . . . . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, prior to March 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under this Indenture at a redemption price of 110.25% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds
of one or more public offerings of Capital Stock of (i) the Company or (ii)
Holdings to the extent the net cash proceeds thereof are (a) contributed to
the Company as a capital contribution to the common equity of the Company or
(b) used to purchase Equity Interests of the Company (in either case, other
than Disqualified Stock); provided that (i) at least 65% of the aggregate
principal amount of the Notes remain outstanding immediately after the
occurrence of each such redemption (excluding Notes held by the Company and
its Subsidiaries) and (ii) each such redemption shall occur within 90 days
after the date of the closing of any such offering of Capital Stock of the
Company.
6. Mandatory Redemption. Except as set forth in paragraph 7
below, the Company shall not be required to make mandatory redemption
payments with respect to the Notes.
<PAGE>
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the "Change of Control Payment"). Within 30 days following
any Change of Control, the Company shall mail a notice to each Holder setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
(b) Within 270 days of the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (i) to
repay Senior Debt (and to correspondingly reduce commitments with respect
thereto in the case of revolving borrowings) or (ii) to the acquisition of a
controlling interest in a Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase, in accordance with the procedures set forth in Article
3 of the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected
for redemption, except for the unredeemed portion of any Note being redeemed
in part. Also, the Company need not exchange or register the transfer of any
<PAGE>
Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding Interest
Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or
in part for one or more Global Notes only (i) on or after the termination of
the 40-day restricted period (as defined in Regulation S) and (ii) upon
presentation of certificates (accompanied by an Opinion of Counsel, if
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture, the Notes or any Subsidiary Guarantee may be
amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the then outstanding Notes (and Additional
Notes, if any,) voting as a single class, and any existing default or
compliance with any provision of the Indenture, the Notes or any Subsidiary
Guarantee may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (and Additional Notes, if
any,) voting as a single class. Without the consent of any Holder of a Note,
the Indenture, the Notes or any Subsidiary Guarantee may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the
Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture, or to allow any Guarantor to
execute a supplemental indenture to the Indenture.
12. Defaults and Remedies.
Events of Default include: (i) the failure to pay interest on, and
Liquidated Damages, if any, with respect to the Notes, when the same becomes
due and payable if the default continues for a period of 30 days, (whether or
not such payment shall be prohibited by Article 10 of the Indenture); (ii)
the failure to pay the principal on any Notes when such principal becomes due
and payable, at maturity, upon redemption or otherwise, (whether or not such
payment shall be prohibited by Article 10 of the Indenture); (iii) failure by
the Company or any Restricted Subsidiary for 30 days to comply with Sections
3.09, 4.07, 4.09, 4.10, 4.15 or Article 5 of the Indenture; (iv) failure by
the Company or any Restricted Subsidiary for 60 days after written notice by
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture
or the Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of the Indenture, which default (a) is
<PAGE>
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more; (vi) failure by the Company or
any of its Significant Subsidiaries to pay final judgments aggregating in
excess of $25.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture, any
Subsidiary Guarantee is held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect or
any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any of the Company's Restricted Subsidiaries that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary. However, a
default under clauses (iii), (iv) and (vi) will not constitute an Event of
Default until the Trustee or the holders of 25% in aggregate principal amount
of the outstanding Notes notify the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Notes will become due and payable without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the then outstanding Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. Subordination. The Company agrees, and each Holder by
accepting this Note agrees, that the principal of and premium, interest and
Liquidated Damages, if any, with respect to this Notes are subordinated in
right of payment, to the extent and in the manner provided in Article 10 of
the Indenture, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt of the Company (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
14. Trustee Dealings with Company. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
<PAGE>
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such, shall
not have any liability for any obligations of the Company or any Guarantor
under the Notes, any Subsidiary Guarantee or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Notes.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. 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).
18. Additional Rights of Holders of Restricted Global and
Restricted Definitive Notes. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Initial Notes shall have all the
rights set forth in the Registration Rights Agreement or, in the case of
Additional Notes, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have the rights set forth in one or more registration
rights agreements, if any, between the Company and the other parties thereto,
relating to rights given by the Company to the purchasers of any Additional
Notes.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed
on the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Attention: J. Theodore Everingham
Effective March 23, 1998:
Frank's Nursery & Crafts, Inc.
1175 West Long Lake Road
Troy, Michigan 48098
Attention: J. Theodore Everingham
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
Section 4.10 Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE<F2>
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note, or of other Restricted
Global Notes for an interest in this Regulation S Temporary Global Note, have
been made:
Principal
Amount
of this
Amount of Amount of Global Note Signature of
decrease increase following authorized
in Principal in Principal such officer of
Amount of this Amount of this decrease Trustee or
Date of Global Global (or Note
Exchange Note Note increase) Custodian
____________ ______________ ______________ ____________ ___________
____________________
[FN]
<F2> This should be included only if the Note is issued in global form.
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Attention: J. Theodore Everingham
Bankers Trust Company
Four Albany Street, Fourth Floor
New York, New York 10006
Attention: Corporate Trust & Agency Group
Re: 10 1/4% Senior Subordinated Notes due 2008
Reference is hereby made to the Indenture, dated as of February 26,
1998 (the "Indenture"), between Frank's Nursery & Crafts, Inc., as issuer
(the "Company"), and Bankers Trust Company, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
______________, (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies
that:
[CHECK ALL THAT APPLY]
1. Check if Transferee will take delivery of a beneficial interest in
the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction meeting the requirements of Rule
144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed
on the 144A Global Note and/or the Definitive Note and in the Indenture and
the Securities Act.
2. Check if Transferee will take delivery of a beneficial interest in
the Temporary Regulation S Global Note, the Regulation S Global Note or a
Definitive Note pursuant to Regulation S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities
Act and, accordingly, the Transferor hereby further certifies that (i) the
<PAGE>
Transfer is not being made to a person in the United States and (x) at the
time the buy order was originated, the Transferee was outside the United
States or such Transferor and any Person acting on its behalf reasonably
believed and believes that the Transferee was outside the United States or
(y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any
Person acting on its behalf knows that the transaction was prearranged with a
buyer in the United States, (ii) no directed selling efforts have been made
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, (iii) the transaction is not part of a
plan or scheme to evade the registration requirements of the Securities Act
and (iv) if the proposed transfer is being made prior to the expiration of
the Restricted Period, the transfer is not being made to a U.S. Person or for
the account or benefit of a U.S. Person (other than an Initial Purchaser).
Upon consummation of the proposed transfer in accordance with the terms of
the Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note, the Temporary Regulation S
Global Note and/or the Definitive Note and in the Indenture and the
Securities Act.
3. Check and complete if Transferee will take delivery of a beneficial
interest in the IAI Global Note or a Definitive Note pursuant to any
provision of the Securities Act other than Rule 144A or Regulation S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act
and any applicable blue sky securities laws of any state of the United
States, and accordingly the Transferor hereby further certifies that (check
one):
(a) such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule
904, and the Transferor hereby further certifies that it has not engaged in
any general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed, which
<PAGE>
certification is supported by (1) a certificate executed by the Transferee in
the form of Exhibit D to the Indenture and (2) if such Transfer is in respect
of a principal amount of Notes at the time of transfer of less than $250,000,
an Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed
on the IAI Global Note and/or the Definitive Notes and in the Indenture and
the Securities Act.
4. Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the Restricted Global Notes, on Restricted Definitive Notes and in
the Indenture.
(b) Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the restrictions
on transfer contained in the Indenture and the Private Placement Legend are
not required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will no
longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(c) Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
State of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will not be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Global Notes or Restricted Definitive Notes and in the
Indenture.
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
_________________________________
[Insert Name of Transferor]
By:_______________________________
Name:
Title:
Dated: __________, ____
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ), or
(ii) Regulation S Global Note (CUSIP ), or
(iii) IAI Global Note (CUSIP ); or
(b) a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ), or
(ii) Regulation S Global Note (CUSIP ), or
(iii) IAI Global Note (CUSIP ); or
(iv) Unrestricted Global Note (CUSIP ); or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Attention: J. Theodore Everingham
Bankers Trust Company
Four Albany Street, Fourth Floor
New York, New York 10006
Attention: Corporate Trust & Agency Group
Re: 10 1/4% Senior Subordinated Notes due 2008
(CUSIP ______________)
Reference is hereby made to the Indenture, dated as of February 26,
1998 (the "Indenture"), between Frank's Nursery & Crafts, Inc., as issuer
(the "Company"), and Bankers Trust Company, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount
of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted Global Note.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global
Note in an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Global Notes and pursuant to and in
accordance with the United States Securities Act of 1933, as amended (the
"Securities Act"), (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest
in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection with
the Exchange of the Owner's beneficial interest in a Restricted Global Note
for an Unrestricted Definitive Note, the Owner hereby certifies (i) the
Definitive Note is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant
to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
<PAGE>
required in order to maintain compliance with the Securities Act and (iv) the
Definitive Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(c) Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest
is being acquired in compliance with any applicable blue sky securities laws
of any state of the United States.
(d) Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for
the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Unrestricted Definitive Note
is being acquired in compliance with any applicable blue sky securities laws
of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial
Interests in Restricted Global Notes
(a) Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the
Owner's own account without transfer. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the Restricted
Definitive Note issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Definitive Note and in the Indenture and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to
beneficial interest in a Restricted Global Note. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest
in the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI
Global Note with an equal principal amount, the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant
to and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States. Upon
<PAGE>
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the beneficial interest issued will be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
relevant Restricted Global Note and in the Indenture and the Securities Act.
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
__________________________________
[Insert Name of Owner]
By: ______________________________
Name:
Title:
Dated: __________, ____
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Attention: J. Theodore Everingham
Bankers Trust Company
Four Albany Street, Fourth Floor
New York, New York 10006
Attention: Corporate Trust & Agency Group
Re: 10 1/4% Senior Subordinated Notes due 2008
Reference is hereby made to the Indenture, dated as of February 26,
1998 (the "Indenture"), between Frank's Nursery & Crafts, Inc., as issuer
(the "Company"), and Bankers Trust Company, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) a beneficial interest in a Global Note, or
(b) a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except
in compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for
which we are acting as hereinafter stated, that if we should sell the Notes
or any interest therein, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act
to a "qualified institutional buyer" (as defined therein), (c) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer)
to you and to the Company a signed letter substantially in the form of this
letter and, if such transfer is in respect of a principal amount of Notes, at
the time of transfer of less than $250,000, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
<PAGE>
pursuant to an effective registration statement under the Securities Act, and
we further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising
such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes
purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of
which is an institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
[Insert Name of Accredited Investor]
By: ______________________________
Name:
Title:
Dated: __________, ____
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
____________________, between _____________________ (the "Guarantor"), a
subsidiary of Frank's Nursery & Crafts, Inc. (or its successor), a company
incorporated under the laws of the State of Michigan (the "Company"), and
Bankers Trust Company, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of February 26, 1998,
providing for the issuance of an aggregate principal amount at maturity of
$250,000,000 of 10 1/4% Senior Subordinated Notes due 2008 (the "Notes");
WHEREAS, Section 4.17 of the Indenture provides that the Company
may cause the Guarantor to execute and deliver to the Trustee a Subsidiary
Guarantee on the terms and conditions set forth herein;
WHEREAS, Section 4.17 of the Indenture provides that, under certain
circumstances, the Company is required to cause the Guarantor to execute and
deliver to the Trustee a Subsidiary Guarantee on the terms and conditions set
forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guarantor and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH SUBSIDIARY GUARANTEE IS
GIVEN. This Supplemental Indenture is being executed and delivered pursuant
to Section 4.17 of the Indenture.
3. AGREEMENTS TO SUBSIDIARY GUARANTEE. The Guarantor hereby
agrees as follows:
(a) The Guarantor, jointly and severally with all other
Guarantors, if any, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, regardless of the validity and enforceability of the
Indenture, the Notes and the obligations of the Company under the Indenture
and the Notes, that:
(i) the principal of, premium and Liquidated Damages, if
any, and interest on the Notes shall be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest
on the overdue principal of, premium, interest and Liquidated Damages, if
<PAGE>
any, on the Notes, to the extent lawful, and all other obligations of the
Company to the Holders or the Trustee thereunder shall be promptly paid in
full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or
renewal of any Notes or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Guarantor under this Supplemental Indenture and its
Subsidiary Guarantee shall be limited to such amount as will not, after
giving effect thereto, and to all other liabilities of the Guarantor, result
in such amount constituting a fraudulent transfer or conveyance.
4. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Guarantor hereby agrees that a notation of such
Subsidiary Guarantee substantially in the form of Annex A hereto shall be
endorsed by an officer of such Guarantor on each Note authenticated and
delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Guarantor hereby
agrees that its Subsidiary Guarantee set forth herein shall remain in full
force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office at the
time the Trustee authenticates the Note on which a Subsidiary Guarantee is
endorsed, the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of the Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of
the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf
of the Guarantor.
(e) The Guarantor hereby agrees that its obligations
hereunder shall be unconditional, regardless of the validity, regularity or
enforceability of the Notes or the Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
a guarantor.
(f) The Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency
or bankruptcy of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever and covenants that
its Subsidiary Guarantee made pursuant to this Supplemental Indenture will
not be discharged except by complete performance of the obligations contained
in the Notes and the Indenture or pursuant to Section 5(b) of this
Supplemental Indenture.
<PAGE>
(g) If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this Supplemental 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, subject to any determination in such proceeding, the
Guarantor, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereof and thereafter all rights and
remedies of the Guarantor, the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
(h) The Guarantor hereby waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Guarantor as a result of any payment by such Guarantor
under its Subsidiary Guarantee. The Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Holders and the Trustee, on
the other hand:
(i) the maturity of the obligations guaranteed hereby
may be accelerated as provided in Article 6 of the Indenture for the purposes
of the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantor for
the purpose of the Subsidiary Guarantee made pursuant to this Supplemental
Indenture.
(i) The Guarantor shall have the right to seek contribution
from any other non-paying Guarantor, if any, so long as the exercise of such
right does not impair the rights of the Holders under the Subsidiary
Guarantee made pursuant to this Supplemental Indenture.
(j) The Guarantor 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,
extension or usury law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of the Indenture or
this Subsidiary Guarantee; and the Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
5. GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 of the Indenture,
nothing contained in the Indenture, this Supplemental Indenture or in the
Notes shall prevent any consolidation or merger of the Guarantor with or into
the Company or any other Guarantor or shall prevent any transfer, sale or
conveyance of the property of the Guarantor as an entirety or substantially
as an entirety, to the Company or any other Guarantor.
(b) Except as set forth in Article 5 of the Indenture, upon
the sale or disposition of all of the Capital Stock of the Guarantor by the
<PAGE>
Company or the Subsidiary of the Company, or upon the consolidation or merger
of the Guarantor with or into any Person, or the sale of all or substantially
all of the assets of the Guarantor (in each case, other than to an Affiliate
of the Company), such Guarantor shall be deemed automatically and
unconditionally released and discharged from all obligations under this
Subsidiary Guarantee without any further action required on the part of the
Trustee or any Holder if no Default shall have occurred and be continuing;
provided, that in the event of an Asset Sale (including a sale of the Capital
Stock of the Guarantor), the Net Cash Proceeds therefrom are treated in
accordance with Section 4.10 of the Indenture. Except with respect to
transactions set forth in the preceding sentence, the Company and the
Guarantor covenant and agree that upon any such consolidation, merger or
transfer of assets, the performance of all covenants and conditions of this
Supplemental Indenture to be performed by such Guarantor shall be expressly
assumed by supplemental indenture satisfactory in form to the Trustee, by the
corporation formed by such consolidation, or into which the Guarantor shall
have merged, or by the corporation which shall have acquired such property.
Upon receipt of an Officers' Certificate of the Company or the Guarantor, as
the case may be, to the effect that the Company or such Guarantor has
complied with the first sentence of this Section 5(b), the Trustee shall
execute any documents reasonably requested by the Company or the Guarantor,
at the cost of the Company or such Guarantor, as the case may be, in order to
evidence the release of such Guarantor from its obligations under its
Subsidiary Guarantee endorsed on the Notes and under the Indenture and this
Supplemental Indenture.
6. RELEASES UPON RELEASE OF SUBSIDIARY GUARANTEE OF GUARANTEED
INDEBTEDNESS. Concurrently with the release or discharge of the Guarantor's
guarantee of the payment of [describe indebtedness the guarantee of which
gave rise to the delivery of this Supplemental Indenture] ("Guaranteed Debt")
(other than a release or discharge by or as a result of payment under such
guarantee of Guaranteed Indebtedness), the Guarantor shall be automatically
and unconditionally released and relieved of its obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant to Section
4 of this Supplemental Indenture. Upon delivery by the Company to the
Trustee of an Officer's Certificate to the effect that such release or
discharge has occurred, the Trustee shall execute any documents reasonably
required in order to evidence the release of the Guarantor from its
obligations under this Supplemental Indenture and its Subsidiary Guarantee
made pursuant hereto; provided such documents shall not affect or impair the
rights of the Trustee and Paying Agent under Section 7.07 of the Indenture.]
7. SUBORDINATION.
(a) Agreement to Subordinate. The Guarantor agrees, and each
Holder by accepting this Subsidiary Guarantee agrees, that the payment of the
principal of and premium, interest and Liquidated Damages, if any, with
respect to the Notes by the Guarantor shall be subordinated in right of
payment, as set forth in this Section 7, to the prior payment in full in cash
or Cash Equivalents of all Guarantor Senior Debt of such Guarantor whether
outstanding on the date hereof or hereafter incurred.
(b) Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Guarantor in a liquidation or dissolution of
the Guarantor or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Guarantor or its property, an assignment
for the benefit of creditors or any marshalling of the Guarantor's assets and
<PAGE>
liabilities, the holders of Guarantor Senior Debt of the Guarantor shall be
entitled to receive payment in full in cash or Cash Equivalents of such
Guarantor Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Guarantor Senior Debt,
regardless of whether such interest is an allowed claim in such proceeding)
before the Holders will be entitled to receive any payment by the Guarantor
of Obligations with respect to the Notes (except that holders of Notes may
receive Permitted Junior Securities and payments made from the trusts
described in Article 8 of the Indenture), and until all Guarantor Senior Debt
of the Guarantor is paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of such Guarantor Senior Debt (except that holders of Notes may
receive Permitted Junior Securities and payments made from the trusts
described in Article 8 of the Indenture).
(c) Default on Designated Senior Debt. The Guarantor may not
make any payment upon or in respect of Obligations with respect to the Notes
(except in Permitted Junior Securities and payments made from the trusts
described in Article 8 of the Indenture) if: (i) a default in the payment of
the principal of premium, if any, or interest on any Designated Senior Debt
occurs and is continuing, or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt of the Guarantor that permits holders
of such Designated Senior Debt as to which such default relates to accelerate
its maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Debt (or their representative). Payments on Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after
the date on which the applicable Payment Blockage Notice is received, unless
the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced unless and until (i) 360 days
have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium and
Liquidated Damages, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of
not less than 180 consecutive days.
(d) Acceleration of Securities. If the Guarantor fails to
make any payment on the Notes when due or within any applicable grace period,
whether or not on account of the payment blockage provision referred to
above, such failure shall constitute an Event of Default and shall entitle
the holders of the Notes to accelerate the maturity thereof, subject to the
terms of Section 6.02 of the Indenture. The Guarantor shall promptly notify
holders of Senior Debt if payment of the Notes is accelerated because of an
Event of Default, but failure to give such notice shall not effect the
subordination of the Notes to the Senior Debt as provided in Article 10 of
the Indenture.
(e) When Distribution Must Be Paid Over. In the event that
the Trustee or any Holder receives any payment of any Obligations with
respect to the Notes at a time when the Trustee or such Holder, as
applicable, has actual knowledge that such payment is prohibited by Section
(b) or (c) above, such payment shall be held by the Trustee or such Holder,
<PAGE>
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Guarantor Senior Debt of the
Guarantor as their interests may appear or their representative under the
indenture or other agreement (if any) pursuant to which such Guarantor Senior
Debt may have been issued, as their respective interests may appear, for
application to the payment of all Obligations with respect to such Guarantor
Senior Debt remaining unpaid to the extent necessary to pay such Obligations
in full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Guarantor Senior Debt of the
Guarantor.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Section 7, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Guarantor Senior Debt, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or
on behalf of Holders or the Guarantor or any other Person money or assets to
which any holders of Guarantor Senior Debt shall be entitled by virtue of
this Section 7, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.
(f) Notice by Guarantor. The Guarantor shall promptly notify
the Trustee and the Paying Agent of any facts known to the Guarantor that
would cause a payment of any Obligations with respect to the Notes to violate
this Section 7, but failure to give such notice shall not affect the
subordination of this Guarantor to Guarantor Senior Debt as provided in this
Section 7.
(g) Subrogation. After all Guarantor Senior Debt is paid in
full in cash or Cash Equivalents and all commitments to lend thereunder have
been terminated and until the Notes are paid in full, Holders of Notes shall
be subrogated (equally and ratably with all other Indebtedness pari passu
with the Notes) to the rights of holders of Guarantor Senior Debt to receive
distributions applicable to Guarantor Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to
the payment of Guarantor Senior Debt. A distribution made under this Section
7 to holders of Guarantor Senior Debt that otherwise would have been made to
Holders of Notes is not, as between the Company and Holders, a payment by the
Company on the Notes.
(h) Relative Rights. This Section 7 defines the relative
rights of Holders of Notes and holders of Guarantor Senior Debt. Nothing in
this Subsidiary Guarantee shall: (1) impair, as between the Guarantor and
Holders of Notes, the obligation of the Guarantor, which is absolute and
unconditional, to pay principal of, premium and Liquidated Damages, if any,
and interest on the Notes in accordance with their terms; (2) affect the
relative rights of Holders of Notes and creditors of the Guarantor other than
their rights in relation to holders of Guarantor Senior Debt; or (3) prevent
the Trustee or any Holder of Notes from exercising its available remedies
upon a Default or Event of Default, subject to the rights of holders and
owners of Guarantor Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
<PAGE>
If the Guarantor fails because of this Section 7 to pay principal
of, premium and Liquidated Damages, if any, or interest on a Note on the due
date, the failure is nevertheless a Default or an Event of Default.
(i) Rights of Trustee and Paying Agent. Notwithstanding the
provisions of this Section 7 or any provision of the Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts that would
prohibit the making of any payment or distribution by the Trustee, and the
Trustee and the Paying Agent may continue to make payments on the Notes,
unless the Trustee shall have received at its Corporate Trust Office at least
two Business Days prior to the date of such payment written notice of facts
that would cause the payment of any Subordinated Note Obligations to violate
this Section 7. Only the Guarantor or a representative may give the
notice. Nothing in this Section 7 shall impair the claims of, or payments
to, the Trustee under or pursuant to Section 7.07 of the Indenture. Nothing
in this Section 7(i) is intended to or shall relieve any Holder of Notes from
the obligations imposed under Section 10.06 of the Indenture with respect to
other distributions received in violation of the provisions hereof.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Debt with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
(j) Authorization to Effect Subordination. Each Holder of
Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee
on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Section 7,
and appoints the Trustee to act as such Holder's attorney-in-fact for any and
all such purposes. If the Trustee does not file a proper proof of claim or
proof of debt in the form required in any proceeding relating to any
Bankruptcy Law at least 30 days before the expiration of the time to file
such claim, a representative of Designated Senior Debt is hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes.
8. NEW YORK LAW TO GOVERN. The internal law of the State of New
York shall govern and be used to construe this Supplemental Indenture.
9. COUNTERPARTS. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction hereof.
[Signatures on following page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated: ___________, ____ [Guarantor]
By: _______________________________
Name:
Title:
Dated: ___________, ____ as Trustee
By: _______________________________
Name:
Title:
<PAGE>
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Guarantor (as defined in the Indenture) has jointly and
severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, premium, interest and Liquidated Damages, if any, on the Notes,
whether at stated maturity or an Interest Payment Date, by acceleration, call
for redemption or otherwise, (b) the due and punctual payment of interest on
the overdue principal and premium of, and interest, to the extent lawful, and
Liquidated Damages, if any, on the Notes and (c) that in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, the same will be promptly paid in full when due in accordance
with the terms of the extension of renewal, whether at stated maturity, by
acceleration or otherwise.
Notwithstanding the foregoing, in the event that the
Subsidiary Guarantee would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant jurisdiction,
the liability of the Guarantor under its Subsidiary Guarantee shall be
limited to such amount as will not, after giving effect thereto, and to all
other liabilities of the Guarantor, result in such amount constituting a
fraudulent transfer or conveyance.
The Subsidiary Guarantee shall not be valid or obligatory
for any purpose until the certificate of authentication on the Note upon
which the Subsidiary Guarantee is noted shall have been executed by the
Trustee under the Indenture by the manual or facsimile signature of one of
its authorized officers.
Dated: ___________, ____ [Guarantor]
By: _______________________________
Name:
Title:
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 26, 1998, by and among Frank's Nursery & Crafts,
Inc., a Michigan corporation (the "Company"), and Goldman, Sachs & Co. and
Chase Securities Inc. (each a "Purchaser" and, collectively, the
"Purchasers"), each of whom has agreed to purchase the Company's 10 1/4%
Senior Subordinated Notes due 2008 (the "Notes") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 23, 1998, (the "Purchase Agreement"), by and among the Company and
the Purchasers. In order to induce the Purchasers to purchase the Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Purchasers set forth in Section 7 of the Purchase
Agreement.
Capitalized terms used herein and not otherwise defined are used as
defined in the Indenture (as defined herein).
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less
than the period required pursuant to Section 3(b) hereof and (iii) the
delivery by the Company to the Registrar under the Indenture of Exchange
Notes in the same aggregate principal amount as the aggregate principal
amount of Notes tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Section 3(a) and 4(a)
hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The Company's 10 1/4% Senior Subordinated Notes
due 2008 to be issued pursuant to the Indenture : (x) in the Exchange Offer
or (y) as contemplated by Section 4 hereof.
<PAGE>
Exchange Offer: The exchange and issuance by the Company of a
principal amount of Exchange Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal
amount of Notes that are tendered by such Holders (as defined herein) in
connection with such exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to an Exchange Offer, including the related Prospectus.
Filing Deadline: As defined in Section 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indenture: The indenture, dated the Closing Date, between the
Company and Bankers Trust Company, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Person: An individual, partnership, limited liability company,
corporation, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated
by reference into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of any Exchange Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto
(including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Restricted Broker-Dealer: Any Broker-Dealer that holds Exchange
Notes that were acquired in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly
from the Company or any of its affiliates)
Rule 144: Rule 144 promulgated under the Act.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
77bbbb) as in effect on the date of the Indenture.
<PAGE>
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without
complying with the prospectus delivery requirements of the Act, (b) the date
on which such Note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have
been complied with), the Company shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as practicable
after the Closing Date (the "Exchange Offer Filing Date"), but in no event
later than 60 days after the Closing Date (such 60th day being the "Filing
Deadline"), (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but
in no event later than 150 days after the Closing Date (such 150th day being
the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Exchange Offer Registration
Statement as may be necessary in order to cause it to become effective, (B)
file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer and (iv) upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The Exchange Offer
shall be on the appropriate form permitting registration of the Exchange
Notes to be offered in exchange for the Notes that are Transfer Restricted
Securities and to permit resales of Exchange Notes by Broker-Dealers that
tendered into the Exchange Offer for Notes that such Broker-Dealer acquired
for its own account as a result of market making activities or other trading
activities (other than Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 20
Business Days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its best efforts to cause the Exchange
Offer to be Consummated on the earliest practicable date after the Exchange
Offer Registration Statement has become effective, but in no event later than
30 Business Days thereafter.
<PAGE>
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a
result of market-making activities or other trading activities (other than
Transfer Restricted Securities acquired directly from the Company or any
Affiliate of the Company), may exchange such Transfer Restricted Securities
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to
be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with
its initial sale of any Exchange Notes received by such Broker-Dealer in the
Exchange Offer and that the Prospectus contained in the Exchange Offer
Registration Statement may be used to satisfy such prospectus delivery
requirement. Such "Plan of Distribution" section shall also contain all
other information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Transfer Restricted Securities held by any such Broker-Dealer,
except to the extent required by the Commission as a result of a change in
policy, rules or regulations after the date of this Agreement.
To the extent necessary to ensure that the Exchange Offer
Registration Statement is available for sales of Exchange Notes by Broker-
Dealers, the Company agrees to use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended
as required by the provisions of Section 6(c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
120 days from the date on which the Exchange Offer is Consummated, or such
shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Company shall promptly provide sufficient copies of the latest version of
such Prospectus to such Broker-Dealers promptly upon request at any time
during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company has complied with the procedures set forth
in Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted
Securities shall notify the Company within 20 Business Days following the
Consummation of the Exchange Offer that (A) such Holder was prohibited by law
or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Notes acquired directly from the Company or any of its Affiliates, then the
Company shall:
(x) cause to be filed, on or prior to 30 days after the earlier of
(i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a) (ii) above, (such earlier date, the "Filing Deadline"), a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (the "Shelf
<PAGE>
Registration Statement")), relating to all Transfer Restricted Securities,
and
(y) shall use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to 150 days after the Filing
Deadline (such 150th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company
is required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed
to satisfy the requirements of clause (x) above; provided that, in such
event, the Company shall remain obligated to meet the Effectiveness Deadline
set forth in clause (y).
The Company shall use its best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented and amended as required by and subject to the provisions of
Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
at least two years following the date on which such Shelf Registration
Statement first becomes effective under the Act, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such
Holder furnishes to the Company in writing, within 20 days after receipt of a
request therefor, the information specified in Item 507 or 508 of Regulation
S-K, as applicable, of the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. No Holder of Transfer Restricted Securities shall be entitled to
liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have provided all such information. Each selling Holder agrees to
promptly furnish additional information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Exchange Offer Registration Statement is first declared effective by the
Commission or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or
fail to be usable for its intended purpose without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective immediately (each
<PAGE>
such event referred to in clauses (i) through (iv), a "Registration
Default"), then the Company agrees to pay to each Holder of Transfer
Restricted Securities affected thereby liquidated damages in an amount equal
to $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000
in principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up
to a maximum amount of liquidated damages of $.50 per week per $1,000 in
principal amount of Transfer Restricted Securities; provided that the Company
shall in no event be required to pay liquidated damages for more than one
Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the
case of (i) above, (2) upon the effectiveness of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective
or made usable in the case of (iv) above, the liquidated damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture on each Interest Payment Date, as more fully set forth in the
Indenture and the Notes. All obligations of the Company set forth in the
preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations
with respect to such Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the resale of Exchange Notes by Broker-Dealers that tendered in the
Exchange Offer Notes that such Broker-Dealer acquired for its own account as
a result of its market making activities or other trading activities (other
than Notes acquired directly from the Company or any of its Affiliates) being
sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to use
commercially reasonable efforts to seek a no-action letter or other
favorable decision from the Commission allowing the Company to
Consummate an Exchange Offer for such Transfer Restricted Securities;
provided, however, that the Company shall not be required to seek such a
<PAGE>
no-action letter or decision if based upon the written advice of counsel
the Company reasonably determines that seeking such a no-action letter
would not be likely to produce a favorable decision from the Commission.
In connection with the foregoing, the Company hereby agrees to take all
such other actions as may be requested by the Commission or otherwise
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer,
a written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer
and (C) it is acquiring the Exchange Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Exchange Notes hereby acknowledges and agrees that,
if the resales are of Exchange Notes obtained by such Holder in exchange
for Notes acquired directly from the Company or an Affiliate thereof, it
(1) could not, under Commission policy as in effect on the date of this
Agreement, rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary
resale transaction must be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company are registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the Exchange
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Exchange Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes received in the
Exchange Offer and (C) any other undertaking or representation required
<PAGE>
by the Commission as set forth in any no-action letter obtained pursuant
to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section
4(b) hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use its best efforts to cause
such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by
such Persons, confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed,
and, with respect to any applicable Registration Statement or any post-
effective amendment thereto, when the same has become effective, (B) of
any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
<PAGE>
of any proceeding for any of the preceding purposes and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the making
of any additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption
from qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(v) in the case of a Shelf Registration and, to the extent that
the Company is required to maintain an effective Exchange Offer
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, furnish to the Purchasers and each selling Holder named
in any Registration Statement or Prospectus in connection with such
sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders in connection with
such sale, if any, for a period of at least five Business Days, and the
Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which the selling Holders of the Transfer Restricted Securities covered
by such Registration Statement in connection with such sale, if any,
shall reasonably object within five Business Days after the receipt
thereof. A selling Holder shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) in the case of a Shelf Registration and, to the extent that
the Company is required to maintain an effective Exchange Offer
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or
<PAGE>
Prospectus, provide copies of such document to the selling Holders in
connection with such sale, if any, make the Company's representatives
available for discussion of such document and other customary due
diligence matters, and include such information in such document prior
to the filing thereof as such selling Holders may reasonably request;
(vii) in the case of a Shelf Registration and, to the extent
that the Company is required to maintain an effective Exchange Offer
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, make available at reasonable times for inspection by
the selling Holders participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders, all financial and other records, pertinent corporate
documents of the Company and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
selling Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
provided, however, that any records, information or documents that are
designated by the Company as confidential at the time of delivery of
such records, information or documents shall be kept confidential by
such persons, except to the extent required by applicable law;
(viii) if requested by any selling Holders in connection with
such sale, if any, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) in the case of a Shelf Registration and, to the extent that
the Company is required to maintain an effective Exchange Offer
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, furnish to each selling Holder in connection with such
sale, if any, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(x) in the case of a Shelf Registration and, to the extent that
the Company is required to maintain an effective Exchange Offer
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, deliver to each selling Holder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request;
the Company hereby consents to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each of the
selling Holders in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) in the case of a Shelf Registration and, to the extent that
the Company is required to maintain an effective Exchange Offer
<PAGE>
Registration Statement for any Restricted Broker-Dealer pursuant to
Section 3 above, upon the request of a majority of the selling Holders,
enter into such agreements (including underwriting agreements) and make
such representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Securities in
connection with any sale or resale pursuant to any applicable
Registration Statement and in such connection, the Company shall:
(A) upon request of a majority of the selling Holders, furnish (or
in the case of paragraphs (2) and (3), use its best efforts to cause to
be furnished) to each selling Holder, upon the effectiveness of the
Shelf Registration Statement or upon Consummation of the Exchange Offer,
as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
paragraphs (d), (e) and (f) of Section 7 of the Purchase Agreement
and such other similar matters as the selling Holders may
reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer, or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in Section 7(b)
of the Purchase Agreement and such other matter as the selling
Holders may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the
Company and have considered the matters required to be stated
therein and the statements contained therein, although such counsel
has not independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises that, on
the basis of the foregoing (relying as to materiality to the extent
such counsel deems appropriate upon the statements of officers and
other representatives of the Company and without independent check
or verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the case
of the Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue statement
of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such Registration
Statement as of its date and, in the case of the opinion dated the
date of Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
<PAGE>
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case may
be, from the Company's independent accountants, in the customary
form and covering matters of the type customarily covered in
comfort letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 7(c) of the Purchase
Agreement;
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained
in any agreement entered into by the Company pursuant to this
clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration Statement,
in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Notes covered by
any Shelf Registration Statement contemplated by this Agreement,
Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Exchange
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Exchange Notes, as the case may be; in return, the
Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders to facilitate
the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations and such names as the selling Holders may request
at least two Business Days prior to such sale of Transfer Restricted
Securities;
<PAGE>
(xv) use its best efforts to cause the disposition of the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee
under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xvii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined in paragraph
(c) of Rule 158 under the Act); and
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for the Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable the Indenture to be so qualified in a timely
manner.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(iv) hereof or (ii) such
Holder is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (in each case,
the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby
agrees that it will either (i) destroy any Prospectuses, other than permanent
file copies, then in such Holder's possession which have been replaced by the
Company with more recently dated Prospectuses or (ii) deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then
in such Holder's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the
Suspension Notice. The time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable,
shall be extended by a number of days equal to the number of days in the
period from and including the date of delivery of the Suspension Notice to
the date of delivery of the Recommencement Date.
<PAGE>
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses; (ii) all fees and expenses
of compliance with federal securities and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees
and disbursements of counsel for the Company; (v) all application and filing
fees in connection with listing the Exchange Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof;
and (vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with the Shelf Registration Statement required by
this Agreement, the Company will reimburse the Purchasers and the Holders of
Transfer Restricted Securities being registered pursuant to the Shelf
Registration Statement for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins, unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Shelf Registration Statement is
being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company will indemnify and hold harmless each Holder against
any losses, claims, damages or liabilities, joint or several, to which such
Holder may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus
or Prospectus or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading, and will reimburse
each Holder for any legal or other expenses reasonably incurred by such
Holder in connection with investigating or defending any such action or claim
as such expenses are incurred; provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Registration
Statement, preliminary prospectus or Prospectus, or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any of the Holders expressly for
use therein.
(b) Each Holder of Transfer Restricted Securities will indemnify and
hold harmless the Company against any losses, claims, damages or liabilities
to which the Company may become subject, under the Act or otherwise, insofar
<PAGE>
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Registration Statement, preliminary prospectus or Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under such subsection. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act,
by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Holders on the other from their sale of Transfer Restricted Securities. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party
<PAGE>
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Holders on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Holders on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each Holder agrees that
it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the total received by such Holder with respect
to the sale of its Transfer Restricted Securities pursuant to a Registration
Statement exceeds the sum of (A) the amount paid to such Holder for such
Transfer Restricted Securities plus (B) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations in this subsection
(d) to contribute are several in proportion to the respective principal
amount of Transfer Restricted Securities held by each of the Holders
hereunder and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Holder within the meaning of the Act; and the obligations of the
Holders under this Section 8 shall be in addition to any liability which the
respective Holders may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in
which the Company is not subject to Section 13 or 15(d) of the Exchange Act,
to make available, upon request of any Holder of Transfer Restricted
Securities, to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser
of such Transfer Restricted Securities designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the Act
in order to permit resales of such Transfer Restricted Securities pursuant to
Rule 144A.
<PAGE>
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure by
the Company to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Purchasers or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any
such failure, the Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 3
and 4 hereof. The Company further agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. The
Company has not previously entered into any agreement granting any
registration rights with respect to its securities to any Person. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(c), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities (excluding Transfer Restricted
Securities held by the Company of its Affiliates). Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer and that does not affect directly or
indirectly the rights of other Holders whose securities are not being
tendered pursuant to such Exchange Offer may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted
Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Purchasers, on the other, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders
hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier,
or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
<PAGE>
(ii) if to the Company:
Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Telecopier No.: (313) 366-8425
Attention: J. Theodore Everingham, Esq.
and effective March 23, 1998:
1175 West Long Lake Road
Troy, Michigan 48098
Telecopier No.: (248) 712-7336
Attention: J. Theodore Everingham, Esq.
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier No.: (212) 455-2502
Attention: Vincent Pagano, Esq.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf
Registration Statement, as the case may be, notice shall be delivered to
Goldman, Sachs & Co., on behalf of the Purchasers (in the form attached
hereto as Exhibit A) and shall be addressed to: Attention: Richard Smith
(Special Execution), 85 Broad Street, New York, NY 10004.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, that nothing
herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms
hereof or of the Purchase Agreement or the Indenture. If any transferee of
any Holder shall acquire Transfer Restricted Securities in any manner,
whether by operation of law or otherwise, such Transfer Restricted Securities
shall be held subject to all of the terms of this Agreement, and by taking
and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and
such Person shall be entitled to receive the benefits hereof.
<PAGE>
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability
of any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights granted
with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
[Registration Rights Agreement Signature Page(s) Follow]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
Frank's Nursery & Crafts, inc.
By: /s/ Joseph R. Baczko
Name: Joseph R. Baczko
Title: Chairman of the Board, President
and Chief Executive Officer
Purchasers:
Goldman, Sachs & Co.
Chase securities inc.
By: /s/ Goldman, Sachs & Co.
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
EXCHANGE OFFER REGISTRATION STATEMENT
To: Goldman, Sachs & Co.
Special Executions
85 Broad Street
New York, NY 10004
Attn: Richard Smith
Fax: (212) 357-4451
From: Frank's Nursery & Crafts, Inc.
6501 East Nevada
Detroit, Michigan 48234
Re: 10 1/4% Senior Subordinated Notes due 2008
Date: _______, 1998
For your information only (NO ACTION REQUIRED):
Today, ______, 1998, we filed [an Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission.
We currently expect this registration statement to be declared effective
within ____ business days of the date hereof.
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
Dated as of February 26, 1998
by and among
Frank's Nursery & Crafts, Inc.,
and
Goldman, Sachs & Co.
and
Chase Securities Inc.
Exhibit 10.1
- ----------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of
December 24, 1997
among
FRANK'S NURSERY & CRAFTS, INC.,
as Borrower,
CYRUS ACQUISITION CORP.,
GENERAL HOST CORPORATION,
The Lenders Party Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Syndication Agent, Collateral Agent,
Issuing Bank and Swingline Lender,
and
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Documentation Agent
___________________________
CHASE SECURITIES INC.,
as Arranger
----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Classification of Loans and Borrowings . . . . 27
SECTION 1.03. Terms Generally . . . . . . . . . . . . . . . . 27
SECTION 1.04. Accounting Terms; GAAP . . . . . . . . . . . . 27
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . 28
SECTION 2.02. Loans and Borrowings . . . . . . . . . . . . . 28
SECTION 2.03. Requests for Borrowings . . . . . . . . . . . . 29
SECTION 2.04. Swingline Loans . . . . . . . . . . . . . . . . 30
SECTION 2.05. Letters of Credit . . . . . . . . . . . . . . . 31
SECTION 2.06. Funding of Borrowings . . . . . . . . . . . . . 35
SECTION 2.07. Interest Elections . . . . . . . . . . . . . . 36
SECTION 2.08. Termination and Reduction of Commitments . . . 37
SECTION 2.09. Repayment of Loans; Evidence of Debt . . . . . 38
SECTION 2.10. Amortization of Term Loans . . . . . . . . . . 39
SECTION 2.11. Prepayment of Loans . . . . . . . . . . . . . . 40
SECTION 2.12. Fees . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.13. Interest . . . . . . . . . . . . . . . . . . . 42
SECTION 2.14. Alternate Rate of Interest . . . . . . . . . . 43
SECTION 2.15. Increased Costs . . . . . . . . . . . . . . . . 43
SECTION 2.16. Break Funding Payments . . . . . . . . . . . . 45
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs . . . . . . . . . . . 47
SECTION 2.19. Mitigation Obligations; Replacement of
Lenders . . . . . . . . . . . . . . . . . 48
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . 49
SECTION 3.02. Authorization; Enforceability . . . . . . . . . 49
SECTION 3.03. Governmental Approvals; No Conflicts . . . . . 50
SECTION 3.04. Financial Condition; No Material Adverse
Change . . . . . . . . . . . . . . . . . . 50
SECTION 3.05. Properties . . . . . . . . . . . . . . . . . . 51
SECTION 3.06. Litigation and Environmental Matters . . . . . 51
SECTION 3.07. Compliance with Laws and Agreements . . . . . . 52
SECTION 3.08. Investment and Holding Company Status . . . . . 52
SECTION 3.09. Taxes . . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.10. ERISA . . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.11. Disclosure . . . . . . . . . . . . . . . . . . 53
SECTION 3.12. Subsidiaries . . . . . . . . . . . . . . . . . 53
SECTION 3.13. Insurance . . . . . . . . . . . . . . . . . . . 53
SECTION 3.14. Labor Matters . . . . . . . . . . . . . . . . . 53
<PAGE>
SECTION 3.15. Solvency . . . . . . . . . . . . . . . . . . . 54
SECTION 3.16. Security Documents . . . . . . . . . . . . . . 54
SECTION 3.17. Federal Reserve Regulations . . . . . . . . . . 55
SECTION 3.18. Merger . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.19. Capitalization of Holdings . . . . . . . . . . 56
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . 56
SECTION 4.02. Each Credit Event . . . . . . . . . . . . . . . 60
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information . . 61
SECTION 5.02. Notices of Material Events . . . . . . . . . . 62
SECTION 5.03. Information Regarding Collateral . . . . . . . 63
SECTION 5.04. Existence; Conduct of Business . . . . . . . . 63
SECTION 5.05. Payment of Obligations . . . . . . . . . . . . 63
SECTION 5.06. Maintenance of Properties . . . . . . . . . . . 64
SECTION 5.07. Insurance . . . . . . . . . . . . . . . . . . . 64
SECTION 5.08. Casualty and Condemnation . . . . . . . . . . . 64
SECTION 5.09. Books and Records; Inspection and Audit
Rights . . . . . . . . . . . . . . . . . . 65
SECTION 5.10. Compliance with Laws . . . . . . . . . . . . . 65
SECTION 5.11. Use of Proceeds and Letters of Credit . . . . . 65
SECTION 5.12. Additional Subsidiaries . . . . . . . . . . . . 66
SECTION 5.13. Further Assurances . . . . . . . . . . . . . . 66
SECTION 5.14. Interest Rate Protection . . . . . . . . . . . 67
SECTION 5.15. Redemption of Notes . . . . . . . . . . . . . . 68
SECTION 5.16. Issuance of Subordinated Notes, Issuance of
8% PIK Notes and Application of
Proceeds Thereof . . . . . . . . . . . . . 68
SECTION 5.17. Consummation of the Merger . . . . . . . . . . 68
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity Securities . . . . 69
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.03. Fundamental Changes . . . . . . . . . . . . . . 73
SECTION 6.04. Investments, Loans, Advances, Guarantees
and Acquisitions . . . . . . . . . . . . . 73
SECTION 6.05. Asset Sales . . . . . . . . . . . . . . . . . . 75
SECTION 6.06. Sale and Lease-Back Transactions . . . . . . . 76
SECTION 6.07. Hedging Agreements . . . . . . . . . . . . . . 76
SECTION 6.08. Restricted Payments; Certain Payments of
Indebtedness . . . . . . . . . . . . . . . 76
SECTION 6.09. Transactions with Affiliates . . . . . . . . . 78
SECTION 6.10. Other Indebtedness . . . . . . . . . . . . . . 78
SECTION 6.11. Restrictive Agreements . . . . . . . . . . . . 79
SECTION 6.12. Amendment of Material Documents . . . . . . . . 79
SECTION 6.13. Capital Expenditures . . . . . . . . . . . . . 79
<PAGE>
SECTION 6.14. Leverage Ratio . . . . . . . . . . . . . . . . 80
SECTION 6.15. Consolidated Net Cash Interest Expense
Coverage Ratio . . . . . . . . . . . . . . 80
SECTION 6.16. Fixed Charge Coverage Ratio . . . . . . . . . . 81
SECTION 6.17. Additional Subsidiaries . . . . . . . . . . . . 82
SECTION 6.18. Merger Consideration; Redemption of Senior
Notes and Convertible Subordinated
Notes; Prepayment of Existing Mortgages . 82
SECTION 6.19. Fiscal Year . . . . . . . . . . . . . . . . . . 82
ARTICLE VII
Events of Default
-----------------
ARTICLE VIII
The Administrative Agent
------------------------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.02. Waivers; Amendments . . . . . . . . . . . . . . 88
SECTION 9.03. Expenses; Indemnity; Damage Waiver . . . . . . 89
SECTION 9.04. Successors and Assigns . . . . . . . . . . . . 91
SECTION 9.05. Survival . . . . . . . . . . . . . . . . . . . 93
SECTION 9.06. Counterparts; Integration; Effectiveness . . . 94
SECTION 9.07. Severability . . . . . . . . . . . . . . . . . 94
SECTION 9.08. Right of Setoff . . . . . . . . . . . . . . . . 94
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process . . . . . . . . . . . . 94
SECTION 9.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . 95
SECTION 9.11. Headings . . . . . . . . . . . . . . . . . . . 95
SECTION 9.12. Confidentiality . . . . . . . . . . . . . . . . 95
SECTION 9.13. Interest Rate Limitation . . . . . . . . . . . 96
SECTION 9.14. Pre-Funding Escrow Arrangements . . . . . . . . 96
<PAGE>
SCHEDULES:
- ---------
Schedule 1.01(a) -- Mortgaged Properties
Schedule 1.01(b) -- Existing Mortgages (identifying Existing Mortgages
subject to mortgage payment rights or defaults)
Schedule 1.01(c) -- Capital Leases
Schedule 1.01(d) -- Inactive Subsidiaries
Schedule 2.01 -- Commitments
Schedule 3.05 -- Real Property
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 3.16(d) -- Mortgage Filing Offices
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.04 -- Investments
Schedule 6.11 -- Existing Restrictions
EXHIBITS:
- --------
Exhibit A -- Form of Assignment and Acceptance
Exhibit B-1 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit B-2 -- Form of Opinion of Simpson Thacher & Bartlett
Exhibit B-3 -- Form of Opinion of J. Theodore Everingham
Exhibit B-4 -- Form of Opinion of Amster, Rothstein & Ebenstein
Exhibit C -- Form of Opinion of Local Counsel
Exhibit D -- Form of Parent Guarantee Agreement
Exhibit E -- Form of Subsidiary Guarantee Agreement
Exhibit F -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit G -- Form of Pledge Agreement
Exhibit H -- Form of Security Agreement
Exhibit I -- Form of Real Property Mortgage
<PAGE>
CREDIT AGREEMENT, dated as of December 24,
1997, among FRANK'S NURSERY & CRAFTS, INC., a
Michigan corporation (the "Borrower"), CYRUS
ACQUISITION CORP., a New York corporation, GENERAL
HOST CORPORATION, a New York corporation, the
LENDERS party hereto, THE CHASE MANHATTAN BANK, as
Administrative Agent, Syndication Agent, Collateral
Agent, Issuing Bank and Swingline Lender, and
GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation
Agent.
In connection with the Acquisition (such term and each other
capitalized term used but not defined in this introductory statement having
the meanings assigned to such terms in Article I), the Investors intend to
acquire all the outstanding Shares pursuant to the Merger Agreement. In
connection therewith, (a) Acqco has made the Equity Tender Offer,
(b) simultaneously with the Equity Tender Offer, Holdings has made the Debt
Tender Offer and (c) the consummation of each of the Equity Tender Offer and
the Debt Tender Offer is conditioned on the consummation of the other Tender
Offer. As promptly as practicable following the acceptance of Shares
pursuant to the Equity Tender Offer and the acceptance of Senior Notes
pursuant to the Debt Tender Offer, (a) Acqco will merge into Holdings, with
Holdings as the surviving corporation in such merger, and (b) subject to
stockholders' appraisal rights, each outstanding Share not acquired in the
Equity Tender Offer will be converted into the right to receive the Cash
Merger Consideration.
The Borrower has requested (a) the Revolving Lenders to
extend credit in the form of Revolving Loans during the Revolving
Availability Period in an aggregate principal amount at any time outstanding
not in excess of $110,000,000 minus the sum of (i) the LC Exposure and
(ii) the Swingline Exposure at such time, (b) the Term Lenders to extend
credit in the form of Term Loans during the Term Availability Period in an
aggregate principal amount not in excess of $85,000,000, (c) the Issuing Bank
to issue Letters of Credit during the LC Availability Period in an aggregate
face amount at any time outstanding not in excess of $25,000,000 and (d) the
Swingline Lender to extend credit in the form of Swingline Loans during the
Revolving Availability Period in an aggregate principal amount not in excess
of $15,000,000.
The proceeds of the Term Loans and the Revolving Loans from
and after the Effective Date will be used by the Borrower as provided in
Section 5.11.
The Lenders and the Swingline Lender are willing to extend
such credit to the Borrower and the Issuing Bank is willing to issue Letters
of Credit for the account of the Borrower on the terms and subject to the
conditions set forth herein. Accordingly, the parties hereto agree as
follows:
<PAGE>
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement,
the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Alternate Base
Rate.
"Acqco" means Cyrus Acquisition Corp., a New York
corporation, all the outstanding stock of which is owned by the Investors.
"Acqco Equity Contribution" means the common equity
contribution made by Acqco to Holdings substantially simultaneously with the
purchase by Acqco of Shares pursuant to the Equity Tender Offer in an
aggregate amount in cash equal to $25,900,000.
"Acquisition" means the Equity Tender Offer, the Merger and
the other transactions contemplated by the Merger Agreement and the Equity
Tender Offer Materials.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for
such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in
its capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the Person specified.
"Agents" means the Administrative Agent, the Syndication
Agent, the Collateral Agent and the Documentation Agent.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the
Base CD Rate in effect on such day plus 1% and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or
the Federal Funds Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving
Lender, the percentage of the total Revolving Commitments represented by such
Lender's Revolving Commitment. If the Revolving Commitments have terminated
or expired, the Applicable Percentages shall be determined based upon the
Revolving Commitments most recently in effect, giving effect to any
assignments made in accordance with Section 9.04.
<PAGE>
"Applicable Rate" means, (a) for any day with respect to any
ABR Loan (excluding Swingline Loans) or Eurodollar Loan that is a Revolving
Loan, or with respect to the commitment fees payable hereunder in respect of
the Revolving Commitments, as the case may be, the applicable rate per annum
set forth below under the caption "ABR Spread--Revolving Loan", "Eurodollar
Spread--Revolving Loan" or "Commitment Fee Rate", as the case may be, based
upon the Senior Leverage Ratio as of the most recent determination date,
provided that until the third Business Day after the delivery to the
Administrative Agent, pursuant to Section 5.01(b), of Holdings's and the
Borrower's consolidated financial statements for Holdings's and the
Borrower's first four full fiscal quarters commencing after the Effective
Date, the "Applicable Rate" with respect to any ABR Loan or Eurodollar Loan
that is a Revolving Loan shall be the applicable rate per annum set forth
below in Category 1:
ABR Spread-- Eurodollar Spread-- Commitment
Senior Leverage Ratio: Revolving Loan Revolving Loan Fee Rate
---------------------- -------------- ------------------- ----------
Category 1 1.25% 2.25% 0.500%
----------
Equal to or greater than
2.00 to 1.00
Category 2 1.00% 2.00% 0.500%
----------
Less than 2.00 to 1.00
but equal to or greater
than 1.75 to 1.00
Category 3 0.75% 1.75% 0.500%
----------
Less than 1.75 to 1.00
but equal to or greater
than 1.50 to 1.00
Category 4 0.50% 1.50% 0.375%
----------
Less than 1.50 to 1.00
and (b) for any day with respect to any ABR Loan or Eurodollar Loan that is a
Term Loan, or with respect to the commitment fees payable hereunder in
respect of the Term Commitments, as the case may be, the applicable rate per
annum set forth below under the caption "ABR Spread--Term Loan", "Eurodollar
Spread--Term Loan" or "Commitment Fee Rate", as the case may be, based upon
the Senior Leverage Ratio as of the most recent determination date, provided
that until the third Business Day after the delivery to the Administrative
Agent, pursuant to Section 5.01(b), of Holdings's and the Borrower's
consolidated financial statements for Holdings's and the Borrower's first
four full fiscal quarters commencing after the Effective Date, the
"Applicable Rate" with respect to any ABR Loan or Eurodollar Loan that is a
Term Loan shall be the applicable rate per annum set forth below in
Category 1:
<PAGE>
ABR Spread-- Eurodollar Spread-- Commitment
Senior Leverage Ratio: Term Loan Term Loan Fee Rate
--------------------- ------------ ------------------- -----------
Category 1 1.50% 2.50% 0.500%
----------
Equal to or greater than
2.00 to 1.00
Category 2 1.25% 2.25% 0.500%
----------
Less than 2.00 to 1.00
but equal to or greater
than 1.75 to 1.00
Category 3 1.00% 2.00% 0.500%
----------
Less than 1.75 to 1.00
For purposes of the foregoing, (a) the Senior Leverage Ratio
shall be determined as of the end of each fiscal quarter of Holdings's fiscal
year based upon Holdings's consolidated financial statements delivered
pursuant to Section 5.01(a) or (b), and (b) each change in the Applicable
Rate resulting from a change in the Senior Leverage Ratio shall be effective
during the period commencing on and including the third day (such day, the
"Applicable Rate Determination Date") after the date of delivery to the
Administrative Agent of such consolidated financial statements indicating
such change and ending on the date immediately preceding the effective date
of the next such change, provided that the Senior Leverage Ratio shall be
deemed to be in Category 1 if the Borrower fails to deliver the consolidated
financial statements required to be delivered by it pursuant to Section
5.01(a) or (b), during the period from the expiration of the time for
delivery thereof until such consolidated financial statements are delivered.
"Ashton" means Harris J. Ashton.
"Ashton Termination Payment" means an amount not to exceed
$7,350,000 in full satisfaction and payment of Holdings's obligations
(excluding ongoing benefits, reimbursement of expenses incurred by Ashton
prior to termination and tax gross-ups, if applicable) pursuant to the
Employment Agreement, as amended, dated as of January 1, 1992, by and between
Holdings and Ashton.
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or
a comparable successor risk classification) within the meaning of 12 C.F.R.
Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in
dollars at the offices of such member in the United States, provided that if,
as a result of any change in any law, rule or regulation, it is no longer
possible to determine the Assessment Rate as aforesaid, then the Assessment
Rate shall be such annual rate as shall be determined by the Administrative
Agent in its reasonable judgment to be representative of the cost of such
insurance to the Lenders.
<PAGE>
"Assignment and Acceptance" means an assignment and
acceptance entered into by a Lender and an assignee (with the consent of any
party whose consent is required by Section 9.04), and accepted by the
Administrative Agent, in the form of Exhibit A or any other form approved by
the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month
Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the
Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means Frank's Nursery & Crafts, Inc., a Michigan
corporation.
"Borrower Subsidiary" means any subsidiary of the Borrower.
"Borrowing" means (a) Loans of the same Class and Type,
made, converted or continued on the same date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect, or (b) a Swingline
Loan.
"Borrowing Request" means a request by the Borrower for a
Borrowing or Borrowings in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday
or other day on which commercial banks in New York City are authorized or
required by law to remain closed, provided that, when used in connection with
a Eurodollar Loan, the term "Business Day" shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
interbank market.
"Capital Expenditures" means, for any period, the additions
to property, plant and equipment and other capital expenditures of Holdings
and its consolidated subsidiaries that are or would be required to be set
forth in a consolidated statement of cash flows of Holdings for such period
prepared in accordance with GAAP, including the cost of assets acquired
pursuant to capital leases incurred by Holdings and its consolidated
subsidiaries during such period, provided that Capital Expenditures shall
exclude (a) amounts paid for Reinvestment Assets and (b) any amount
representing capitalized interest on capital leases.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of
(or other arrangement conveying the right to use) real or personal property,
or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Capital Leases" means the capital leases of Holdings, the
Borrower and the other Subsidiaries that are in effect immediately prior to
the Effective Date and listed on Schedule 1.01(c).
"Cash Merger Consideration" means the per-Share price paid
in connection with the Equity Tender Offer.
<PAGE>
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ' 9601 et seq.
"Change in Control" means, (a) prior to the Merger, the
failure by the Investors to own, directly or indirectly, beneficially and of
record (and possess the right to vote), shares representing 100% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of Acqco; (b) at any time after the consummation of the Equity
Tender Offer, (i) the failure by Cypress and its Affiliates to own, directly
or indirectly, beneficially and of record (and possess the right to vote),
Shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Holdings, (ii) the
acquisition of ownership, directly or indirectly, beneficially or of record
(or the possession of the right to vote), by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date
hereof) other than Cypress and its Affiliates, of Shares representing more
than 35% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Holdings or (iii) occupation of a majority of
the seats (other than vacant seats) on the board of directors of Holdings by
Persons who were neither (A) nominated by the board of directors of Holdings
nor (B) appointed by directors so nominated; and (c) at any time, (i) the
failure by Holdings to own, directly, beneficially and of record (and possess
the right to vote), shares representing 100% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Borrower
or (ii) the occurrence of any change in control (or similar event, howsoever
denominated) with respect to Holdings, the Borrower or, prior to the Merger,
Acqco under and as defined in any indenture or agreement in respect of any
Material Indebtedness (other than the Existing Mortgages and the Convertible
Subordinated Notes) to which Holdings, the Borrower, any other Subsidiary or,
prior to the Merger, Acqco, is a party, to the extent that such change in
control (or similar event) (A) gives rise to any right on the part of the
holder of such Material Indebtedness to accelerate the maturity of such
Material Indebtedness or require the repayment thereof and (B) such right has
not been waived.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule
or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
any Lender or any Issuing Bank (or, for purposes of Section 2.15(b), by any
lending office of such Lender or by such Lender's or such Issuing Bank's
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued
after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Term Loans or Swingline Loans and, when used in reference to
any Commitment, refers to whether such Commitment is a Revolving Commitment
or Term Commitment.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means any and all "Collateral", as defined in
any applicable Security Document.
<PAGE>
"Collateral Agent" means the "Collateral Agent", as defined
in the Security Agreement.
"Commitment" means a Revolving Commitment or Term
Commitment, or any combination thereof (as the context requires).
"Consolidated EBITDA" means, for any period, Consolidated
Net Income for such period, plus, without duplication and to the extent
deducted from revenues in determining Consolidated Net Income, the sum of
(a) the aggregate amount of Consolidated Net Cash Interest Expense for such
period, (b) the aggregate amount of letter of credit fees and other charges,
fees and charges under bankers' acceptance financings and net cash costs
under Hedging Agreements expensed during such period, (c) the aggregate
amount of income tax expense for such period, (d) all amounts attributable to
depreciation, amortization and other similar noncash charges for such period,
including the amortization of debt discounts and deferred financing charges,
(e) Transaction Costs, (f) all extraordinary, non-recurring or unusual
charges during such period, (g) one-time severance expenses relating to
payouts in connection with or resulting from the Transactions, (h) costs
incurred in connection with the issuance of the Subordinated Notes, (i) the
Ashton Termination Payment (including any Tax gross-ups associated therewith)
and (j) payments of liabilities relating to Disclosed Matters to the extent
that such payments are permitted by Section 6.08(a)(viii), (k) compensation
expense resulting from the issuance of capital stock, stock options or stock
appreciation rights issued to employees, including officers, of Acqco,
Holdings or any Subsidiary, or the exercise of such options or rights, in
each case to the extent the obligation (if any) associated therewith is not
expected to be settled by the payment of cash by Holdings or any Affiliate of
Holdings and compensation expense resulting from the repurchase of any such
capital stock, options and rights, (l) any one-time expenses incurred or
payments made in connection with the Transactions, (m) one-time non-cash
charges relating to reserve adjustments for closed stores and worker's
compensation, and other balance sheet adjustments and write-offs in
connection with or resulting from the Transactions, and minus, without
duplication and to the extent added to revenues in determining Consolidated
Net Income for such period, all extraordinary, non-recurring or unusual gains
during such period, all as determined on a consolidated basis with respect to
Holdings and the Subsidiaries in accordance with GAAP.
"Consolidated Lease Expense" means, for any period, all rent
payment obligations (excluding any applicable property taxes) of Holdings,
the Borrower and the other Subsidiaries during such period under agreements
for the lease, hire or use of any real property (other than Capital Lease
Obligations), as determined on a consolidated basis for Holdings, the
Borrower and the other Subsidiaries in accordance with GAAP.
"Consolidated Net Cash Interest Expense" means, for any
period, interest expense (including the interest component in respect of
Capital Lease Obligations and excluding the amortization of debt discounts,
deferred financing charges and other non-cash interest expenses) of Holdings
and the Subsidiaries during such period, net of any cash interest income
recorded during such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, for any period, net income
or loss of Holdings and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that there shall be
<PAGE>
excluded (a) the income of any Person in which any other Person (other than
Holdings or any of the Subsidiaries or any director holding qualifying shares
in compliance with applicable law) has a joint interest, except to the extent
of the amount of dividends or other distributions actually paid to Holdings
or any of the Subsidiaries by such Person during such period, and (b) the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary or is merged into or consolidated with Holdings or any of the
Subsidiaries or the date that Person's assets are acquired by Holdings or any
of the Subsidiaries.
"Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power or by contract.
The terms "Controlling" and "Controlled" have meanings correlative thereto.
"Convertible Subordinated Notes" means the 8% Convertible
Subordinated Notes Due 2002 of Holdings issued under the Convertible
Subordinated Notes Indenture.
"Convertible Subordinated Notes Indenture" means the
indenture dated as of February 28, 1992, by and between Holdings, as issuer,
and United States Trust Company of New York, as trustee, governing the
Convertible Subordinated Notes.
"Cypress" means The Cypress Group L.L.C., a Delaware limited
liability company.
"Debt Tender Offer" means the tender offer made by Holdings
for all the outstanding Senior Notes pursuant to the Debt Tender Offer
Materials and the provisions of the Merger Agreement.
"Debt Tender Offer Materials" means the offer to purchase
distributed by the Borrower to holders of the Senior Notes with respect to
the Debt Tender Offer, and all related materials similarly distributed in
accordance with this Agreement.
"Default" means any event or condition that constitutes an
Event of Default or that upon notice, lapse of time or both would, unless
cured or waived, become an Event of Default pursuant to Article VII.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"Documentation Agent" means Goldman Sachs Credit Partners
L.P., in its capacity as documentation agent for the Lenders hereunder.
"dollars" or "$" refers to lawful money of the United States
of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with
Section 9.02).
"8% PIK Debentures" means $45,000,000 in aggregate principal
amount of unsecured 8% pay-in-kind debentures of Holdings, (a) all payments
of principal and interest in respect of which are to be paid (and all other
payments in respect of which are to be made) in additional 8% PIK Debentures,
<PAGE>
in lieu of cash, until the date that is at least 360 days following the Term
Maturity Date, (b) that are not subject to redemption other than redemption
at the option of Holdings, (c) all payments in respect of which are expressly
subordinated to the Obligations and (d) that are not subject to any covenant
other than the payment obligation described in clause (a) of this sentence,
to be issued by Holdings to Cypress and/or certain of the Investors in
exchange for the payment by such Persons to Holdings of $45,000,000 in cash
on or before the Redemption Completion Date in the event that the
Subordinated Notes are not issued by the Borrower on or before the Redemption
Completion Date.
"8% PIK Debentures Issuance Date" means the date on which
the 8% PIK Debentures are issued by Holdings.
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or
reclamation of natural resources, handling, treatment, storage, disposal,
Release or threatened Release of any Hazardous Material or to health and
safety matters.
"Environmental Liability" means any liability (including any
liability for damages, natural resource damage, costs of environmental
investigation, monitoring or remediation, administrative oversight costs,
fines, penalties or indemnities) of Holdings, the Borrower or any other
Subsidiary resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the Release or threatened Release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"Equity Contributions" means the Investor Equity
Contributions and the Acqco Equity Contribution.
"Equity Tender Offer" means the tender offer made by Acqco
to acquire all the outstanding Shares (including the associated common stock
purchase rights issued pursuant to the Rights Agreement, dated as of March 7,
1990, as amended, between Holdings and ChaseMellon Shareholder Services
L.L.C., as successor to Chemical Bank, as rights agent) pursuant to the
Equity Tender Offer Materials and the provisions of the Merger Agreement.
"Equity Tender Offer Materials" shall mean the offer to
purchase and other tender offer materials included as exhibits to the tender
offer statement on Schedule 14D-1 filed by Acqco with the Securities and
Exchange Commission with respect to the Equity Tender Offer, and all
amendments and supplements thereto that are similarly filed in accordance
with this agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means Holdings, each Subsidiary and, prior
to the Merger, Acqco.
<PAGE>
"ERISA Event" means (a) any "reportable event", as defined
in Section 4043 of ERISA or the regulations issued thereunder with respect to
a Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of the Code
or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by the Borrower
or any of its ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by the Borrower or
any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (f) the incurrence by the Borrower or any of
its ERISA Affiliates of any liability with respect to the withdrawal or
partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
the Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the
Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excess Cash Flow" means, for any period, the sum (without
duplication) of:
(a) the Consolidated Net Income for such period, adjusted to
exclude any gains or losses (in each case net of Taxes applicable
with respect to such gains or losses during such period) attributable
to Prepayment Events; plus
(b) depreciation, amortization and other noncash charges or
losses (in each case net of Taxes applicable with respect to such
charges or losses during such period) deducted in determining such
Consolidated Net Income for such period; plus
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such period plus (ii) the aggregate
principal amount of Capital Lease Obligations and other Indebtedness
incurred during such period to finance Capital Expenditures, to the
extent that mandatory principal payments in respect of such
Indebtedness would not be excluded from clause (f) below when made;
minus
(d) the sum of (i) any noncash gains (in each case net of
Taxes applicable with respect to such gains during such period)
included in determining Consolidated Net Income for such period plus
(ii) the amount, if any, by which Net Working Capital increased
during such period; minus
<PAGE>
(e) Capital Expenditures for such period, except to the
extent such Capital Expenditures are financed with the proceeds of
asset dispositions (including casualty and condemnation events);
minus
(f) the aggregate principal amount of Indebtedness repaid or
prepaid by Holdings and its consolidated subsidiaries during such
period as permitted by this Agreement, excluding (i) Indebtedness in
respect of Revolving Loans, Swingline Loans and Letters of Credit
(other than to the extent that the Revolving Commitments are
permanently reduced by such repayments or prepayments), (ii) Term
Loans prepaid pursuant to Section 2.11(b), (c) or (d), (iii)
repayments or prepayments of Indebtedness financed by incurring other
Indebtedness, to the extent that mandatory principal payments in
respect of such other Indebtedness would, pursuant to this clause
(f), be deducted in determining Excess Cash Flow when made and (iv)
Indebtedness referred to in clauses (iii), (iv) and (vii) of
Section 6.01(a).
"Excluded Taxes" means, with respect to the Agents, any
Lender, any Issuing Bank or any other recipient of any payment to be made by
or on account of any obligation of Holdings, the Borrower or, prior to the
Merger, Acqco hereunder, (a) income, branch profits (or functionally similar
Taxes) or franchise Taxes imposed on (or measured by) its net income by the
United States of America, or by the jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located and (b)
in the case of a Foreign Lender (other than an assignee or new lending office
designated pursuant to a request by the Borrower under Section 2.19(b)), any
withholding Tax that is (i) imposed on amounts payable to such Foreign Lender
at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office), except to the extent that (A) such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of
a new lending office (or assignment), to receive additional amounts from the
Borrower with respect to any withholding Tax pursuant to Section 2.17(a) or
(B) such withholding Tax is attributable to the designation of a Borrower
Subsidiary after the date upon which such Foreign Lender becomes a party to
this Agreement, or (ii) attributable to such Foreign Lender's failure to
comply with Section 2.17(e).
"Existing Credit Agreement" means the Mortgage-Backed Credit
Agreement, dated as of November 29, 1996, as amended, by and among Holdings,
the Borrower and Comerica Bank.
"Existing Mortgages" means mortgage notes, and the
documentation related thereto, of Holdings, the Borrower and the other
Subsidiaries existing on the Effective Date and listed on Schedule 1.01(b).
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations
for such day for such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.
<PAGE>
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the applicable Loan
Party.
"Financing Transactions" means (a) the execution, delivery
and performance by each Loan Party of the Loan Documents to which it is to be
a party, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder, (b) the Equity Contributions,
(c) the issuance of the Subordinated Notes and (d) the issuance of the 8% PIK
Debentures.
"Fixed Charges" means, for any period, the sum of
(a) Consolidated Lease Expense for such period, (b) Consolidated Net Cash
Interest Expense for such period, (c) scheduled principal payments of
Indebtedness made by Holdings, the Borrower, any other Subsidiary or, prior
to the Merger, Acqco to any person other than Holdings, or any wholly owned
subsidiary of Holdings, during such period and (d) Capital Expenditures for
such period (except for expenditures by Holdings and its consolidated
subsidiaries during the two-fiscal-year period of Holdings ending January 30,
2000, in an aggregate amount of up to $5,000,000 for the acquisition of new
property, plant and equipment that are or would be required to be set forth
as Capital Expenditures in a consolidated statement of cash flows for
Holdings for such period prepared in accordance with GAAP).
"Foreign Lender" means any Lender that is organized under
the laws of a jurisdiction other than the United States of America, any State
thereof or the District of Columbia.
"Foreign Subsidiary" means any Subsidiary that is organized
under the laws of a jurisdiction other than the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other obligation of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment
thereof, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation or
(d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation, provided that the
<PAGE>
term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business.
"Guarantee Agreements" means the Parent Guarantee Agreement
and the Subsidiary Guarantee Agreement.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law, including any material listed as
a hazardous substance under Section 101(14) of CERCLA.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price
hedging arrangement.
"Holdings" means General Host Corporation, a New York
corporation.
"Inactive Subsidiaries" means the subsidiaries of Holdings
listed on Schedule 1.01(d).
"Indebtedness" of any Person means, without duplication,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding accounts payable (other than those remaining
unpaid more than 120 days from the date due) incurred in the ordinary course
of business), (f) all Indebtedness of others secured by any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured
thereby has been assumed, (g) all Guarantees by such Person of Indebtedness
of others, (h) all Capital Lease Obligations of such Person, (i) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general partner)
to the extent such Person is liable therefor as a result of such Person's
ownership interest in or other relationship with such entity, except to the
extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means
the Indemnity, Subrogation and Contribution Agreement, substantially in the
form of Exhibit F, among the Borrower, the Subsidiary Loan Parties and the
Administrative Agent.
<PAGE>
"Information Memorandum" means the Confidential Information
Memorandum dated December 1997 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower
to convert or continue a Revolving Borrowing or Term Borrowing in accordance
with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR
Loan (other than a Swingline Loan), the last Business Day of each March,
June, September and December (commencing in 1998), (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each
Business Day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest
Period, and (c) with respect to any Swingline Loan, the day that such Loan is
required to be repaid.
"Interest Period" means, with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two,
three or six months thereafter (or nine or twelve months thereafter if, at
the time of the relevant Borrowing, all Lenders make interest periods of
such length available), as the Borrower may elect, provided that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii)
any Interest Period that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business
Day of the last calendar month of such Interest Period. For purposes hereof,
the date of a Borrowing initially shall be the date on which such Borrowing
is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
"Investor Agreement" means the letter agreement, dated as of
December 24, 1997, among certain of the Investors, Acqco and Holdings with
respect to the purchase by such Investors of the 8% PIK Debentures.
"Investor Equity Contributions" means common equity
contributions made by the Investors to Acqco substantially simultaneously
with the purchase by Acqco of Shares pursuant to the Equity Tender Offer in
an aggregate amount of $166,000,000 in cash.
"Investors" means, collectively, Cypress, any entities
Controlled by Cypress and any management investors.
"Issuing Bank" means (a) the Primary Issuing Bank and
(b) each other Lender designated by the Borrower from time to time, with the
consent of the Administrative Agent (not to be unreasonably withheld) and
such Lender, to act as an issuer of Letters of Credit hereunder. Each
Issuing Bank may, in its discretion, arrange for one or more Letters of
Credit to be issued by Affiliates of such Issuing Bank, in which case the
term "Issuing Bank" shall include any such Affiliate with respect to Letters
of Credit issued by such Affiliate.
<PAGE>
"LC Availability Period" means the period from and including
the Effective Date to but excluding the earlier of (a) the date that is five
Business Days prior to the Revolving Maturity Date and (b) the date of
termination of the Revolving Commitments.
"LC Disbursement" means a payment made by the applicable
Issuing Bank pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time
plus (b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Revolving Lender at any time shall be its Applicable Percentage of the
total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment
and Acceptance permitted under Section 9.04, other than any such Person that
ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless
the context otherwise requires, the term "Lenders" includes the Swingline
Lender.
"Letter of Credit" means any letter of credit issued
pursuant to this Agreement.
"Leverage Ratio" means, on any date, the ratio of (a) Total
Debt as of such date to (b) Consolidated EBITDA for the period of four
consecutive fiscal quarters of Holdings most recently ended as of such date,
all determined on a consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the rate
for dollar deposits with a maturity comparable to such Interest Period. In
the event that such rate is not available at such time for any reason, then
the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest
Period shall be the rate at which dollar deposits of $5,000,000 and for a
maturity comparable to such Interest Period are offered by the principal
London office of the Administrative Agent in immediately available funds in
the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
<PAGE>
"Loan Documents" means this Agreement, the Letters of
Credit, the Guarantee Agreements, the Indemnity, Subrogation and Contribution
Agreement and the Security Documents.
"Loan Parties" means Holdings, the Borrower, the Subsidiary
Loan Parties and, prior to the Merger, Acqco.
"Loans" means the loans made and to be made by the Lenders
to the Borrower pursuant to this Agreement.
"Margin Stock" shall have the meaning assigned to such term
in Regulation U.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations, properties or financial condition (or,
with respect to the initial Borrowing only, prospects) of Holdings, the
Borrower and the Subsidiaries (and, prior to the Merger, Acqco) taken as a
whole since January 26, 1997, (b) the ability of any Loan Party to perform
any of its respective obligations under any Loan Document or (c) the rights
of or remedies available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the
Loans and Letters of Credit), or obligations in respect of one or more
Hedging Agreements, of any one or more of Holdings, the Borrower, the other
Subsidiaries and, prior to the Merger, Acqco in an aggregate principal amount
exceeding $5,000,000. For purposes of determining the amount of Material
Indebtedness at any time, the "principal amount" of the obligations of Acqco,
Holdings, the Borrower or any other Subsidiary in respect of any Hedging
Agreement at such time shall be the maximum aggregate amount (giving effect
to any netting agreements) that Acqco, Holdings, the Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated
at such time.
"Merger" means the merger, as promptly as practicable
following the acceptance of Shares pursuant to the Equity Tender Offer and
the acceptance of Senior Notes pursuant to the Debt Tender Offer, of Acqco
with and into Holdings, with Holdings as the surviving corporation, pursuant
to the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger,
dated as of November 22, 1997, by and between Holdings and Acqco.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of
leases and rents, leasehold mortgage or other security document granting a
Lien on any Mortgaged Property to secure the Obligations. Each Mortgage
shall be reasonably satisfactory in form and substance to the Collateral
Agent.
"Mortgaged Property" means, initially, each parcel of real
property and the improvements thereto owned or leased by a Loan Party and
identified on Schedule 1.01(a), and includes each other parcel of real
property and improvements thereto with respect to which a Mortgage is granted
pursuant to Section 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
<PAGE>
"Net Proceeds" means, with respect to any event, (a) the
cash proceeds received in respect of such event including (i) any cash
received in respect of any noncash proceeds, but only as and when received,
(ii) in the case of a casualty, insurance proceeds in excess of $1,000,000,
and (iii) in the case of a condemnation or similar event, condemnation awards
and similar payments in excess of $1,000,000, net of (b) the sum of (i) all
reasonable fees and out-of-pocket expenses paid by Holdings, the Borrower,
the other Subsidiaries and, prior to the Merger, Acqco to third parties in
connection with such event, (ii) in the case of a sale, transfer or other
disposition of an asset (including pursuant to a sale and leaseback
transaction or a casualty or other insured damage or condemnation or similar
proceeding), the amount of all payments required to be made by Holdings, the
Borrower, the other Subsidiaries and, prior to the Merger, Acqco as a result
of such event to repay Indebtedness (other than Loans) secured by such asset
or otherwise subject to mandatory prepayment as a result of such event and to
pay any related prepayment premiums or penalties and (iii) the amount of all
taxes paid (or reasonably estimated to be payable) by Holdings, the Borrower,
the other Subsidiaries and, prior to the Merger, Acqco, and the amount of any
reserves established by Holdings, the Borrower, the other Subsidiaries and,
prior to the Merger, Acqco to fund contingent liabilities reasonably
estimated to be payable, in each case during the year that such event
occurred or the next succeeding year and that are directly attributable to
such event (as determined reasonably and in good faith by the chief financial
officer of the Borrower provided that, to the extent and at the time any such
unexpended amounts are released from any such reserve, such amounts shall
constitute Net Proceeds); provided, however, that, with respect to any sale,
transfer or other disposition of an asset (including pursuant to a sale and
leaseback transaction or a casualty or other insured damage or condemnation
or similar proceeding), if the Borrower shall deliver a certificate of a
Financial Officer to the Administrative Agent at the time of such sale,
transfer or other disposition setting forth the Borrower's intent to use the
proceeds of such sale, transfer or other disposition to replace or repair the
assets that are the subject of such sale, transfer or other disposition with
other assets to be used in the same line of business within 360 days of
receipt of such proceeds and no Default or Event of Default shall have
occurred and shall be continuing at the time of such certificate or at the
proposed time of the application of such proceeds, such proceeds shall not
constitute Net Proceeds except to the extent not so used at the end of such
360-day period, at which time such proceeds shall be deemed Net Proceeds.
"Net Working Capital" means, at any date, (a) the
consolidated current assets of Holdings and its consolidated subsidiaries as
of such date (excluding cash and Permitted Investments) minus (b) the
consolidated current liabilities of Holdings and its consolidated
subsidiaries as of such date (excluding current liabilities in respect of
Indebtedness). Net Working Capital at any date may be a positive or negative
number. Net Working Capital increases when it becomes more positive or less
negative and decreases when it becomes less positive or more negative.
"Obligations" has the meaning assigned to such term in
(a) the Security Agreement, (b) the Pledge Agreement and (c) the Guarantee
Agreements.
"Other Taxes" means any and all current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
<PAGE>
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"Parent Guarantee Agreement" means the Parent Guarantee
Agreement, substantially in the form of Exhibit D, made by Acqco and Holdings
in favor of the Administrative Agent for the benefit of the Secured Parties.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA and any successor entity performing similar
functions.
"Perfection Certificate" means a certificate in the form of
Annex 1 to the Security Agreement or any other form approved by the
Collateral Agent.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or
are being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance
with Section 5.05;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) Liens incurred or deposits made to secure the
performance of bids, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature, in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, minor defects or
irregularities in title, rights-of-way and similar charges or
encumbrances on real property imposed by law or arising in the
ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business
of Holdings or any Subsidiary; and
(g) leases or subleases granted to others not interfering in
any material respect with the business of Holdings or any of the
Subsidiaries;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the United
<PAGE>
States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the
date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date
of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic
office of any commercial bank organized under the laws of the United
States of America or any State thereof that has a combined capital
and surplus and undivided profits of not less than $250,000,000;
(d) fully collateralized repurchase agreements with a term
of not more than 30 days for securities described in clause (a) above
and entered into with a financial institution satisfying the criteria
described in clause (c) above; and
(e) investments in money market funds, provided that
substantially all of the assets of such money market funds comprise
securities described in clauses (a), (b), (c) and (d) above.
"Permitted Subordinated Refinancing Debt" means Indebtedness
of Holdings or the Borrower that (a) is issued in exchange for all of, or the
net proceeds of which are used to refinance, replace, defease or refund in
whole and not in part, the Subordinated Notes or other subordinated
Indebtedness issued in accordance with Section 6.01(a)(x) and (b) is
subordinated to the Obligations, provided that (i) the principal amount of
such Permitted Subordinated Refinancing Debt does not exceed the principal
amount (or accreted value, if applicable) of the Subordinated Notes or other
subordinated Indebtedness, as applicable, so refinanced, replaced, defeased
or refunded, plus the amount of premiums, prepayment penalties and other
amounts required to be paid in connection therewith and the reasonable and
customary fees and expenses incurred in connection therewith, (ii) no
material terms applicable to such Permitted Subordinated Refinancing Debt
(including the subordination provisions thereof) are materially less
favorable to the Borrower or the Lenders than the terms that are applicable
under the Subordinated Notes Indenture or the instrument giving rise to such
other subordinated Indebtedness, as applicable, prior to such refinancing,
(iii) the timing and amounts of principal repayments (including any sinking
fund therefor) on such Permitted Subordinated Refinancing Debt are no sooner
and no greater, respectively, than the timing and amounts of principal
repayments under the Subordinated Notes or other subordinated Indebtedness,
as applicable, being refinanced, (iv) such Permitted Subordinated Refinancing
Debt is Indebtedness of the Borrower, (v) such Permitted Subordinated
Refinancing Debt is unsecured, (vi) any Guarantees by the guarantors of such
Permitted Subordinated Refinancing Debt are no more favorable to the
refinancing lenders than any Guarantees of the Subordinated Notes or other
subordinated Indebtedness, as applicable, and (vii) such Permitted
Subordinated Refinancing Debt accrues interest at a rate determined in good
faith by the Board of Directors of Holdings to be a market rate of interest
<PAGE>
for such Permitted Subordinated Refinancing Debt at the time of issuance
thereof.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than
a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 302 of ERISA, and in respect of which the
Borrower or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially
in the form of Exhibit G, among the Borrower, the other Subsidiaries party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including
pursuant to a sale and leaseback transaction) of any property or
asset of Acqco, Holdings, the Borrower or any Subsidiary, other than
sales, transfers or other dispositions described in clauses (a), (b)
and (c) of Section 6.05;
(b) any casualty or other insured damage to, or any taking
under power of eminent domain or by condemnation or similar
proceeding of, any property or asset of Acqco, Holdings, the Borrower
or any Subsidiary;
(c) the issuance by Acqco, Holdings, the Borrower or any
other Subsidiary of any equity securities, or the receipt by Acqco,
Holdings, the Borrower or any other Subsidiary of any capital
contribution, other than (i) any such issuance of equity securities
to, or receipt of any such capital contribution from, Acqco,
Holdings, the Borrower or any other Subsidiary, (ii) the Investor
Equity Contributions and (iii) the issuance of equity securities as a
result of (A) the exercise of anti-dilution rights pursuant to
Section 6.14 of the Merger Agreement, (B) the exercise of stock
options and (C) the conversion of any of the Convertible Subordinated
Notes; or
(d) the incurrence by Acqco, Holdings, the Borrower or any
Subsidiary of any Indebtedness, other than Indebtedness permitted by
Section 6.01(a).
"Primary Issuing Bank" means (a) The Chase Manhattan Bank,
in its capacity as an issuer of Letters of Credit hereunder, and (b) its
successors in such capacity as provided in Section 2.05(i).
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate
(not necessarily the lowest rate offered to customers) in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.
<PAGE>
"Redemption Completion Date" means the date that is 120 days
after the Effective Date.
"Register" has the meaning set forth in Section 9.04.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations
thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations
thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations
thereunder or thereof.
"Reinvestment Assets" means assets that are employed in the
business of Holdings and the Subsidiaries and purchased pursuant to the
proviso to the definition of the term "Net Proceeds".
"Related Parties" means, with respect to any specified
Person, such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and of such Person's
Affiliates.
"Release" has the meaning set forth in Section 101(22) of
CERCLA.
"Required Lenders" means, at any time, both (a) a minimum of
three Lenders (or any lesser number of Lenders that comprises all the
Lenders) and (b) Lenders having Revolving Exposures, Term Loans and unused
Commitments representing more than 50% of the sum of the total Revolving
Exposures, outstanding Term Loans and unused Commitments at such time.
"Restricted Payment" means any dividend or other
distribution (whether in cash, securities or other property) with respect to
any shares of any class of capital stock of Acqco, Holdings, the Borrower or
any Subsidiary, or any payment (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
(a) any such shares of capital stock of Acqco, Holdings, the Borrower or any
Subsidiary or (b) any option, warrant or other right to acquire any such
shares of capital stock of Acqco, Holdings, the Borrower or any Subsidiary.
"Revolving Availability Period" means the period from and
including the Effective Date to but excluding the earlier of (a) the
Revolving Maturity Date and (b) the date of termination of the Revolving
Commitments.
"Revolving Commitment" means, with respect to each Lender,
the commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed
as an amount representing the maximum aggregate amount of such Lender's
Revolving Exposure hereunder, as such commitment may be (a) reduced from time
to time pursuant to Section 2.08 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 2.19 or
9.04. The initial amount of each Lender's Revolving Commitment is set forth
<PAGE>
on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Lender shall have assumed its Revolving Commitment, as applicable. The
initial aggregate amount of the Lenders' Revolving Commitments is
$110,000,000.
"Revolving Exposure" means, with respect to any Lender at
any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving
Commitment or, if the Revolving Commitments have terminated or expired, a
Lender with Revolving Exposure.
"Revolving Loan" means a Loan made pursuant to clause (b) of
Section 2.01.
"Revolving Maturity Date" means December 24, 2003.
"S&P" means Standard & Poor's Ratings Service.
"Secured Parties" shall have the meaning assigned to such
term in the Security Agreement.
"Security Agreement" means the Security Agreement,
substantially in the form of Exhibit H, among the Borrower, Acqco, Holdings,
the Subsidiary Loan Parties and the Collateral Agent for the benefit of the
Secured Parties.
"Security Documents" means the Security Agreement, the
Pledge Agreement, the Mortgages and each other security agreement or other
instrument or document executed and delivered pursuant to Section 5.12 or
5.13 to secure any of the Obligations.
"Senior Leverage Ratio" means, on any date, the ratio of
(a) Total Senior Debt as of such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters of Holdings most recently ended as
of such date, all determined on a consolidated basis in accordance with GAAP.
"Senior Notes" means the 11-1/2% Senior Notes due 2002 of
Holdings issued under the Senior Notes Indenture.
"Senior Notes Indenture" means the Indenture dated as of
February 28, 1992, by and among Holdings, as issuer, the guarantors party
thereto and Bankers Trust Company, as Trustee, governing the Senior Notes.
"Shares" means shares of common stock of Holdings.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject (a) with respect to the Base CD Rate, for new
negotiable nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months and (b) with respect to the
Adjusted LIBO Rate, for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
<PAGE>
percentages shall include those imposed pursuant to such Regulation D or any
successor regulation or law. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subordinated Notes" means senior unsecured subordinated
notes of the Borrower to be issued by the Borrower in a public offering or in
a Rule 144A or other private placement, which notes shall (a) be in an
aggregate principal amount of not less than $100,000,000 and not more than
$125,000,000, (b) be subject to subordination provisions that, in the
reasonable judgment of the Administrative Agent, are market subordination
provisions at the time of issuance of the Subordinated Notes (and any
Guarantees by the guarantors of the Subordinated Notes shall be subject to
subordination provisions that, in the reasonable judgment of the
Administrative Agent, are market subordination provisions at the time of
issuance of such Guarantees), (c) be subject to no covenant more restrictive
in any material respect than those contained herein, (d) mature no earlier
than December 24, 2005, (e) accrue interest at a rate determined in good
faith by the Board of Directors of Holdings to be a market rate of interest
for the Subordinated Notes at the time of issuance thereof and (f) be
reasonably satisfactory in all other respects to the Administrative Agent.
"Subordinated Notes Indenture" means the indenture governing
the Subordinated Notes.
"subsidiary" means, with respect to any Person (the
"parent") at any date, any corporation, limited liability company,
partnership, association or other entity the accounts of which would be
consolidated with those of the parent in the parent's consolidated financial
statements if such financial statements were prepared in accordance with GAAP
as of such date, as well as any other corporation, limited liability company,
partnership, association or other entity of which securities or other
ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50%
of the general partnership interests are, as of such date, owned, controlled
or held by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of Holdings.
"Subsidiary Guarantee Agreement" means the Subsidiary
Guarantee Agreement, substantially in the form of Exhibit E, made by the
Subsidiary Loan Parties in favor of the Administrative Agent for the benefit
of the Secured Parties.
"Subsidiary Loan Party" means any Subsidiary that is not a
Foreign Subsidiary or an Inactive Subsidiary.
"Swingline Exposure" means, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The
Swingline Exposure of any Lender at any time shall be its Applicable
Percentage of the total Swingline Exposure at such time.
<PAGE>
"Swingline Lender" means The Chase Manhattan Bank, in its
capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Syndication Agent" means The Chase Manhattan Bank, in its
capacity as syndication agent for the Lenders hereunder.
"Taxes" means any and all current or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Tender Offer Materials" means the Equity Tender Offer
Materials and the Debt Tender Offer Materials.
"Tender Offers" means the Equity Tender Offer and the Debt
Tender Offer.
"Term Availability Period" means the period from and
including the Effective Date to but excluding the earlier of (a) the date of
termination of the Term Commitments and (b) the Redemption Completion Date.
"Term Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Term Loan hereunder on the
Effective Date, expressed as an amount representing the maximum principal
amount of the Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and
(b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 2.19 or 9.04. The initial amount of each
Lender's Term Commitment is set forth on Schedule 2.01, or in the Assignment
and Acceptance pursuant to which such Lender shall have assumed its Term
Commitment, as applicable. The initial aggregate amount of the Lenders' Term
Commitments is $85,000,000.
"Term Lender" means a Lender with a Term Commitment or an
outstanding Term Loan.
"Term Loan" means a Loan made pursuant to clause (a) of
Section 2.01.
"Term Loan Closing Date" means each date on which Term Loans
are made.
"Term Maturity Date" means December 24, 2004.
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as
being in effect on such day (or, if such day is not a Business Day, the next
preceding Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day) or, if such rate is not
so reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately
10:00 a.m., New York City time, on such day (or, if such day is not a
Business Day, on the next preceding Business Day) by the Administrative Agent
<PAGE>
from three negotiable certificate of deposit dealers of recognized standing
selected by it.
"Total Senior Debt" means, as of any date of determination,
(a) the sum of (i) the average daily aggregate principal amount of Revolving
Loans outstanding during the immediately preceding four fiscal quarters of
Holdings, (ii) the aggregate principal amount of Swingline Loans outstanding
as of such date, (iii) the aggregate principal amount of any unreimbursed LC
Disbursements as of such date, (iv) the aggregate principal amount of Term
Loans outstanding as of such date, (v) the aggregate principal amount of any
Capital Lease Obligations of Holdings and the Subsidiaries outstanding as of
such date and (vi) the aggregate principal amount of any Existing Mortgages
outstanding as of such date, minus (b) the sum of (i) the amount of cash
recorded on a consolidated balance sheet of Holdings, prepared in accordance
with GAAP, as of such date and (ii) the aggregate amount of Permitted
Investments, determined in accordance with GAAP, as of such date.
"Total Debt" means, as of any date of determination, without
duplication, the sum of (a) the aggregate principal amount of Indebtedness of
Holdings and the Subsidiaries outstanding as of such date, net of cash and
Permitted Investments, all determined, where applicable, on a consolidated
basis in accordance with GAAP (other than Revolving Loans, the 8% PIK
Debentures and Indebtedness of the type referred to in clause (i) of the
definition of the term "Indebtedness", except to the extent such Indebtedness
is required to be recorded on the consolidated balance sheet of Holdings and
its subsidiaries in accordance with GAAP) and (b) the average daily aggregate
principal amount of Revolving Loans outstanding during the immediately
preceding four fiscal quarters of Holdings.
"Transaction Costs" means any amounts paid or payable by
Acqco, Holdings or the Borrower in connection with financing fees, investment
banking and consulting fees and legal and accounting and other similar fees
incurred in connection with the Transactions.
"Transactions" means the Acquisition, the Debt Tender Offer,
the redemption of the Senior Notes and the Convertible Subordinated Notes and
the Financing Transactions.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans
comprising such Borrowing, is determined by reference to the Adjusted LIBO
Rate or the Alternate Base Rate.
"Untendered Shares" means any outstanding Shares not
acquired by Acqco in the Equity Tender Offer.
"Withdrawal Liability" means liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by
Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a
"Eurodollar Revolving Borrowing").
<PAGE>
SECTION 1.03. Terms Generally. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (b) any reference herein to
any Person shall be construed to include such Person's successors and
permitted assigns, (c) the words "herein", "hereof" and "hereunder", and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references
herein to Articles, Sections, Exhibits and Schedules shall be construed to
refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement and (e) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from time to time,
provided that, if the Borrower notifies the Administrative Agent that the
Borrower requests an amendment to any provision hereof to eliminate the
effect of any change occurring after the date hereof in GAAP or in the
application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request
an amendment to any provision hereof for such purpose), regardless of whether
any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of
GAAP as in effect and applied immediately before such change shall have
become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
ARTICLE II
The Credits
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SECTION 2.01. Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees (a) to make Term Loans to the
Borrower from time to time during the Term Availability Period in an
aggregate principal amount not exceeding its Term Commitment, provided that
the Borrower shall not be permitted to make more than $85,000,000 in Term
Borrowings, and (b) to make Revolving Loans to the Borrower from time to time
during the Revolving Availability Period in an aggregate principal amount
that will not result in such Lender's Revolving Exposure exceeding such
Lender's Revolving Commitment. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, prepay
and reborrow Revolving Loans. Amounts repaid in respect of Term Loans may
not be reborrowed.
<PAGE>
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other
than a Swingline Loan) shall be made as part of a Borrowing consisting of
Loans of the same Class and Type made by the Lenders ratably in accordance
with their respective Commitments of the applicable Class. The failure of
any Lender to make any Loan required to be made by it shall not relieve any
other Lender of its obligations hereunder, provided that the Commitments of
the Lenders are several and no Lender shall be responsible for any other
Lender's failure to make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and
Term Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans
as the Borrower may request in accordance herewith. Notwithstanding anything
to the contrary contained herein, all Borrowings made on the Effective Date
shall be ABR Borrowings. Each Swingline Loan shall be an ABR Loan. Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan, provided that
any exercise of such option shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement and such
Lender shall not be entitled to any amount payable under Section 2.15 or 2.17
in respect of costs arising as a result of such exercise.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is
an integral multiple of $1,000,000 and not less than $5,000,000. At the time
that each ABR Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $500,000 and not less than
$1,000,000, provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Revolving
Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e). Each Swingline Loan shall
be in an amount that is an integral multiple of $100,000 and not less than
$500,000. Borrowings of more than one Type and Class may be outstanding at
the same time, provided that there shall not at any time be more than a total
of 15 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request, or to elect to convert or
continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Revolving Maturity Date or the Term Maturity Date, as
applicable.
SECTION 2.03. Requests for Borrowings. To request a
Revolving Borrowing or Term Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before the date of the proposed Borrowing or (b) in the case of
an ABR Borrowing, not later than 2:00 p.m., New York City time, one Business
Day before the date of the proposed Borrowing, provided that any such notice
of an ABR Revolving Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e) may be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent c/o The
Loan and Agency Services Group of a written Borrowing Request in a form
approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:
<PAGE>
(i) whether the requested Borrowing is to be a Revolving
Borrowing or a Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a
Business Day;
(iv) subject to the second sentence of Section 2.02(b),
whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration.
Promptly following receipt of a Borrowing Request in accordance with this
Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms
and conditions set forth herein, the Swingline Lender agrees to make
Swingline Loans to the Borrower from time to time during the Revolving
Availability Period, in an aggregate principal amount at any time outstanding
that will not result in (i) the aggregate principal amount of outstanding
Swingline Loans exceeding $15,000,000 or (ii) the sum of the total Revolving
Exposures exceeding the total Revolving Commitments, provided that the
Swingline Lender shall not be required to make a Swingline Loan to refinance
an outstanding Swingline Loan. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, prepay
and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify
the Administrative Agent of such request by telephone (confirmed by
telecopy), not later than 12:00 noon, New York City time, on the day of a
proposed Swingline Loan. Each such notice shall be irrevocable and shall
specify the requested date (which shall be a Business Day) and amount of the
requested Swingline Loan. The Administrative Agent will promptly advise the
Swingline Lender of any such notice received from the Borrower. The
Swingline Lender shall make each Swingline Loan available to the Borrower by
means of a credit to the general deposit account of the Borrower with the
Swingline Lender (or, in the case of a Swingline Loan made to finance the
reimbursement of an LC Disbursement as provided in Section 2.05(e), by
remittance to the applicable Issuing Bank) by 3:00 p.m., New York City time,
on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 1:00 p.m., New York City time, on any
<PAGE>
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which
Revolving Lenders will participate. Promptly upon receipt of such notice,
the Administrative Agent will give notice thereof to each Revolving Lender,
specifying in such notice such Lender's Applicable Percentage of such
Swingline Loan or Loans. Each Revolving Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to
the Administrative Agent, for the account of the Swingline Lender, such
Lender's Applicable Percentage of such Swingline Loan or Loans. Each
Revolving Lender acknowledges and agrees that its obligation to acquire
participations in Swingline Loans pursuant to this paragraph is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever. Each
Revolving Lender shall comply with its obligation under this paragraph by
wire transfer of immediately available funds, in the same manner as provided
in Section 2.06 with respect to Loans made by such Lender (and Section 2.06
shall apply, mutatis mutandis, to the payment obligations of the Revolving
Lenders), and the Administrative Agent shall promptly pay to the Swingline
Lender the amounts so received by it from the Revolving Lenders. The
Administrative Agent shall notify the Borrower of any participations in any
Swingline Loan acquired pursuant to this paragraph, and thereafter payments
in respect of such Swingline Loan shall be made to the Administrative Agent
and not to the Swingline Lender. Any amounts received by the Swingline
Lender from the Borrower (or other party on behalf of the Borrower) in
respect of a Swingline Loan after receipt by the Swingline Lender of the
proceeds of a sale of participations therein shall be promptly remitted to
the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Revolving
Lenders that shall have made their payments pursuant to this paragraph and to
the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not
relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to
the terms and conditions set forth herein, the Borrower may request the
issuance of Letters of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the applicable Issuing Bank, at
any time and from time to time during the LC Availability Period. In the
event of any inconsistency between the terms and conditions of this Agreement
and the terms and conditions of any form of letter of credit application or
other agreement submitted by the Borrower to, or entered into by the Borrower
with, an Issuing Bank relating to any Letter of Credit, the terms and
conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the
applicable Issuing Bank) to an Issuing Bank and the Administrative Agent
(reasonably in advance of the requested date of issuance, amendment, renewal
or extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall
<PAGE>
be a Business Day), the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend
such Letter of Credit. If requested by the applicable Issuing Bank, the
Borrower also shall submit a letter of credit application on such Issuing
Bank's standard form in connection with any request for a Letter of Credit.
A Letter of Credit shall be issued, amended, renewed or extended only if (and
upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after giving effect
to such issuance, amendment, renewal or extension (i) the LC Exposure shall
not exceed $25,000,000 and (ii) the total Revolving Exposures shall not
exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at
or prior to the close of business on the earlier of (i) the date one year
after the date of the issuance of such Letter of Credit (or, in the case of
any renewal or extension thereof, one year after such renewal or extension)
and (ii) the date that is five Business Days prior to the Revolving Maturity
Date.
(d) Participations. By the issuance of a Letter of Credit
(or an amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the applicable Issuing Bank or the
Lenders, such Issuing Bank hereby grants to each Revolving Lender, and each
Revolving Lender hereby acquires from such Issuing Bank, a participation in
such Letter of Credit equal to such Lender's Applicable Percentage of the
aggregate amount available to be drawn under such Letter of Credit. In
consideration and in furtherance of the foregoing, each Revolving Lender
hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the applicable Issuing Bank, such Lender's
Applicable Percentage of each LC Disbursement made by such Issuing Bank and
not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to
the Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit issued by such Issuing Bank,
the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, New York City time, on the date that such LC Disbursement is
made, if the Borrower shall have received notice of such LC Disbursement
prior to 10:00 a.m., New York City time, on such date, or, if such notice has
not been received by the Borrower prior to such time on such date, then not
later than 12:00 noon, New York City time, on (i) the Business Day that the
Borrower receives such notice, if such notice is received prior to 10:00
a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt, provided
that the Borrower may, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 or 2.04 that such payment be
<PAGE>
financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent
amount and, to the extent so financed, the Borrower's obligation to make such
payment shall be discharged and replaced by the resulting ABR Revolving
Borrowing or Swingline Loan. If the Borrower fails to make such payment when
due, the Administrative Agent shall notify each Revolving Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Lender's Applicable Percentage thereof. Promptly following
receipt of such notice, each Revolving Lender shall pay to the Administrative
Agent its Applicable Percentage of the payment then due from the Borrower, in
the same manner as provided in Section 2.06 with respect to Loans made by
such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment
obligations of the Revolving Lenders), and the Administrative Agent shall
promptly pay to the applicable Issuing Bank the amounts so received by it
from the Revolving Lenders. Promptly following receipt by the Administrative
Agent of any payment from the Borrower pursuant to this paragraph, the
Administrative Agent shall distribute such payment to the applicable Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse such Issuing Bank, then to such Lenders and such
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse any Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline
Loan as contemplated above) shall not constitute a Loan and shall not relieve
the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall
be absolute, unconditional and irrevocable, and shall be performed strictly
in accordance with the terms of this Agreement under any and all
circumstances whatsoever and irrespective of (i) any lack of validity or
enforceability of any Letter of Credit or this Agreement, or any term or
provision therein, (ii) any draft or other document presented under a Letter
of Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect (unless the
applicable Issuing Bank has actual knowledge of such forgery or fraud), (iii)
payment by the applicable Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the terms
of such Letter of Credit or (iv) any other event or circumstance whatsoever,
whether or not similar to any of the foregoing, that might, but for the
provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder,
except to the extent that the applicable Issuing Bank's payment under any
Letter of Credit constituted gross negligence or wilful misconduct of such
Issuing Bank. Neither the Administrative Agent, the Lenders nor any Issuing
Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of such Issuing Bank,
provided that the foregoing shall not be construed to excuse the applicable
Issuing Bank from liability to the Borrower to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by such Issuing Bank's failure to
<PAGE>
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or wilful misconduct
on the part of the applicable Issuing Bank, such Issuing Bank shall be deemed
to have exercised care in each such determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree
that, with respect to documents presented that appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the applicable
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation or refuse to
accept and make payment upon such documents if such documents are not in
strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. Each Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment under a Letter of Credit issued by such
Issuing Bank. The applicable Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether such Issuing Bank has made or will make
an LC Disbursement thereunder, provided that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to
reimburse such Issuing Bank and the Revolving Lenders with respect to any
such LC Disbursement.
(h) Interim Interest. If any Issuing Bank shall make any
LC Disbursement, then, unless the Borrower shall reimburse such LC
Disbursement in full on the date such LC Disbursement is made, the unpaid
amount thereof shall bear interest, for each day from and including the date
such LC Disbursement is made to but excluding the date that the Borrower
reimburses such LC Disbursement, at the rate per annum then applicable to ABR
Revolving Loans, provided that, if the Borrower fails to reimburse such LC
Disbursement when due pursuant to paragraph (e) of this Section, then Section
2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be
for the account of the applicable Issuing Bank, except that interest accrued
on and after the date of payment by any Revolving Lender pursuant to
paragraph (e) of this Section to reimburse such Issuing Bank shall be for the
account of such Lender to the extent of such payment.
(i) Replacement of the Primary Issuing Bank. The Primary
Issuing Bank may be replaced at any time by written agreement among the
Borrower, the Administrative Agent, the replaced Primary Issuing Bank and the
successor Primary Issuing Bank. The Administrative Agent shall notify the
Lenders of any such replacement of the Primary Issuing Bank. At the time any
such replacement shall become effective, the Borrower shall pay all unpaid
fees accrued for the account of the replaced Primary Issuing Bank pursuant to
Section 2.12(b). From and after the effective date of any such replacement,
(i) the successor Primary Issuing Bank shall have all the rights and
obligations of the Primary Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the
term "Primary Issuing Bank" shall be deemed to refer to such successor or to
any previous Primary Issuing Bank, or to such successor and all previous
Primary Issuing Banks, as the context shall require. After the replacement
of a Primary Issuing Bank hereunder, the replaced Primary Issuing Bank shall
remain a party hereto and shall continue to have all the rights and
obligations of an Issuing Bank under this Agreement with respect to Letters
of Credit issued by it prior to such replacement, but shall not be required
to issue additional Letters of Credit.
<PAGE>
(j) Resignation of Issuing Banks. Any Issuing Bank (other
than the Primary Issuing Bank) may resign at any time upon not less than
30 days= prior written notice to the Borrower and the Administrative Agent.
At the time any such resignation shall become effective, the Borrower shall
pay all unpaid fees accrued for the account of the resigning Issuing Bank
pursuant to Section 2.12(b). After the resignation of an Issuing Bank
hereunder, such Issuing Bank shall remain a party hereto and shall continue
to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
resignation, but shall not be required to issue additional Letters of Credit.
(k) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives
notice from the Administrative Agent or the Required Lenders (or, if the
maturity of the Loans has been accelerated, Revolving Lenders with LC
Exposure representing greater than 50% of the total LC Exposure) demanding
the deposit of cash collateral pursuant to this paragraph, the Borrower shall
deposit in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount equal to
the LC Exposure as of such date plus any accrued and unpaid interest thereon,
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of
any Event of Default with respect to the Borrower described in clause (h) or
(i) of Article VII. Each such deposit shall be held by the Administrative
Agent as collateral for the payment and performance of the obligations of the
Borrower under this Agreement. The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest earned on the investment of such deposits,
which investments shall be made at the option and sole discretion of the
Administrative Agent and at the Borrower's risk and expense, such deposits
shall not bear interest. Interest or profits, if any, on such investments
shall accumulate in such account. Moneys in such account shall be applied by
the Administrative Agent to reimburse the Issuing Bank for LC Disbursements
for which it has not been reimbursed and, to the extent not so applied, shall
be held for the satisfaction of the reimbursement obligations of the Borrower
for the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Lenders with LC Exposure
representing greater than 50% of the total LC Exposure), be applied to
satisfy other obligations of the Borrower under this Agreement. If the
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent
not applied as aforesaid) shall be returned to the Borrower within three
Business Days after all Events of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender
shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 12:00 noon, New York City
time, to the account of the Administrative Agent most recently designated by
the Administrative Agent for such purpose by notice to the Lenders, provided
that Swingline Loans shall be made as provided in Section 2.04. The
Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of
the Borrower maintained with the Administrative Agent in New York City and
designated by the Borrower in the applicable Borrowing Request, provided that
ABR Revolving Loans made to finance the reimbursement of an LC Disbursement
<PAGE>
as provided in Section 2.05(e) shall be remitted by the Administrative Agent
to the applicable Issuing Bank.
(b) Unless the Administrative Agent shall have received
notice from a Lender prior to the proposed date of any Borrowing that such
Lender will not make available to the Administrative Agent such Lender's
share of such Borrowing, the Administrative Agent may assume that such Lender
has made such share available on such date in accordance with paragraph (a)
of this Section and may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. In such event, if a Lender has not in
fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender agrees to pay to the
Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is
made available to the Borrower to but excluding the date of payment to the
Administrative Agent, at the Federal Funds Effective Rate or, if the Federal
Funds Effective Rate cannot be determined, a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation. In the event that the applicable Lender has not made its share
of the applicable Borrowing available within three Business Days, the
Borrower shall pay such amount to the Administrative Agent, together with
interest from the date of such Borrowing at the rate applicable to the Loans
so made available. If such Lender pays such amount to the Administrative
Agent, then such amount shall constitute such Lender's Loan included in such
Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving
Borrowing and Term Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Borrowing,
shall have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different
Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this
Section. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing. This Section shall not apply to Swingline Borrowings,
which may not be converted or continued.
(b) To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone
by the time that a Borrowing Request would be required under Section 2.03 if
the Borrower were requesting a Revolving Borrowing of the Type resulting from
such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Interest Election Request in a form approved by the
Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02 and
paragraph (f) of this Section:
(i) the Borrowing to which such Interest Election
Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be
<PAGE>
allocated to each resulting Borrowing (in which case the information
to be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to
such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the
definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of
the Interest Period applicable thereto, then, unless such Borrowing is repaid
as provided herein, at the end of such Interest Period such Borrowing shall
be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Borrowing may be converted to or continued as a Eurodollar
Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.
SECTION 2.08. Termination and Reduction of Commitments.
(a) Unless previously terminated, the Term Commitments shall terminate at
5:00 p.m., New York City time, on the date that is the last day of the Term
Availability Period. Prior to the termination thereof in full, the Term
Commitments shall be automatically and permanently reduced at 5:00 p.m.,
New York City time, on each Term Loan Closing Date, by an aggregate principal
amount equal to the aggregate principal amount of the Term Loans made on such
date. Unless previously terminated, the Revolving Commitments shall
terminate on the Revolving Maturity Date.
(b) The Borrower may at any time terminate, or from time to
time reduce, the Revolving Commitment, provided that (i) each reduction of
the Commitments of any Class shall be in an amount that is an integral
multiple of $500,000 and not less than $1,000,000 and (ii) the Borrower shall
not terminate or reduce the Revolving Commitments if, after giving effect to
any concurrent prepayment of the Revolving Loans in accordance with
Section 2.11, the sum of the Revolving Exposures would exceed the total
Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of
any election to terminate or reduce the Commitments under paragraph (b) of
<PAGE>
this Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative
Agent shall advise the Lenders of the contents thereof. Each notice
delivered by the Borrower pursuant to this Section shall be irrevocable,
provided that a notice of termination of the Revolving Commitments delivered
by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any
termination or reduction of the Commitments of any Class shall be permanent.
Each reduction of the Commitments of any Class shall be made ratably among
the Lenders in accordance with their respective Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Revolving Loan of such Lender on the Revolving Maturity Date,
(ii) to the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Term Loan of such Lender as provided in
Section 2.10 and (iii) to the Swingline Lender the then unpaid principal
amount of each Swingline Loan on the earlier of the Revolving Maturity Date
and the first date after such Swingline Loan is made that is the 15th or last
day of a calendar month and is at least five Business Days after such
Swingline Loan is made, provided that on each date that a Revolving Borrowing
is made, the Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower
to such Lender resulting from each Loan made by such Lender, including the
amounts of principal and interest payable and paid to such Lender from time
to time hereunder.
(c) The Administrative Agent shall maintain accounts in
which it shall record (i) the amount of each Loan made hereunder, the Class
and Type thereof and the Interest Period applicable thereto, (ii) the amount
of any principal or interest due and payable or to become due and payable
from the Borrower to each Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder for the account of the Lenders
and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein, provided that the
failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by
it be evidenced by a promissory note. In such event, the Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order
<PAGE>
of the payee named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).
SECTION 2.10. Amortization of Term Loans. (a) Subject to
adjustment pursuant to paragraph (c) of this Section, the Borrower shall
repay Term Borrowings on each date set forth below in the aggregate principal
amount set forth opposite such date:
Date Amount
---- ------
May 23, 1999 $1,875,000
August 15, 1999 $1,875,000
November 7, 1999 $1,875,000
January 30, 2000 $1,875,000
May 21, 2000 $2,250,000
August 13, 2000 $2,250,000
November 5, 2000 $2,250,000
January 28, 2001 $2,250,000
May 20, 2001 $2,750,000
August 12, 2001 $2,750,000
November 4, 2001 $2,750,000
January 27, 2002 $2,750,000
May 19, 2002 $3,125,000
August 11, 2002 $3,125,000
November 3, 2002 $3,125,000
January 26, 2003 $3,125,000
May 18, 2003 $4,375,000
August 10, 2003 $4,375,000
November 2, 2003 $4,375,000
January 25, 2004 $4,375,000
May 16, 2004 $6,875,000
August 8, 2004 $6,875,000
October 31, 2004 $6,875,000
December 24, 2004 $6,875,000
(b) To the extent not previously paid, all Term Loans shall
be due and payable on the Term Maturity Date.
(c) If the initial aggregate amount of the Lenders' Term
Commitments exceeds the aggregate principal amount of Term Loans that are
made during the Term Availability Period, then the scheduled repayments of
Term Borrowings to be made pursuant to this Section shall be reduced ratably
by an aggregate amount equal to such excess. Any prepayment of a Term
Borrowing shall be applied to reduce the subsequent scheduled repayments of
the Term Borrowings to be made pursuant to this Section ratably.
(d) Prior to any repayment of any Term Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be repaid
and shall notify the Administrative Agent by telephone (confirmed by
telecopy) of such selection not later than 11:00 a.m., New York City time,
three Business Days before the scheduled date of such repayment. Each
repayment of a Borrowing shall be applied ratably to the Loans included in
the repaid Borrowing. Repayments of Term Borrowings shall be accompanied by
accrued interest on the amount repaid.
<PAGE>
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall
have the right at any time and from time to time to prepay any Borrowing in
whole or in part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds
are received by or on behalf of Holdings, the Borrower, any other Subsidiary
or, prior to the consummation of the Merger, Acqco in respect of any
Prepayment Event, the Borrower shall, immediately after such Net Proceeds are
received, prepay Term Borrowings in an aggregate amount equal to such Net
Proceeds.
(c) Following the end of each fiscal year of Holdings,
commencing with the fiscal year ending January 31, 1999, the Borrower shall
prepay Term Borrowings in an aggregate amount equal to 75% of Excess Cash
Flow for such fiscal year, provided that such percentage shall be reduced
from 75% to 50% with respect to the mandatory prepayment under this
paragraph (c) in respect of any fiscal year ending on or after January 28,
2001, if the Senior Leverage Ratio on the Applicable Rate Determination Date
next following the end of such fiscal year is less than 1.50 to 1.00. Each
prepayment pursuant to this paragraph shall be made on or before the date on
which financial statements are delivered pursuant to Section 5.01 with
respect to the fiscal year for which Excess Cash Flow is being calculated
(and in any event within 90 days after the end of such fiscal year).
(d) In the event that Subordinated Notes are issued prior
to the 8% PIK Debentures Issuance Date, the Borrower shall, immediately after
the Net Proceeds of such Subordinated Notes are received, prepay Term
Borrowings in an amount equal to the difference between (i) the aggregate
amount of such Net Proceeds and (ii) the amount of such Net Proceeds that
will be used to redeem (A) Senior Notes that remain outstanding following the
consummation of the Debt Tender Offer and (B) Convertible Subordinated Notes.
In the event that Subordinated Notes are issued on or after the 8% PIK
Debentures Issuance Date, the Borrower shall, immediately after the Net
Proceeds of such Subordinated Notes are received, prepay Term Borrowings in
an amount equal to the difference between (i) the aggregate amount of such
net cash proceeds and (ii) the amount of such Net Proceeds that are used by
the Borrower to make a dividend to Holdings and applied by Holdings to redeem
8% PIK Debentures as contemplated by Section 6.08.
(e) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings
to be prepaid and shall specify such selection in the notice of such
prepayment pursuant to paragraph (f) of this Section.
(f) The Borrower shall notify the Administrative Agent
(and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case
of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of prepayment, (ii) in the
case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York
City time, one Business Day before the date of prepayment or (iii) in the
case of prepayment of a Swingline Loan, not later than 12:00 noon, New York
City time, on the date of prepayment. Each such notice shall be irrevocable
and shall specify the prepayment date, the principal amount of each Borrowing
or portion thereof to be prepaid and, in the case of a mandatory prepayment,
a reasonably detailed calculation of the amount of such prepayment, provided
that, if a notice of optional prepayment is given in connection with a
<PAGE>
conditional notice of termination of the Revolving Commitments as
contemplated by Section 2.08, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.08.
Promptly following receipt of any such notice (other than a notice relating
solely to Swingline Loans), the Administrative Agent shall advise the Lenders
of the contents thereof. Each partial prepayment of any Borrowing shall be
in an amount that would be permitted in the case of an advance of a Borrowing
of the same Type as provided in Section 2.02, except as necessary to apply
fully the required amount of a mandatory prepayment. Each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.13.
(g) The Borrower shall repay or prepay Revolving Borrowings
and shall refrain from making additional Revolving Borrowings to the extent
necessary in order that there shall be a period of at least 30 consecutive
days in each fiscal year of Holdings during which no Revolving Borrowings
shall be outstanding.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of the
Commitments of such Lender during the period from and including the Effective
Date to but excluding the date on which such Commitments terminate. Accrued
commitment fees shall be payable in arrears on the last Business Day of
March, June, September and December of each year and on the date on which the
Revolving Commitments terminate, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of
a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). For purposes of
computing commitment fees with respect to Revolving Commitments, a Revolving
Commitment of a Lender shall be deemed to be used to the extent of the
outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline
Exposure of such Lender shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Revolving Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue (A) in
the case of standby Letters of Credit, at the same Applicable Rate as is used
to determine the rate of interest on Eurodollar Revolving Loans and (B) in
the case of trade Letters of Credit, at 60% of such Applicable Rate, in each
case on the average daily amount of such Lender's LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the Effective Date to but excluding the later of
the date on which such Lender's Revolving Commitment terminates and the date
on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing
Bank, a fronting fee, which shall accrue at the rate of 3 of 1% per annum (or
such other rate as shall be agreed upon in writing by the Borrower and such
Issuing Bank) on the average daily amount of the portion of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
attributable to Letters of Credit issued by such Issuing Bank, in each case
during the period from and including the Effective Date to but excluding the
later of the date of termination of the Revolving Commitments and the date on
which there ceases to be any LC Exposure, as well as such Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension
of any Letter of Credit or processing of drawings thereunder. Participation
fees and fronting fees accrued through and including the last Business Day of
<PAGE>
March, June, September and December of each year shall be payable on such
day, commencing on the first such date to occur after the Effective Date,
provided that all such fees shall be payable on the date on which the
Revolving Commitments terminate and any such fees accruing after the date on
which the Revolving Commitments terminate shall be payable on demand. Any
other fees payable to an Issuing Bank pursuant to this paragraph shall be
payable within 10 days after demand by such Issuing Bank. All participation
fees and fronting fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the
first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon in writing between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates
due, in immediately available funds, to the Administrative Agent (or to the
applicable Issuing Bank, in the case of fees payable to such Issuing Bank)
for distribution, in the case of commitment fees and participation fees, to
the Lenders entitled thereto. Fees paid shall not be refundable under any
circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each
ABR Borrowing shall bear interest at the Alternate Base Rate plus the
Applicable Rate, except that each Swingline Loan shall bear interest at the
Alternate Base Rate plus 1.25%.
(b) The Loans comprising each Eurodollar Borrowing shall
bear interest at the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration
or otherwise, such overdue amount shall bear interest, after as well as
before judgment, at a rate per annum equal to (i) in the case of overdue
principal of any Loan, 2% plus the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Revolving Loans as
provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and, in the case of
Revolving Loans, upon termination of the Revolving Commitments, provided that
(i) interest accrued pursuant to paragraph (c) of this Section shall be
payable on demand, (ii) in the event of any repayment or prepayment of any
Loan (other than a prepayment of an ABR Revolving Loan prior to the end of
the Revolving Availability Period), accrued interest on the principal amount
repaid or prepaid shall be payable on the date of such repayment or
prepayment and (iii) in the event of any conversion of any Eurodollar Loan
prior to the end of the current Interest Period therefor, accrued interest on
such Loan shall be payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis
of a year of 360 days, except that interest computed by reference to the
Alternate Base Rate at times when the Alternate Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days
<PAGE>
in a leap year), and in each case shall be payable for the actual number of
days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by
the Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate
for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and
the Lenders by telephone or telecopy as promptly as practicable thereafter
and, until the Administrative Agent notifies the Borrower and the Lenders
that the circumstances giving rise to such notice no longer exist, (i) any
Interest Election Request that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be
ineffective and (ii) if any Borrowing Request requests a Eurodollar
Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.15. Increased Costs. (a) If any Change in Law
shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Lender (except any
such reserve requirement reflected in the Adjusted LIBO Rate) or any
Issuing Bank; or
(ii) impose on any Lender or any Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or
such Issuing Bank of participating in, issuing or maintaining any Letter of
Credit or to reduce the amount of any sum received or receivable by such
Lender or such Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or such Issuing Bank,
as the case may be, such additional amount or amounts as will compensate such
Lender or such Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or any Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or such Issuing Bank's capital
<PAGE>
or on the capital of such Lender's or such Issuing Bank's holding company, if
any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by such Issuing Bank, to a level below that which such Lender
or such Issuing Bank or such Lender's or such Issuing Bank's holding company
could have achieved but for such Change in Law (taking into consideration
such Lender's or such Issuing Bank's policies and the policies of such
Lender's or such Issuing Bank's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or
such Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or such Issuing Bank or such Lender's or such
Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or such
Issuing Bank or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section shall be delivered to the Borrower (with
a copy to the Administrative Agent) and shall be conclusive absent manifest
error. The Borrower shall pay such Lender or the Issuing Bank, as the case
may be, the amount shown as due on any such certificate within 10 days after
receipt thereof.
(d) Failure or delay on the part of any Lender or any
Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender's or such Issuing Bank's right to demand
such compensation, provided that the Borrower shall not be required to
compensate a Lender or any Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than 180 days prior to the date
that such Lender or such Issuing Bank or Administrative Agent, as the case
may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or such Issuing Bank's
intention to claim compensation therefor, and provided further that, if the
Change in Law giving rise to such increased costs or reductions is
retroactive, then the 180-day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 2.16. Break Funding Payments. In the event of (a)
the payment of any principal of any Eurodollar Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an
Event of Default), (b) the conversion of any Eurodollar Loan other than on
the last day of the Interest Period applicable thereto, (c) the failure to
borrow, convert, continue or prepay any Revolving Loan or Term Loan on the
date specified in any notice delivered pursuant hereto (regardless of whether
such notice may be revoked under Section 2.11(g) and is revoked in accordance
therewith), or (d) the assignment of any Eurodollar Loan other than on the
last day of the Interest Period applicable thereto as a result of a request
by the Borrower pursuant to Section 2.19, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest that
would have accrued on the principal amount of such Loan had such event not
occurred, at the Adjusted LIBO Rate that would have been applicable to such
Loan, for the period from the date of such event to the last day of the then
current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest that would accrue on such
<PAGE>
principal amount for such period at the LIBO Rate at the commencement of such
period. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof, provided that the Borrower
shall not be required to pay to a Lender any amount under this Section for
any loss, cost or expense attributable to an event which occurred more than
180 days prior to the date the Borrower receives such certificate from such
Lender.
SECTION 2.17. Taxes. (a) Any and all payments by or on
account of any obligation of the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes, provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent, Lender or Issuing Bank
(as the case may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and each Issuing Bank, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent, such Lender or such Issuing Bank, as the case may
be, on or with respect to any payment by or on account of any obligation of
the Borrower hereunder or under any other Loan Document (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the
amount of such payment or liability delivered to the Borrower by a Lender or
an Issuing Bank, or by the Administrative Agent on its own behalf or on
behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest
error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the
Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence
of such payment reasonably satisfactory to the Administrative Agent.
(e) Each Lender that is not incorporated under the laws of
the United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent
(A) two duly completed copies of the United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as the case
<PAGE>
may be, and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be;
(ii) deliver to the Borrower and the Administrative Agent
two further copies of any such form or certification on or before the
date that any such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
completing such forms or certifications as may reasonably be
requested by the Borrower or the Administrative Agent;
unless in any such case an event (including any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which
would prevent such Lender from duly completing and delivering any such form
with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes
and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax. Each Person that shall
become a Lender or a participant pursuant to Section 9.04 shall, upon the
effectiveness of the related transfer, be required to provide all of the
forms and statements required pursuant to this subsection, provided that in
the case of a participant such participant shall furnish all such required
forms and statements to the Lender from which the related participation shall
have been purchased.
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs. (a) The Borrower shall make each payment required to
be made by it hereunder or under any other Loan Document (whether of
principal, interest, fees or reimbursement of LC Disbursements, or of amounts
payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon,
New York City time, on the date when due, in immediately available funds,
without set-off or counterclaim. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative
Agent c/o The Loan and Agency Services Group at its offices at One Chase
Manhattan Plaza, 8th Floor, New York, New York, 10081, except payments to be
made directly to an Issuing Bank or the Swingline Lender as expressly
provided herein and except that payments pursuant to Sections 2.15, 2.16,
2.17 and 9.03 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons
specified therein. The Administrative Agent shall distribute any such
payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment
under any Loan Document shall be due on a day that is not a Business Day, the
date for payment shall be extended to the next succeeding Business Day, and,
in the case of any payment accruing interest, interest thereon shall be
payable for the period of such extension. All payments under each Loan
Document shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
<PAGE>
unreimbursed LC Disbursements, interest and fees then due hereunder, such
funds shall be applied (i) first, towards payment of interest and fees then
due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of interest and fees then due to such parties, and (ii) second,
towards payment of principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such
parties.
(c) If any Lender shall, by exercising any right of set-off
or counterclaim or otherwise, obtain payment in respect of any principal of
or interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Revolving Loans, Term
Loans and participations in LC Disbursements and Swingline Loans and accrued
interest thereon than the proportion received by any other Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Revolving Loans, Term Loans and participations
in LC Disbursements and Swingline Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans, Term Loans and
participations in LC Disbursements and Swingline Loans, provided that (i) if
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and
the purchase price restored to the extent of such recovery, without interest,
and (ii) the provisions of this paragraph shall not be construed to apply to
any payment made by the Borrower pursuant to and in accordance with the
express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in LC Disbursements to any assignee or participant,
other than to the Borrower or any Subsidiary or Affiliate thereof (as to
which the provisions of this paragraph shall apply). The Borrower consents
to the foregoing and agrees, to the extent it may effectively do so under
applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off
and counterclaim with respect to such participation as fully as if such
Lender were a direct creditor of the Borrower in the amount of such
participation.
(d) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Banks
hereunder that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to
the Lenders or the Issuing Banks, as the case may be, the amount due. In
such event, if the Borrower has not in fact made such payment, then each of
the Lenders or the applicable Issuing Banks, as the case may be, severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or such Issuing Banks with interest thereon, for
each day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of
the Federal Funds Effective Rate and a rate determined by the Administrative
Agent in accordance with banking industry rules on interbank compensation.
<PAGE>
(e) If any Lender shall fail to make any payment required
to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b),
2.18(d) or 9.03(c), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to
satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of
Lenders. (a) If any Lender requests compensation under Section 2.15, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to
Section 2.17, then such Lender shall use reasonable efforts but shall be
under no obligation either to designate a different lending office for
funding or booking its Loans hereunder to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may
be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender.
The Borrower hereby agrees to pay all reasonable costs and expenses incurred
by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to
Section 2.17, or if any Lender defaults in its obligation to fund Loans
hereunder, then the Borrower may, at its sole expense and effort, upon notice
to such Lender and the Administrative Agent, require such Lender to assign
and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment), provided that (i) the Borrower shall have received the prior
written consent of the Administrative Agent (and, if a Revolving Commitment
is being assigned, the Issuing Bank and Swingline Lender), which consent
shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans and
participations in LC Disbursements and Swingline Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest
and fees) or the Borrower (in the case of all other amounts) and (iii) at the
time of such assignment, no Default has occurred and is continuing. A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and
delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
Each of Holdings, the Borrower and, prior to the Merger,
Acqco represents and warrants to the Lenders that:
<PAGE>
SECTION 3.01. Organization; Powers. Each of Holdings, the
Borrower, the Subsidiaries (other than any Inactive Subsidiaries) and, prior
to the Merger, Acqco is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite
power and authority to carry on its business as now conducted and, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified
to do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The
Transactions to be entered into by each Loan Party are within such Loan
Party's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action (other than any action by the
stockholders of Holdings to approve the Merger). This Agreement has been
duly executed and delivered by each of Acqco, Holdings and the Borrower and
constitutes, and each other Loan Document to which any Loan Party is to be a
party, when executed and delivered by such Loan Party, will constitute, a
legal, valid and binding obligation of Acqco, Holdings, the Borrower or such
Loan Party (as the case may be), enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law, and an implied covenant of good faith and fair dealing.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except
(i) such as have been obtained or made and are in full force and effect,
(ii) filings necessary to perfect Liens created under the Loan Documents,
(iii) the filing of the certificates of merger necessary to accomplish the
Merger with, and their acceptance by, the Department of State of the State of
New York and any necessary approval of the Merger by the stockholders of
Holdings, in each case pursuant to the Business Corporation Law of the State
of New York, (iv) filings and other actions required pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
respective rules and regulations thereunder in connection with the Merger and
any necessary approval thereof by the stockholders of Holdings, (v) filings
with the New York Stock Exchange in connection with the Merger, (vi) filings
and other actions required pursuant to state securities or blue sky laws in
connection with the Merger and (vii) filings in connection with the issuance
of the Subordinated Notes, (b) will not violate any applicable law or
regulation or the charter, by-laws or other organizational documents of
Acqco, Holdings, the Borrower or any of the Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any
material indenture, agreement or other instrument binding upon Acqco,
Holdings, the Borrower or any of the Subsidiaries or their assets, or give
rise to a right thereunder to require any payment to be made by Acqco,
Holdings, the Borrower or any of the Subsidiaries except for defaults under
the Existing Mortgages and rights to require repayment under the Convertible
Subordinated Notes, in each case arising from the Transactions, and (d) will
not result in the creation or imposition of any Lien on any asset of Acqco,
Holdings, the Borrower or any of the Subsidiaries, except Liens created under
the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse
Change. (a) Each of Holdings and the Borrower has heretofore furnished to
<PAGE>
the Lenders its consolidated balance sheets and statements of income,
stockholders equity and cash flows (i) as of and for the fiscal year ended
January 26, 1997, reported on by Price Waterhouse, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended November 2, 1997, certified by its Financial Officer. Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of each of (A) Holdings and
the consolidated Subsidiaries and (B) the Borrower and the consolidated
Borrower Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes
in the case of the statements referred to in clause (ii) above.
(b) Holdings has heretofore furnished to the Lenders its
pro forma consolidated balance sheet as of February 1, 1998, prepared giving
effect to the Transactions as if the Transactions had occurred on such date.
Such pro forma estimated consolidated balance sheet (i) has been prepared in
good faith based on the same assumptions used to prepare the pro forma
financial statements included in the Information Memorandum (which
assumptions are believed by Acqco, Holdings and the Borrower to be
reasonable) and (ii) presents fairly, in all material respects, the pro forma
financial position of Holdings and its consolidated subsidiaries as of the
Effective Date as if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements
referred to above or the notes thereto or in the Information Memorandum and
except for the Disclosed Matters, after giving effect to the Transactions,
none of Acqco, Holdings, the Borrower or the Subsidiaries has, as of the
Effective Date, any material contingent liabilities, unusual long-term
commitments or unrealized losses.
(d) Since January 26, 1997, there has been no material
adverse change in the business, assets, operations, properties or financial
condition or, as of the Effective Date only, prospects of Holdings, the
Borrower and the Subsidiaries (and, prior to the Merger, Acqco), taken as a
whole.
SECTION 3.05. Properties. (a) Each of Holdings, the
Borrower and the Subsidiaries (other than any Inactive Subsidiaries) has good
title to, or valid leasehold interests in, all its real and personal property
material to its business (including its Mortgaged Properties), except for
minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties for their
intended purposes and except as could not reasonably be expected to have a
Material Adverse Effect.
(b) Each of Holdings, the Borrower and the Subsidiaries
(other than any Inactive Subsidiaries) owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by Holdings, the Borrower and
the Subsidiaries does not infringe upon the rights of any other Person,
except for any such infringements that, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address of each real
property that is owned or leased by Holdings, the Borrower or any of the
Subsidiaries (other than any Inactive Subsidiaries) as of the Effective Date
after giving effect to the Transactions.
<PAGE>
(d) As of the Effective Date, none of Holdings, the
Borrower or any of the Subsidiaries has received notice of, or has knowledge
of, any pending or contemplated condemnation proceeding affecting any
Mortgaged Property or any sale or disposition thereof in lieu of
condemnation. Neither any Mortgaged Property nor any interest therein is
subject to any right of first refusal, option or other contractual right to
purchase such Mortgaged Property or interest therein except such rights or
options that, individually and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of Acqco,
Holdings or the Borrower, threatened against or affecting Acqco, Holdings,
the Borrower or any of the Subsidiaries (i) as to which there is a reasonable
possibility of an adverse determination and that, if adversely determined,
could reasonably be expected, individually or in the aggregate, to result in
a Material Adverse Effect (other than the Disclosed Matters) or (ii) that
could reasonably be expected to have a Material Adverse Effect on the rights
and remedies of the Lenders under the Loan Documents or the consummation of
the Transactions.
(b) Except for the Disclosed Matters and except with
respect to any other matters that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect, none of
Acqco, Holdings, the Borrower or any of the Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law,
(ii) has become subject, to the Borrower's knowledge, to any Environmental
Liability, (iii) has received written notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis that could reasonably be
expected to result in any Environmental Liability.
(c) Since the date of this Agreement, to the Borrower's
knowledge, there has been no change in the status of the Disclosed Matters
that, individually or in the aggregate, has resulted in, or could reasonably
be expected to result in, a Material Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of
Acqco, Holdings, the Borrower and the Subsidiaries is in compliance with all
laws, regulations and orders of any Governmental Authority applicable to it
or its property and all indentures, agreements and other instruments binding
upon it or its property, except for defaults under the Existing Mortgages
arising from the Transactions and except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. None
of Acqco, Holdings, the Borrower or any of the Subsidiaries (except for the
Inactive Subsidiaries) is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Acqco, Holdings, the Borrower
and the Subsidiaries has timely filed or caused to be filed all Tax returns
and reports required to have been filed and has paid or caused to be paid all
<PAGE>
Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which Acqco,
Holdings, the Borrower or such Subsidiary, as applicable, has set aside on
its books adequate reserves in accordance with GAAP or (b) to the extent that
the failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect. The present
value of all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed by more than $2,500,000 the fair market value
of the assets of such Plan, and the present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $5,000,000 the fair market value of the assets of all
such underfunded Plans.
SECTION 3.11. Disclosure. (a) There is no fact known to
Acqco, Holdings or the Borrower that could reasonably be expected to result
in a Material Adverse Effect that has not been disclosed herein or in any
document, certificate or agreement furnished to the Lenders in connection
with the Transactions. None of the reports, financial statements,
certificates or other information furnished by or on behalf of any Investor
or Loan Party to the Administrative Agent or any Lender in connection with
the negotiation of this Agreement or any other Loan Document or delivered
hereunder or thereunder (as modified or supplemented by other information so
furnished prior to the time when this representation is being made or deemed
made) other than projected financial information, taken as a whole, contains
any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The projections and pro forma financial information
contained in the information and data referred to in paragraph (a) above were
based on good faith estimates and assumptions believed by such Persons to be
reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may
differ from the projected results.
SECTION 3.12. Subsidiaries. As of the Effective Date,
Holdings does not have any subsidiaries other than the subsidiaries listed on
Schedule 3.12. Schedule 3.12 sets forth the name of, and the direct or
indirect ownership interest of Holdings in, each Subsidiary listed thereon
and identifies each Subsidiary that is a Subsidiary Loan Party, in each case
as of the Effective Date. Each Subsidiary identified on Schedule 1.01(d) as
an Inactive Subsidiary (a) owns assets having a fair market value not in
excess of $1,000,000 in the aggregate (excluding (i) assets that are
recognized on its balance sheet in accordance with Financial Accounting
Standards Boards Statement Number 87 and that relate to the overfunded status
of the Cudahy Company Hourly Employees Pension Plan and (ii) the intercompany
<PAGE>
accounts listed on Schedule 6.01) and (b) does not generate annual revenues
in excess of $500,000.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a
description of all insurance maintained by or on behalf of Acqco, Holdings,
the Borrower and the Subsidiaries as of the Effective Date.
SECTION 3.14. Labor Matters. As of the Effective Date,
there are no strikes, lockouts or slowdowns against Acqco, Holdings, the
Borrower or any Subsidiary pending or, to the knowledge of Acqco, Holdings or
the Borrower, threatened, except those that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect. None of Holdings, the Borrower or any of the Subsidiaries (or, prior
to the Merger, Acqco) is engaged in any unfair labor practice that could
reasonably be expected to have a Material Adverse Effect. The consummation
of the Transactions will not give rise to any right of termination or right
of renegotiation on the part of any union under any collective bargaining
agreement to which Acqco, Holdings, the Borrower or any Subsidiary is bound
other than collective bargaining agreements that, individually and in the
aggregate, are not material to Holdings, the Borrower and the other
Subsidiaries taken as a whole.
SECTION 3.15. Solvency. With respect to each of (a) the
time that is immediately after the consummation of the Transactions to occur
on the Effective Date and immediately following the making of each Loan made
on the Effective Date and after giving effect to the application of the
proceeds of such Loans and (b) the time that is immediately after the
consummation of the Merger and immediately following the making of each Loan
made substantially simultaneously with the consummation of the Merger and
after giving effect to the application of the proceeds of such Loans, (i) the
fair value of the assets of Holdings and the Subsidiaries on a consolidated
basis, at a fair valuation, will exceed the debts and liabilities of Holdings
and the Subsidiaries on a consolidated basis, subordinated, contingent or
otherwise; (ii) the present fair saleable value of the property of Holdings
and the Subsidiaries on a consolidated basis will be greater than the amount
that will be required to pay the probable liability of the debts and other
liabilities of Holdings and the Subsidiaries on a consolidated basis,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (iii) Holdings and the Subsidiaries on a
consolidated basis will be able to pay the debts and liabilities of Holdings
and the Subsidiaries on a consolidated basis, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and
(iv) Holdings and the Subsidiaries on a consolidated basis will not have
unreasonably small capital with which to conduct the business in which they
are engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.
SECTION 3.16. Security Documents. (a) When executed and
delivered, the Pledge Agreement will be effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Pledge Agreement) and, when the portion of the Collateral constituting
certificated securities (as defined in the Uniform Commercial Code) is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgor thereunder in such Collateral, in each case
prior and superior in right to any other Person.
<PAGE>
(b) The Security Agreement is effective to create in favor
of the Collateral Agent, for the ratable benefit of the Secured Parties, a
legal, valid and enforceable security interest in the Collateral (as defined
in the Security Agreement) and, when financing statements in appropriate form
are filed in the offices specified on Schedule 6 to each of the Perfection
Certificates, the Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the grantors
thereunder in such Collateral to the extent perfection can be obtained by
filing Uniform Commercial Code financing statements, other than the
Intellectual Property (as defined in the Security Agreement) in which a
security interest may be perfected by filing, recording or registering a
security agreement, financing statement or analogous document in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, in each case prior and superior in right to any other Person to
the extent perfection can be obtained by filing Uniform Commercial Code
financing statements, other than with respect to Liens expressly permitted by
Section 6.02.
(c) When the Security Agreement is filed in the United
States Patent and Trademark Office and the United States Copyright Office,
the security interest created thereunder shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the Loan
Parties in the Intellectual Property (as defined in the Security Agreement)
in which a security interest may be perfected by filing, recording or
registering a security agreement, financing statement or analogous document
in the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, in each case prior and superior in right to
any other Person, other than with respect to the rights of Persons pursuant
to Liens expressly permitted by Section 6.02 (it being understood that
subsequent recordings in the United States Patent and Trademark Office and
the United States Copyright Office may be necessary to perfect a lien on
registered trademarks, trademark applications and copyrights acquired by the
Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to the
exceptions listed in each title insurance policy covering such Mortgage, in
favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable Lien on all of the Loan Parties'
right, title and interest in and to the Mortgaged Properties thereunder and
the proceeds thereof, and when the Mortgages are filed in the offices
specified on Schedule 3.16(d), the Mortgages shall constitute a Lien on, and
security interest in, all right, title and interest of the Loan Parties in
such Mortgaged Properties and the proceeds thereof, in each case prior and
superior in right to any other person, other than with respect to the rights
of Persons pursuant to Liens expressly permitted by Section 6.02.
SECTION 3.17. Federal Reserve Regulations. (a) None of
Holdings, the Borrower, any of the Borrower Subsidiaries or, prior to the
Merger, Acqco is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of buying or carrying
Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of
Credit will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, for any purpose that entails a violation of, or
that is inconsistent with, the provisions of the Regulations of the Board,
including Regulation G, U or X.
<PAGE>
SECTION 3.18. Merger. (a) The Merger Agreement has been
duly authorized, executed and delivered by each of Acqco and Holdings and
constitutes a legal, valid and binding obligation of each such corporation,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law, and an implied
covenant of good faith and fair dealing. A true, correct and complete copy
of the Merger Agreement has been furnished to the Administrative Agent.
(b) As of the Effective Date, each of the representations
and warranties made by Acqco and Holdings in the Merger Agreement is true and
correct in all material respects.
SECTION 3.19. Capitalization of Holdings. As of the date
of this Agreement, the authorized capital stock of Holdings consists of
100,000,000 shares of common stock, par value $1.00 per share, of which
29,122,777 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are
outstanding. All such outstanding shares of stock are fully paid and
nonassessable.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the
Lenders to make Loans and of any Issuing Bank to issue Letters of Credit
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with
Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a
favorable written opinion (addressed to the Administrative Agent and
the Lenders and dated the Effective Date) of each of (i) Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for Holdings and the
Borrower prior to the Merger, substantially in the form of
Exhibit B-1, (ii) Simpson Thacher & Bartlett, special New York
counsel for, prior to the Merger, Acqco and, immediately following
the consummation of the Merger, Holdings and the Borrower,
substantially in the form of Exhibit B-2, (iii) J. Theodore
Everingham, General Counsel of Holdings, substantially in the form of
Exhibit B-3, and (iv) Amster, Rothstein & Ebenstein, special counsel
for Holdings and the Borrower, substantially in the form of Exhibit
B-4, and, in the case of each such opinion required by this
paragraph, covering such other matters relating to the Loan Parties,
the Loan Documents or the Transactions as the Required Lenders shall
reasonably request. Acqco, Holdings and the Borrower hereby request
<PAGE>
such counsel to deliver such opinions to the Administrative Agent or
its counsel.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and
good standing of each Loan Party, the authorization of the
Transactions and any other legal matters relating to the Loan
Parties, the Loan Documents or the Transactions, all in form and
substance reasonably satisfactory to the Administrative Agent and its
counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all fees
and other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by any Loan
Party hereunder or under any other Loan Document.
(f) The Administrative Agent shall have received
counterparts of the Pledge Agreement signed on behalf of Acqco,
Holdings, the Borrower and each Subsidiary Loan Party thereto,
together with stock certificates representing all the outstanding
shares of capital stock of the Borrower and each Subsidiary (except
any Inactive Subsidiary) owned by or on behalf of any Loan Party as
of the Effective Date after giving effect to the Transactions (except
that stock certificates representing shares of common stock of a
Foreign Subsidiary may be limited to 65% of the outstanding shares of
common stock of such Foreign Subsidiary), promissory notes evidencing
all intercompany Indebtedness owed to any Loan Party by the Borrower
or any Subsidiary as of the Effective Date after giving effect to the
Transactions and undated stock powers and instruments of transfer,
endorsed in blank, with respect to such stock certificates and
promissory notes.
(g) The Administrative Agent shall have received
counterparts of the Security Agreement signed on behalf of Acqco,
Holdings, the Borrower and each Subsidiary Loan Party, together with
the following:
(i) all documents and instruments, including
Uniform Commercial Code financing statements, required by
law, or reasonably requested by the Administrative Agent, to
be filed, registered or recorded to create or perfect the
Liens intended to be created under the Security Agreement;
and
(ii) a completed Perfection Certificate dated
the Effective Date and signed by an executive officer or
Financial Officer of each of Holdings and the Borrower,
together with all attachments contemplated thereby,
including the results of a search of the Uniform Commercial
<PAGE>
Code (or equivalent) filings made with respect to the Loan
Parties in the jurisdictions contemplated by the Perfection
Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence
reasonably satisfactory to the Administrative Agent that the
Liens indicated by such financing statements (or similar
documents) are permitted by Section 6.02 or have been
released.
(h) The Administrative Agent shall have received (i)
counterparts of the Parent Guarantee Agreement signed on behalf of
Acqco and Holdings, (ii) counterparts of the Subsidiary Guarantee
Agreement signed on behalf of each subsidiary of the Borrower that is
not a Foreign Subsidiary or an Inactive Subsidiary and (iii)
counterparts of the Indemnity, Subrogation and Contribution Agreement
signed on behalf of the Borrower and each Subsidiary Loan Party.
(i) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(j) All material conditions to the purchase of Shares in
the Equity Tender Offer shall have been satisfied without giving
effect to any waiver or amendment thereof not approved by the
Administrative Agent, and Acqco shall have accepted for payment
pursuant to the Equity Tender Offer a number of Shares that, on a
fully diluted basis (without giving effect to any potential dilution
that could result from the exercise, after the consummation of the
Equity Tender Offer, of conversion rights by any holder of the
Convertible Subordinated Notes), shall be sufficient to enable Acqco
to effect stockholder approval of the Merger under applicable law and
the charter and by-laws of Holdings without the vote of any other
shareholder.
(k) Substantially simultaneously with the consummation of
the Equity Tender Offer, (i) Holdings's existing board of directors
shall have taken all steps necessary to cause persons designated by
Cypress to constitute a majority of Holdings's board of directors and
(ii) Joseph R. Baczko shall have assumed management responsibilities
with respect to Holdings and the Borrower.
(l) All material conditions to the purchase of the Senior
Notes in the Debt Tender Offer shall have been satisfied without
giving effect to any waiver or amendment thereof not approved by the
Administrative Agent. Holdings shall have repurchased not less than
a majority in principal amount of the Senior Notes in accordance with
the Debt Tender Offer Materials. The Supplemental Indenture dated as
of December [17], 1997, to the Senior Notes Indenture, in the form
previously approved by the Administrative Agent, shall have been
executed and delivered and be in full force and effect.
(m) The consummation of the Tender Offers and the other
transactions contemplated hereby shall not (i) violate any applicable
law, statute, rule or regulation or (ii) conflict with, or result in
a default or event of default under, any agreement of Acqco,
Holdings, the Borrower or any of Holdings's other Subsidiaries that
will be in effect following the consummation of the Acquisition
<PAGE>
(except for (A) defaults and other rights to require repayment under
certain Existing Mortgages identified on Schedule 1.01(b) and
(B) other defaults and rights to require prepayment that in the
aggregate would not result, in the reasonable judgment of the Agents,
in a material adverse change in the business, assets, operations,
properties, financial condition or prospects of Holdings, the
Borrower, Holdings's other subsidiaries and, prior to the Merger,
Acqco, taken as a whole).
(n) The Administrative Agent shall be reasonably satisfied
that the Transaction Costs shall not exceed $22,700,000.
(o) The Investors and Acqco shall have made the Equity
Contributions.
(p) All loans outstanding, interest thereon and other
amounts due and payable under the Existing Credit Agreement and under
each other agreement related thereto shall have been repaid in full,
and the Administrative Agent shall have received duly executed
documentation, in form and substance satisfactory to it, evidencing
or necessary for (i) the termination of the Existing Credit Agreement
and (ii) the cancellation of all related agreements, guarantees and
security interests granted by Holdings, the Borrower, its
subsidiaries or any other person in connection therewith and the
discharge of all obligations or interests thereunder.
(q) Prior to the Effective Date, Cypress and its Affiliates
and the Borrower shall have used commercially reasonable efforts to
obtain waivers of any defaults under the Existing Mortgages and the
Capital Leases, or to cause each of the promissory notes and other
operative documents relating to each of the Existing Mortgages and
the Capital Leases to be amended in a manner reasonably satisfactory
to the Administrative Agent, which waivers or amendments shall, among
other things, (i) waive the "change of control" provisions thereof
with respect to the Acquisition and (ii) make such other changes as
shall be necessary so that, after giving effect thereto and to the
consummation of the other Transactions, no default, event of default
or other right to require prepayment would exist thereunder (except
for defaults, events of default and other rights to require
prepayment that in the aggregate would not result, in the reasonable
judgment of the Agents, in a material adverse change in the business,
assets, operations, properties, financial condition or prospects of
Holdings, the Borrower, Holdings's other Subsidiaries and, prior to
the Merger, Acqco, taken as a whole). In the event that such waivers
or amendments are not obtained with respect to any Capital Lease,
such Capital Lease shall have been terminated prior to the Effective
Date except as otherwise agreed upon by the Administrative Agent.
(r) After giving effect to the Transactions and the other
transactions contemplated hereby to take place on or prior to the
Effective Date, on the Effective Date, Holdings and the Subsidiaries
shall have outstanding no indebtedness or preferred stock other than
(i) the Loans and other extensions of credit hereunder, (ii) any
Senior Notes not repurchased in the Debt Tender Offer, (iii) the
Convertible Subordinated Notes and (iv) any Existing Mortgages that
are not prepaid on or prior to the Effective Date and Capital Leases
<PAGE>
that, in accordance with paragraph (q) above, will remain outstanding
following the Effective Date.
(s) The Administrative Agent shall have received a pro
forma consolidated balance sheet of Holdings required by
Section 3.04(b), which balance sheet shall not be materially
inconsistent with the forecasts previously provided to the
Administrative Agent.
(t) The Administrative Agent shall have received a
certificate, in form and substance satisfactory to the Administrative
Agent, from a Financial Officer of Holdings as to the solvency of
Holdings and the Subsidiaries on a consolidated basis after giving
effect to the Transactions and the consummation of the other
transactions contemplated hereby.
(u) There shall be no action by any Governmental Authority,
actual or threatened, that has a reasonable likelihood of
restraining, preventing or imposing burdensome conditions on the
Transactions or the other transactions contemplated hereby.
(v) The Administrative Agent shall have received
counterparts of the Investor Agreement signed on behalf of each of
the Investors party thereto.
(w) The Administrative Agent shall have received a
Borrowing Request executed by the Borrower.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
and of any Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
January 31, 1998 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each
Lender to make a Loan on the occasion of any Borrowing, and of any Issuing
Bank to issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party
set forth in the Loan Documents shall be true and correct in all
material respects on and as of the date of such Borrowing or the date
of issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, except to the extent that such representations
and warranties expressly relate to an earlier date, in which case
such representations and warranties, shall, to such extent, be true
and correct in all material respects as of such earlier date.
(b) At the time of and immediately after giving effect to
such Borrowing or the issuance, amendment, renewal or extension of
such Letter of Credit, as applicable, no Default shall have occurred
and be continuing.
<PAGE>
Each Borrowing and each issuance, amendment, renewal or extension of a Letter
of Credit shall be deemed to constitute a representation and warranty by
Holdings, the Borrower and, prior to the Merger, Acqco on the date thereof as
to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and
the principal of and interest on each Loan and all fees payable hereunder
shall have been paid in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, each of
Holdings and the Borrower and, prior to the Merger, Acqco covenants and
agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information.
Each of Holdings and the Borrower will furnish to the Administrative Agent
and each Lender:
(a) within 90 days after the end of each fiscal year of each
of Holdings and the Borrower, its audited consolidated balance sheets
and related statements of operations, stockholders' equity and cash
flows as of the end of and (other than with respect to cash flows)
for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by Price
Waterhouse LLP or other independent public accountants of recognized
national standing (without a "going concern" or like qualification or
exception and without any qualification or exception as to the scope
of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial
condition and results of operations of (i) Holdings and its
consolidated subsidiaries and (ii) the Borrower and its consolidated
subsidiaries on a consolidated basis in accordance with GAAP
consistently applied (except as noted therein);
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of each of Holdings and the
Borrower, its consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and
(other than with respect to cash flows) for such fiscal quarter and
the then elapsed portion of the fiscal year, setting forth in each
case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of)
the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial
condition and results of operations of (i) Holdings and its
consolidated subsidiaries and (ii) the Borrower and its consolidated
subsidiaries on a consolidated basis in accordance with GAAP
consistently applied (except as noted therein), subject to normal
year-end audit adjustments and the absence of footnotes;
(c) within 30 days after the end of each four-week fiscal
period of Holdings and the Borrower that is not the end of a fiscal
quarter of Holdings and the Borrower, its consolidated balance sheet
and related statements of operations, stockholders' equity and cash
<PAGE>
flows as of the end of and for such fiscal period and the then
elapsed portion of the fiscal year, all certified by one of its
Financial Officers as presenting in all material respects the
financial condition and results of operations of (i) Holdings and its
consolidated subsidiaries and (ii) the Borrower and its consolidated
subsidiaries on a consolidated basis in accordance with GAAP
consistently applied (except as noted therein), subject to normal
year-end audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer
of each of Holdings and the Borrower (i) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 6.13, 6.14, 6.15 and 6.16 and
(iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of Holdings's and the Borrower's
most-recently delivered audited financial statements and, if any such
change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(e) concurrently with any delivery of financial statements
under clause (a) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
(f) no later than 60 days after the end of each fiscal year
of Holdings (commencing with the fiscal year of Holdings ending in
January 2000), a detailed consolidated budget for such fiscal year
(including a projected consolidated balance sheet and related
statements of projected operations and cash flow as of the end of and
for such fiscal year and for each fiscal quarter of such fiscal
year);
(h) promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and other
materials filed by Holdings, the Borrower or any Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority
succeeding to any or all of the functions of said Commission, or with
any national securities exchange, or distributed by Holdings to its
shareholders generally, as the case may be; and
(i) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of Holdings, the Borrower or any Subsidiary, or compliance
with the terms of any Loan Document, as the Administrative Agent or
any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower, as
soon as practicable after a Financial Officer or other executive officer of
the Borrower, Holdings or Acqco knows or reasonably should know thereof, will
furnish to the Administrative Agent and each Lender prompt written notice of
the following:
<PAGE>
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting Holdings, the Borrower or any Affiliate thereof
or, prior to the Merger, Acqco that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, could
reasonably be expected to result in liability of Holdings, the
Borrower, the other Subsidiaries and, prior to the Merger, Acqco in
an aggregate amount exceeding $5,000,000; and
(d) any other development that results in, or could (either
in the reasonable judgment of the Borrower or in the reasonable
judgment of the Person delivering such certificate) be expected to
result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement
of a Financial Officer or other executive officer of the Borrower setting
forth the details of the event or development requiring such notice and any
action taken or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. The
Borrower will furnish to the Administrative Agent prompt written notice of
any change (a) in any Loan Party's corporate name or in any trade name used
to identify it in the conduct of its business or in the ownership of its
properties, (b) in the location of any Loan Party's chief executive office,
its principal place of business, any office in which it maintains books or
records relating to Collateral owned by it or any office or facility at which
Collateral owned by it is located (including the establishment of any such
new office or facility), (c) in any Loan Party's identity or corporate
structure or (d) in any Loan Party's Federal Taxpayer Identification Number.
Holdings, the Borrower and, prior to the Merger, Acqco agree not to effect or
permit any change referred to in the preceding sentence unless all filings
have been made under the Uniform Commercial Code or otherwise that are
required in order for the Administrative Agent to continue at all times
following such change to have a valid, legal and perfected security interest
in all the Collateral. Holdings, the Borrower and, prior to the Merger,
Acqco also agree promptly to notify the Administrative Agent if any material
portion of the Collateral is damaged or destroyed.
SECTION 5.04. Existence; Conduct of Business. Each of
Holdings, the Borrower and, prior to the Merger, Acqco will, and will cause
each of the Subsidiaries to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges, franchises, patents, copyrights,
trademarks and trade names material to the conduct of its business, provided
that the foregoing shall not prohibit any merger, consolidation, liquidation
or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each of Holdings,
the Borrower and, prior to the Merger, Acqco will, and will cause each of the
Subsidiaries to, pay its Material Indebtedness and Tax liabilities before the
same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings,
<PAGE>
(b) Holdings, the Borrower, Acqco or such Subsidiary has set aside on its
books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to pay could not reasonably be expected to have a Material
Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each of Holdings,
the Borrower and, prior to the Merger, Acqco will, and will cause each of the
Subsidiaries (other than the Inactive Subsidiaries) to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
SECTION 5.07. Insurance. Holdings will, and will cause
each of the Subsidiaries to, at all times maintain in full force and effect
insurance on all the property in at least such amounts and against at least
such risks insured against in the same general area by companies engaged in
the same or a similar business and such other insurance as may be required by
law, provided that any self-insurance maintained by Holdings and the
Subsidiaries pursuant to this Section 5.07 shall not exceed $6,000,000 in the
aggregate. Holdings will, and will cause each Subsidiary to, furnish to the
Administrative Agent, upon written request of the Administrative Agent, a
summary of the insurance carried together with certificates of insurance and
other evidence of such insurance, if any, naming the Collateral Agent as an
additional insured and/or loss payee.
SECTION 5.08. Casualty and Condemnation. (a) Holdings,
the Borrower and, prior to the Merger, Acqco will furnish to the
Administrative Agent and the Lenders prompt written notice of any casualty or
other insured damage to any portion of any Collateral having a fair market
value of $1,000,000 or more, or the commencement of any action or proceeding
for the taking of any Collateral or any part thereof or interest therein
under power of eminent domain or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section
results in Net Proceeds, the Administrative Agent is authorized to collect
such Net Proceeds and, if received by Holdings, the Borrower, any Subsidiary
or, prior to the Merger, Acqco, such Net Proceeds shall be paid over to the
Administrative Agent, provided that (i) if the aggregate Net Proceeds in
respect of such event (other than proceeds of business interruption
insurance) are less than $1,000,000, such Net Proceeds shall be paid over to
the Borrower unless a Default has occurred and is continuing, and (ii) all
proceeds of business interruption insurance shall be paid over to the
Borrower unless a Default has occurred and is continuing. All such Net
Proceeds retained by or paid over to the Administrative Agent shall be held
by the Administrative Agent and released from time to time to pay the costs
of repairing, restoring or replacing the affected property in accordance with
the terms of the applicable Security Document, subject to the provisions of
the applicable Security Document regarding application of such Net Proceeds
during a Default.
(c) If any Net Proceeds retained by or paid over to the
Administrative Agent as provided above continue to be held by the
Administrative Agent on the date that is 180 days after the receipt of such
Net Proceeds, then such Net Proceeds shall be applied to prepay Term
Borrowings as provided in Section 2.11(b).
SECTION 5.09. Books and Records; Inspection and Audit
Rights. Each of Holdings and the Borrower will, and will cause each of the
<PAGE>
Subsidiaries (except for Inactive Subsidiaries) to, keep proper books of
record and account in which full, true and correct entries are made of all
material dealings and transactions in relation to its business and
activities. Each of Holdings and the Borrower will, and will cause each of
the Subsidiaries to, permit any representatives designated by the
Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.10. Compliance with Laws. Each of Holdings and
the Borrower and, prior to the Merger, Acqco will, and will cause each of the
Subsidiaries to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The
proceeds of the Term Loans will be used by the Borrower, together with (a)
the proceeds of Revolving Loans in an aggregate principal amount equal to the
sum of (i) $45,400,000 and (ii) the amount of cash recorded on a consolidated
balance sheet of Holdings as of the Effective Date prepared in accordance
with GAAP and (b) a portion of the Acqco Equity Contribution, solely (A) to
pay (or make a dividend to Holdings to enable Holdings to pay) any amounts in
excess of the Cash Merger Consideration to be paid in connection with the
exercise by the holders of the Untendered Shares, if any, of their appraisal
rights following the Merger, to pay cash in the Merger in an aggregate amount
not in excess of the product of the Cash Merger Consideration times the
aggregate number of Shares issued after November 22, 1997, in respect of
option exercises and Convertible Subordinated Note conversions (net of any
proceeds from option exercises) and to make any cash payments due to each
holder of an option or common-stock-equivalent of Holdings upon the exercise
of such option or common-stock-equivalent (it being understood that no
portion of the Loans will be used to purchase Shares in the Equity Tender
Offer), (B) to repay, repurchase or redeem (or make a dividend to Holdings to
enable Holdings to repay, repurchase or redeem) existing Indebtedness of
Holdings and the Subsidiaries, including (i) the Senior Notes accepted
pursuant to the Debt Tender Offer or otherwise repurchased or redeemed,
(ii) all of Holdings's outstanding Convertible Subordinated Notes and
(iii) Indebtedness owed under the Existing Mortgages (provided that (x) no
more than $55,000,000 in borrowings under the Term Loans shall be used to
repay, repurchase or redeem the Senior Notes and the Convertible Subordinated
Notes and (y) no more than $15,000,000 in borrowings under the Term Loans
shall be used for the prepayment of Existing Mortgages), (C) to pay (or to
make a dividend to Holdings to enable Holdings to pay) the Ashton Termination
Payment (including any Tax gross-ups associated therewith), (D) to repay
indebtedness owed under the Existing Credit Agreement on the Effective Date,
(E) to pay the Transaction Costs, (F) to pay (or to make a dividend to
Holdings to enable Holding to pay) any amounts payable in connection with the
exercise of options (net of any exercise price) and common stock equivalents,
any premiums in excess of the principal amount paid by Holdings or the
Borrower in connection with the purchase or redemption of Senior Notes and
Convertible Subordinated Notes and the prepayment of Existing Mortgages and
any accrued interest payable in connection with the repurchase of Senior
Notes and Convertible Subordinated Notes or the prepayment of Existing
Mortgages and (G) for general corporate purposes. The proceeds of the
<PAGE>
Revolving Loans (other than loans used for the purposes specified in the
first sentence of this paragraph) will be used by the Borrower to repay
obligations under the Existing Credit Agreement and for general corporate
purposes. The proceeds of the Swingline Loans will be used only for general
corporate purposes. No part of the proceeds of any Loan will be used,
whether directly or indirectly, for any purpose that entails a violation of
any of the Regulations of the Board, including Regulations G, U and X.
Letters of Credit will be issued only for general corporate purposes.
SECTION 5.12. Additional Subsidiaries. If any additional
Borrower Subsidiary is formed or acquired after the Effective Date, the
Borrower will notify the Administrative Agent thereof and (a) if such
Borrower Subsidiary is a Subsidiary Loan Party, the Borrower will cause such
Borrower Subsidiary to become a party to the Subsidiary Guarantee Agreement,
the Indemnity, Subrogation and Contribution Agreement and each applicable
Security Document in the manner provided therein within 30 Business Days
after such Borrower Subsidiary is formed or acquired and promptly take such
actions to create and perfect Liens on such Borrower Subsidiary's assets to
secure the Obligations as the Administrative Agent or the Required Lenders
shall reasonably request and (b) if any shares of capital stock or
Indebtedness of any such additional Borrower Subsidiary are owned by or on
behalf of any Loan Party, the Borrower will cause such shares and promissory
notes evidencing such Indebtedness to be pledged pursuant to the Pledge
Agreement within 30 Business Days after such Borrower Subsidiary is formed or
acquired (except that, if such Borrower Subsidiary is a Foreign Subsidiary,
shares of common stock of such Borrower Subsidiary to be pledged pursuant to
the Pledge Agreement may be limited to 65% of the outstanding shares of
common stock of such Borrower Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of Holdings,
the Borrower and, prior to the Merger, Acqco will, and will cause each
Subsidiary Loan Party to, execute any and all further documents, financing
statements, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements, fixture filings,
mortgages, deeds of trust and other documents), that may be required under
any applicable law, or which the Administrative Agent or the Required Lenders
may reasonably request, to effectuate the transactions contemplated by the
Loan Documents or to grant, preserve, protect or perfect the Liens created or
intended to be created by the Security Documents or the validity or priority
of any such Lien (subject to Liens permitted by Section 6.02), all at the
expense of the Loan Parties.
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by Holdings, the
Borrower, any Subsidiary Loan Party or, prior to the Merger, Acqco after the
Effective Date (other than assets constituting Collateral under the Security
Agreement that become subject to the Lien of the Security Agreement upon
acquisition thereof), or if any real property or improvements thereto or any
interest therein that is subject to Existing Mortgages on the Effective Date
becomes no longer so encumbered after such date, Holdings, the Borrower and,
prior to the Merger, Acqco, will notify the Administrative Agent and the
Lenders thereof, and, if requested by the Administrative Agent or the
Required Lenders, will cause such assets to be subjected to a Lien securing
the Obligations and will take, and cause the Subsidiary Loan Parties to take,
such actions as shall be necessary or reasonably requested by the
Administrative Agent to grant and perfect such Liens, including actions
<PAGE>
described in paragraph (a) of this Section, all at the expense of the Loan
Parties.
(c) On or before the date that is 15 Business Days after
the date of this Agreement, the Administrative Agent shall have received
stock certificates representing all the outstanding shares of Holdings owned
by Acqco on such date.
(d) On or before the date that is 60 days after the date of
this Agreement, the Administrative Agent shall have received (i) counterparts
of a Mortgage with respect to each Mortgaged Property listed on Schedule
1.01(a), signed on behalf of the record owner of such Mortgaged Property,
(ii) a policy or policies of title insurance issued by a nationally
recognized title insurance company, insuring the Lien of each such Mortgage
as a valid first Lien on the Mortgaged Property described therein, free of
any other Liens except as permitted by Section 6.02, in form and substance
reasonably acceptable to the Collateral Agent, together with such
endorsements, coinsurance and reinsurance as the Collateral Agent or the
Required Lenders may reasonably request, (iii) such current certified surveys
as may be required pursuant to such Mortgages or as the Administrative Agent
or the Required Lenders may reasonably request, (iv) a copy of the original
permanent certificate or temporary certificate of occupancy as the same may
have been amended or issued from time to time, covering each improvement
located upon the Mortgaged Properties, that were required to have been issued
by the appropriate Governmental Authority for such improvement, (v) written
confirmation from the applicable zoning commission or other appropriate
Governmental Authority stating that with respect to each Mortgaged Property
as built it complies with existing land use and zoning ordinances,
regulations and restrictions applicable to such Mortgaged Property to the
extent each of Holdings, the Borrower and, prior to the Merger, Acqco are
able to obtain such written confirmation using commercially reasonable
efforts and (vi) a favorable written opinion (addressed to the Administrative
Agent and the Lenders) of local counsel in each jurisdiction where a
Mortgaged Property is located, substantially in the form of Exhibit C,
covering such other matters relating to the Security Documents and the
Mortgages as the Administrative Agent or the Required Lenders shall
reasonably request.
SECTION 5.14. Interest Rate Protection. As promptly as
practicable, and in any event within 60 days after the Redemption Completion
Date, the Borrower will enter into with one or more Lenders, and thereafter
for a period of not less than three years will maintain in effect, one or
more interest rate protection agreements on such terms as shall be reasonably
satisfactory to the Administrative Agent, to the extent necessary so that
after giving effect to such interest rate protection agreement(s), the
interest cost to the Borrower with respect to at least 50% of the sum of (a)
the principal amount of the outstanding Term Loans and (b) if and when
issued, the principal amount of outstanding Subordinated Notes will be at
fixed rates of interest.
SECTION 5.15. Redemption of Notes. The Borrower will
redeem, not later than the Redemption Completion Date, (a) any Senior Notes
that remain outstanding following the consummation of the Debt Tender Offer
and (b) all the then-outstanding Convertible Subordinated Notes, in each case
in accordance with the provisions of the respective indenture governing such
notes.
<PAGE>
SECTION 5.16. Issuance of Subordinated Notes, Issuance of
8% PIK Notes and Application of Proceeds Thereof. The Borrower will use
commercially reasonable efforts to issue the Subordinated Notes in an
aggregate principal amount of up to $125,000,000 not later than the
Redemption Completion Date pursuant to documentation reasonably satisfactory
to the Administrative Agents. If for any reason the Borrower has not issued
the Subordinated Notes as described in the immediately preceding sentence on
or before the Redemption Completion Date, then on or before such date
(a) Holdings will issue to the Investors $45,000,000 in aggregate principal
amount of the 8% PIK Debentures in exchange for the payment by the Investors
to Holdings of $45,000,000 in cash and (b) Holdings will apply the proceeds
from the issuance of the 8% PIK Debentures to pay principal, premiums and
accrued interest, if any, payable in connection with the redemption of
(i) Senior Notes that remain outstanding following the consummation of the
Debt Tender Offer and (ii) Convertible Subordinated Notes.
SECTION 5.17. Consummation of the Merger. (a) The Merger
shall be consummated pursuant to the Merger Agreement as soon as practicable
following the Effective Date and in no event later than June 30, 1998.
(b) Substantially simultaneously with the consummation of
the Merger, each option and common-stock-equivalent of Holdings that is
outstanding immediately prior to the Merger will be modified to become
exercisable solely for an amount in cash equal to the excess, if any, of the
Cash Merger Consideration over the exercise price or purchase price of such
option or common-stock-equivalent.
(c) If Acqco shall own at least 90% of the Shares following
the consummation of the Equity Tender Offer, Holdings will effect the Merger
without a meeting of stockholders of Holdings as soon as practicable
following the Effective Date and in no event later than June 30, 1998.
(d) If Acqco shall own less than 90% of the Shares
following the consummation of the Equity Tender Offer, Holdings will use
commercially reasonable efforts to conduct a shareholder vote to approve the
Merger as soon as reasonably practicable thereafter.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have
been paid in full and all Letters of Credit have expired or terminated and
all LC Disbursements shall have been reimbursed, each of Holdings, the
Borrower and, prior to the Merger, Acqco covenants and agrees with the
Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a)
Holdings, the Borrower and, prior to the Merger, Acqco will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
<PAGE>
(ii) Indebtedness existing on the date hereof and set
forth in Schedule 6.01 and extensions, renewals and replacements of
any such Indebtedness that do not increase the outstanding principal
amount thereof or result in an earlier maturity date or decreased
weighted average life thereof;
(iii) Indebtedness of the Borrower to any Borrower
Subsidiary (other than an Inactive Subsidiary) and of any Borrower
Subsidiary (other than an Inactive Subsidiary) to the Borrower or any
other Borrower Subsidiary (other than an Inactive Subsidiary),
provided that Indebtedness of any Borrower Subsidiary that is not a
Loan Party to the Borrower or any Subsidiary Loan Party shall be
subject to Section 6.04;
(iv) Guarantees by the Borrower of Indebtedness of any
Borrower Subsidiary (other than an Inactive Subsidiary) and by any
Borrower Subsidiary (other than an Inactive Subsidiary) of
Indebtedness of the Borrower or any other Borrower Subsidiary (other
than an Inactive Subsidiary), provided that Guarantees by the
Borrower or any Subsidiary Loan Party of Indebtedness of any Borrower
Subsidiary that is not a Loan Party shall be subject to Section 6.04;
(v) Indebtedness of the Borrower or any Borrower
Subsidiary (other than an Inactive Subsidiary) incurred to finance
the acquisition, construction or improvement of any fixed or capital
assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the acquisition
thereof, provided that such Indebtedness is incurred prior to or
within 90 days after such acquisition or the completion of such
construction or improvement, and extensions, renewals and
replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof or result in an earlier maturity
date or decreased weighted average life thereof, and provided further
that the aggregate principal amount of Indebtedness permitted by this
clause (v) that is incurred following the Effective Date shall not
exceed $7,500,000 at any time outstanding (excluding sale and
leaseback obligations arising under the Agreement for Sale of Real
Estate, dated October 30, 1997, between the Borrower and S&D Realty,
LLC);
(vi) Indebtedness of any Person that becomes a Borrower
Subsidiary after the date hereof, provided that (A) such Indebtedness
exists at the time such Person becomes a Borrower Subsidiary and is
not created in contemplation of or in connection with such Person
becoming a Borrower Subsidiary and (B) the aggregate principal amount
of Indebtedness permitted by this clause (vi) shall not exceed
$5,000,000 at any time outstanding;
(vii) (A) up to $125,000,000 in aggregate principal amount
of the Subordinated Notes, (B) Permitted Subordinated Refinancing
Debt and (C) any related subordinated guarantees, in each case so
long as, at the time of the incurrence of such Indebtedness and after
giving effect to the incurrence thereof, no Default or Event of
Default has occurred and is continuing;
<PAGE>
(viii) if the Subordinated Notes are not issued by the
Borrower on or before the 8% PIK Debentures Issuance Date,
Indebtedness of Holdings in the form of the 8% PIK Debentures issued
to the Investors for net cash proceeds of $45,000,000, provided that
the terms and conditions of the 8% PIK Debentures (including terms
and conditions relating to fees, maturity, subordination, covenants,
events of default, remedies, redemption and pay-in-kind features
other than the terms and conditions expressly provided for in the
definition of the term "8% PIK Debentures") shall be reasonably
satisfactory in all respects to the Administrative Agent;
(ix) other Indebtedness in an aggregate principal amount
not exceeding $10,000,000 at any time outstanding, provided that the
aggregate principal amount of Indebtedness of the Borrower
Subsidiaries permitted by this clause (ix) shall not exceed
$2,000,000 at any time outstanding;
(x) following the issuance of the Subordinated Notes,
(A) other subordinated Indebtedness issued by Holdings or the
Borrower in an aggregate principal amount of up to $50,000,000,
provided that such Indebtedness shall (I) be subject to subordination
provisions that, in the reasonable judgment of the Administrative
Agent, are no less favorable to the Lenders than the subordination
provisions of the Subordinated Notes (and any Guarantees by the
guarantors of such other subordinated Indebtedness shall be subject
to subordination provisions that, in the reasonable judgment of the
Administrative Agent, are no less favorable to the Borrower or the
Lenders than the subordination provisions of the Guarantees of the
Subordinated Notes), (II) be subject to no covenant more restrictive
in any material respect than those contained in the Subordinated
Notes Indenture, (III) mature no earlier than December 24, 2005,
(IV) accrue interest at a rate determined in good faith by the Board
of Directors of Holdings to be a market rate of interest for such
other subordinated Indebtedness at the time of issuance thereof and
(V) be reasonably satisfactory in all other respects to the
Administrative Agent, and (B) any Permitted Subordinated Refinancing
Debt with respect to such other subordinated Indebtedness, provided
that at the time of the incurrence of such subordinated Indebtedness
or Permitted Subordinated Refinancing Debt with respect to such other
subordinated Indebtedness and after giving effect to the incurrence
thereof, no Default or Event of Default has occurred and is
continuing; and
(xi) Indebtedness representing the obligations of
Holdings to make payments in connection with the cancellation or
repurchase of common stock of officers, employees and directors of
Holdings and the Subsidiaries to the extent permitted by Section
6.08, provided that (A) the aggregate principal amount of
Indebtedness permitted by this clause (xi) shall not exceed
$5,000,000 at any time outstanding and (B) such Indebtedness shall be
subordinated to the Obligations on a basis no less favorable to the
Lenders than the subordination provisions of the Subordinated Notes.
(b) Neither Holdings nor the Borrower nor, prior to the
Merger, Acqco will, nor will they permit any Subsidiary to, issue any
preferred stock (except for, following the issuance of the Subordinated
Notes, preferred stock (i) all dividends in respect of which are to be paid
<PAGE>
(and all other payments in respect of which are to be made) in additional
shares of such preferred stock, in lieu of cash, until December 24, 2007,
(ii) that is not subject to redemption prior to December 24, 2007, other than
redemption at the option of the issuer of such preferred stock, (iii) that
is, upon any such redemption, subject to subordination provisions that, in
the reasonable judgment of the Administrative Agent, are no less favorable to
the Borrower or the Lenders than the subordination provisions of the
Subordinated Notes, (iv) that contains no covenants and (v) the aggregate
liquidation preference of which shall at no time exceed the difference
between (A) $50,000,000 and (B) the aggregate principal amount of any
subordinated Indebtedness issued as permitted by Section 6.01(a)(x) and
outstanding at such time) or, except as expressly permitted under
Section 6.08, be or become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other payment in
respect of any shares of capital stock of Holdings, the Borrower or any
Subsidiary or any option, warrant or other right to acquire any such shares
of capital stock except for (i) obligations pursuant to the Merger Agreement
and (ii) the redemption of the Convertible Subordinated Notes pursuant to
Section 5.15.
SECTION 6.02. Liens. Holdings, the Borrower and, prior to
the Merger, Acqco will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Lien on any property or asset now owned
or hereafter acquired by it, or assign or sell any income or revenues
(including accounts receivable) or rights in respect of any thereof, except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Borrower or
any Subsidiary existing on the date hereof, including any Lien with
respect to the Existing Mortgages that will remain outstanding
following the Effective Date, and set forth in Schedule 6.02,
provided that (i) such Lien shall not apply to any other property or
asset of Holdings, the Borrower or any Subsidiary or, prior to the
Merger, Acqco and (ii) such Lien shall secure only those obligations
that it secures on the date hereof and extensions, renewals and
replacements thereof that do not increase the outstanding principal
amount thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by Holdings, the Borrower or any Subsidiary or,
prior to the Merger, Acqco or existing on any property or asset of
any Person that becomes a Borrower Subsidiary after the date hereof
prior to the time such Person becomes a Borrower Subsidiary, provided
that (A) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Borrower
Subsidiary, as the case may be, (B) such Lien shall not apply to any
other property or assets of Holdings, the Borrower or any Subsidiary
or, prior to the Merger, Acqco and (C) such Lien shall secure only
those obligations that it secures on the date of such acquisition or
the date such Person becomes a Borrower Subsidiary, as the case may
be, and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof;
<PAGE>
(e) Liens on fixed or capital assets acquired, constructed
or improved by the Borrower or any Borrower Subsidiary, provided that
(A) such security interests secure Indebtedness permitted by
clause (v) of Section 6.01(a), (B) such security interests and the
Indebtedness secured thereby are incurred prior to or within 90 days
after such acquisition or the completion of such construction or
improvement, (C) the Indebtedness secured thereby does not exceed 75%
of the cost of acquiring, constructing or improving such fixed or
capital assets and (D) such security interests shall not apply to any
other property or assets of Holdings, the Borrower or any Subsidiary
or, prior to the Merger, Acqco; and
(f) Liens arising from UCC financing statements regarding
leases permitted by this Agreement with respect to property subject
to such leases;
(g) Liens imposed by Environmental Laws or ERISA to the
extent not in violation of any of the representations, warranties or
covenants in respect of Environmental Laws or ERISA made by Holdings
or the Borrower in this Agreement;
(h) "Permitted Encumbrances" under and as such term or its
equivalent is defined in the respective Mortgages;
(i) Mortgages securing Indebtedness not in excess of
$10,000,000 in the aggregate, provided that such Mortgages (i) shall
secure Indebtedness incurred in connection with the acquisition,
after the Effective Date, by Holdings, the Borrower or any other
Subsidiary of the real property subject to such Mortgages and (ii)
apply only to the real property so acquired; and
(j) Liens (other than those permitted by paragraphs (a)
through (i) above) securing Indebtedness permitted hereunder in an
aggregate amount not exceeding $2,000,000 at any time outstanding.
SECTION 6.03. Fundamental Changes. (a) Holdings, the
Borrower and, prior to the Merger, Acqco will not and will not permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or liquidate or dissolve,
(i) except as provided in the Merger Agreement and (ii) except that, if at
the time thereof and immediately after giving effect thereto no Default shall
have occurred and be continuing (A) any Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the surviving corporation,
(B) any Subsidiary may merge into any Subsidiary Loan Party in a transaction
in which the surviving entity is a Subsidiary Loan Party, (C) any Subsidiary
that is not a Loan Party may merge into any Subsidiary that is not a Loan
Party and (D) any Subsidiary may liquidate or dissolve if the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to the
Lenders, provided that any such merger involving a Person that is not a
wholly owned Subsidiary immediately prior to such merger shall not be
permitted unless also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of the
Borrower Subsidiaries to, engage to any material extent in any business other
than businesses of the type conducted by the Borrower and the Borrower
<PAGE>
Subsidiaries on the date of execution of this Agreement and businesses
reasonably related thereto.
(c) Holdings will not engage in any business or activity
other than the ownership of all the outstanding shares of capital stock of
the Borrower and the other Subsidiaries as of the Effective Date, actions
contemplated by the Merger Agreement and the Loan Documents, activities
reasonably related to those being conducted on the Effective Date and
activities incidental thereto. Holdings will not own or acquire any assets
(other than shares of capital stock of the Borrower and the other
Subsidiaries existing on the Effective Date, any personal property owned by
Holdings on the Effective Date, cash and Permitted Investments) or incur any
liabilities (other than liabilities under the Loan Documents, liabilities
existing on the Effective Date, liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence and permitted
business and activities).
(d) Acqco will not engage in any business or activity other
than the ownership of all the outstanding Shares tendered in the Equity
Tender Offer, actions contemplated by the Merger Agreement and the Loan
Documents and activities incidental thereto, including the payment of fees in
connection with the Merger. Acqco will not own or acquire any assets (other
than Shares tendered in the Equity Tender Offer, cash and Permitted
Investments) or incur any liabilities (other than liabilities under the Loan
Documents, liabilities imposed by law, including tax liabilities, and other
liabilities incidental to its existence and permitted business and
activities).
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. Holdings and the Borrower and, prior to the Merger, Acqco will
not, and will not permit any of the Subsidiaries to, purchase, hold or
acquire (including pursuant to any merger with any Person that was not a
wholly owned Subsidiary prior to such merger) any capital stock, evidences of
indebtedness or other securities (including any option, warrant or other
right to acquire any of the foregoing) of, make or permit to exist any loans
or advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets
of any other Person constituting a business unit, except:
(a) pursuant to the Tender Offers and the Merger Agreement;
(b) the Acqco Equity Contribution;
(c) Permitted Investments;
(d) investments existing on the date hereof and set forth
on Schedule 6.04, to the extent such investments would not be
permitted under any other clause of this Section;
(e) investments by the Borrower in the capital stock of the
Borrower Subsidiaries, provided that any such shares of capital stock
shall be pledged pursuant to the Pledge Agreement (subject to the
limitations applicable to common stock of a Foreign Subsidiary
referred to in Section 5.12) and (ii) the amount of investments by
the Borrower in Borrower Subsidiaries that are not Loan Parties shall
not exceed $5,000,000 in the aggregate at any time outstanding;
<PAGE>
(f) loans or advances made by the Borrower to any Borrower
Subsidiary other than an Inactive Subsidiary and made by any Borrower
Subsidiary other than an Inactive Subsidiary to the Borrower or any
other Borrower Subsidiary other than an Inactive Subsidiary, provided
that any such loans and advances made by a Loan Party shall be
evidenced by a promissory note pledged pursuant to the Pledge
Agreement and (ii) the amount of all such loans and advances by Loan
Parties to Borrower Subsidiaries that are not Loan Parties shall not
exceed $5,000,000 in the aggregate at any time outstanding;
(g) Guarantees constituting Indebtedness permitted by
Section 6.01, provided that (i) Holdings, the Borrower, any other
Subsidiary and, prior to the Merger, Acqco shall not guarantee the
Subordinated Notes unless (A) it has also Guaranteed the Obligations
pursuant to a Guarantee Agreement, (B) such Guarantee of the
Subordinated Notes is subordinated to such Guarantee of the
Obligations on terms no less favorable to the Lenders than the
subordination provisions of the Subordinated Notes and (C) such
Guarantee of the Subordinated Notes provides for the release and
termination thereof, without any action of any party, upon any
release and termination of such Guarantee of the Obligations and
(ii) the amount of Indebtedness that is (A) outstanding with respect
to Borrower Subsidiaries that are not Loan Parties and (B) Guaranteed
by any Loan Party shall not exceed $5,000,000 in the aggregate at any
time outstanding;
(h) investments received in connection with the bankruptcy
or reorganization of, or settlement of delinquent accounts and
disputes with, customers and suppliers, in each case in the ordinary
course of business;
(i) Loans and advances to officers, directors or employees
in the ordinary course of business, provided that such Loans and
advances shall not exceed $500,000 in the aggregate at any time
outstanding; and
(j) investments otherwise permitted by Section 6.03(a) and
Section 6.07;
(k) acquisitions of property, plant and equipment that
constitute capital expenditures and are otherwise permitted by Section 6.13;
(l) investments in any Subsidiary with proceeds of
dividends paid in accordance with Section 6.08(a)(iv) or (viii) to
the extent such investments are used by such Subsidiary to discharge
liabilities of Holdings or such Subsidiary otherwise permitted to be
discharged under this Agreement or liabilities relating to Disclosed
Matters;
(m) investments by Acqco in Holdings;
(n) investments by Holdings in any Subsidiary Loan Party;
(o) trade credit extended to customers of the Borrower in
an aggregate amount not to exceed $500,000 at any time outstanding;
and
<PAGE>
(p) other investments in an aggregate amount not to exceed
$1,000,000 at any time outstanding.
SECTION 6.05. Asset Sales. Holdings, the Borrower and,
prior to the Merger, Acqco will not, and will not permit any of the
Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset,
including any capital stock, nor will Holdings or the Borrower permit the
Borrower or any of the other Subsidiaries to issue any additional shares of
its capital stock or other ownership interest in the Borrower or such
Subsidiary, as the case may be, except:
(a) sales or other dispositions of inventory, used or
surplus equipment and Permitted Investments in the ordinary course of
business;
(b) sales, transfers and dispositions to the Borrower or a
Borrower Subsidiary, provided that any such sales, transfers or
dispositions involving a Borrower Subsidiary that is not a Loan Party
shall be made in compliance with Section 6.09;
(c) sales, transfers and dispositions of assets (other than
capital stock of a Subsidiary) that are not permitted by any other
clause of this Section, provided that the aggregate fair market value
of all assets sold, transferred or otherwise disposed of in reliance
upon this clause (c) shall not exceed $5,000,000 during any fiscal
year of the Borrower or $10,000,000 in the aggregate during the term
of this Agreement; and
(d) pursuant to a transaction permitted by Section 6.03(a),
provided that all sales, transfers, leases and other dispositions permitted
under paragraphs (a), (b) and (c) above shall be made for fair market value
and for cash consideration equal to at least 80% of such fair market value.
SECTION 6.06. Sale and Lease-Back Transactions. Except for
the Agreement for Sale of Real Estate, dated October 30, 1997, between the
Borrower and S&D Realty, LLC, Holdings, the Borrower and, prior to the
Merger, Acqco will not enter into any arrangement, directly or indirectly,
with any Person whereby it shall sell or transfer any property, real or
personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which
it intends to use for substantially the same purpose or purposes as the
property being sold or transferred, provided that the Borrower and the
Borrower Subsidiaries may enter into any such transaction to the extent the
Capital Lease Obligation and Liens associated therewith would be permitted by
Sections 6.01(a)(v) and 6.02(e), respectively.
SECTION 6.07. Hedging Agreements. Holdings, the Borrower
and, prior to the Merger, Acqco will not, and will not permit any of the
Subsidiaries to, enter into any Hedging Agreement, other than (a) Hedging
Agreements required by Section 5.14 and (b) Hedging Agreements entered into
in the ordinary course of business to hedge or mitigate risks to which the
Borrower or any Borrower Subsidiary is exposed in the conduct of its business
or the management of its liabilities.
SECTION 6.08. Restricted Payments; Certain Payments of
Indebtedness. (a) Other than the payment for Shares in the Merger
<PAGE>
(including Shares with respect to which appraisal rights shall be exercised)
and payments in connection with the modification of existing options and
common-stock-equivalents at the time of the Merger, Holdings, the Borrower
and, prior to the Merger, Acqco will not, and will not permit any Subsidiary
to, declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, except (i) Holdings may declare and pay dividends with
respect to its capital stock payable solely in additional shares of its
common stock or options, warrants or other rights to purchase common stock,
(ii) the Subsidiaries (other than the Borrower) may declare and pay dividends
ratably with respect to their capital stock, (iii) Holdings or, prior to the
Merger, Acqco may make payments to officers, employees and directors of
Holdings and the Subsidiaries (or to the respective estate or permitted
transferee under such plans or agreements of any such officer, employee or
director) in connection with the cancellation or repurchase of common stock
(or options to purchase common stock) previously issued to such officers,
employees and directors pursuant to and in accordance with stock option plans
or other benefit plans or compensation agreements (or agreements entered into
in connection therewith) entered into in the ordinary course of business for
officers, employees and directors of Holdings and the Subsidiaries, either in
the form of cash paid to repurchase such common stock or cash paid with
respect to Indebtedness previously issued as permitted by Section 6.01(a)(xi)
to repurchase such common stock, provided that all payments pursuant to this
clause (iii) do not exceed $1,000,000 during any fiscal year and $5,000,000
in the aggregate during the term of this Agreement, (iv) the Borrower may pay
dividends to Holdings at such times and in such amounts, not exceeding
$1,000,000 during any fiscal year, as shall be necessary to permit Holdings
to discharge liabilities of Holdings and its Subsidiaries otherwise permitted
to be discharged under this Agreement, (v) if the Subordinated Notes are
issued by the Borrower after the 8% PIK Debentures Issuance Date, the
Borrower may pay a dividend to Holdings from the proceeds of the issuance of
the Subordinated Notes in an amount sufficient to permit Holdings to redeem
the 8% PIK Debentures for an amount equal to the principal amount thereof
plus accrued but unpaid interest thereon, (vi) if the Subordinated Notes are
not issued by the Borrower after the issuance of the 8% PIK Debentures
Issuance Date, the Borrower may pay a dividend to Holdings in an amount
sufficient to permit Holdings to redeem the 8% PIK Debentures for an amount
equal to the principal amount thereof plus accrued but unpaid interest
thereon, provided that (A) no such dividend or dividends shall be made at any
time when a Default or Event of Default has occurred and is continuing (or
would result from the making of such dividend) or on any date prior to
May 23, 1999, (B) the Leverage Ratio shall be less than 2.50 to 1.00 as of
the end of the four-fiscal-quarter period most recently ended immediately
prior to the payment of any such dividend or dividends and (C) the amount of
such dividend or dividends in any fiscal year of Holdings shall not exceed
the lesser of (x) 25% of Excess Cash Flow from the immediately preceding
fiscal year to the extent not previously used for another permitted purpose
under this Agreement and (y) $5,000,000, (vii) the Borrower and the other
Subsidiaries may make Restricted Payments to Holdings in order to pay Taxes,
(viii) so long as that no Default or Event of Default has occurred and is
continuing (or would result therefrom), the Borrower and the other
Subsidiaries may make Restricted Payments to the extent that the proceeds
thereof are promptly used to satisfy liabilities relating to the Disclosed
Matters (including legal and other expenses relating thereto), provided that
such Restricted Payments shall not exceed $5,000,000 in any fiscal year of
Holdings and $10,000,000 in the aggregate during the term of this Agreement
and (ix) the Borrower and the other Subsidiaries may make Restricted Payments
to Holdings in order for Holdings (A) to satisfy obligations incurred
<PAGE>
pursuant to transactions permitted under Sections 6.09(d), (e), (f) or (g),
(B) to pay Transaction Costs up to $10,000,000, consisting of transaction
advisory fees, fees to Cypress and its Affiliates, consulting fees and other
miscellaneous fees and expenses and (C) to redeem the Senior Notes and the
Convertible Subordinated Notes.
(b) Holdings, the Borrower and, prior to the Merger, Acqco
will not, and will not permit any Subsidiary to, make or agree to pay or
make, directly or indirectly, any payment or other distribution (whether in
cash, securities or other property) of or in respect of principal of or
interest on any Indebtedness, or any payment or other distribution (whether
in cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any Indebtedness, except:
(i) payment of Indebtedness created under the Loan
Documents;
(ii) payment of regularly scheduled interest and
principal payments as and when due in respect of any Indebtedness;
(iii) refinancings of Indebtedness to the extent permitted
by Section 6.01;
(iv) the redemption or repurchase of the Convertible
Subordinated Notes pursuant to the terms of this Agreement and the
Convertible Subordinated Notes Indenture;
(v) the redemption or repurchase of the Senior Notes
pursuant to the terms of this Agreement and the Senior Notes
Indenture or the Debt Tender Offer;
(vi) the redemption of the 8% PIK Debentures by Holdings
for a redemption price equal to the outstanding principal amount
thereof plus accrued but unpaid interest thereon with the proceeds of
a dividend paid by the Borrower pursuant to Section 6.08(a)(v) or
(vi); and
(vii) prepayment of any Existing Mortgage to the extent
that the Borrower and Holdings are not able to obtain a waiver of any
defaults that occur under such Existing Mortgage as a result of the
Transactions.
SECTION 6.09. Transactions with Affiliates. Other than the
Transactions, Holdings, the Borrower and, prior to the Merger, Acqco will
not, and will not permit any Subsidiary to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) transactions in the ordinary course of
business that do not involve Holdings or Acqco and are at prices and on terms
and conditions not less favorable to the Borrower or such Subsidiary than
could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Borrower and the Subsidiary Loan
Parties not involving any other Affiliate, (c) any Restricted Payment
permitted by Section 6.08, (d) the payment by Holdings, Acqco or the Borrower
of fees, expenses or other amounts to Cypress and its Affiliates in
connection with the Transactions and payments by Holdings, the Borrower,
<PAGE>
Acqco and the Subsidiaries to Cypress and its Affiliates made pursuant to any
financial advisory, consulting, financing, underwriting or placement
agreement, or in respect of other investment banking activities, in each case
to the extent that the Board of Directors of such Person has determined in
good faith that such amounts are reasonable in light of current market
practices with respect to payment for such services, (e) employment and
compensation arrangements entered into in the ordinary course of business
with officers of Holdings and the Subsidiaries, (f) customary fees paid to
members of the Board of Directors of Holdings and of the Subsidiaries for
their services as directors, (g) the Ashton Termination Payment (including
any Tax gross-ups associated therewith) and (h) agreements entered into in
the ordinary course of business with consultants who are otherwise Affiliates
of Holdings, the Borrower, the Subsidiaries or, prior to the Merger, Acqco.
SECTION 6.10. Other Indebtednesss. Holdings, the Borrower
and, prior to the Merger, Acqco will not permit any waiver, supplement,
modification, amendment, termination or release of any indenture, instrument
or agreement pursuant to which any Material Indebtedness of Holdings or any
Subsidiary is outstanding to the extent that any such waiver, supplement,
modification, amendment, termination or release would be adverse to the
Lenders.
SECTION 6.11. Restrictive Agreements. Holdings, the
Borrower and, prior to the Merger, Acqco will not and will not permit any
Subsidiary to, directly or indirectly, enter into, incur or permit to exist
any agreement or other arrangement that prohibits, restricts or imposes any
condition upon (a) the ability of Holdings, the Borrower, any other
Subsidiary or, prior to the Merger, Acqco to create, incur or permit to exist
any Lien upon any of its property or assets to secure the Obligations, or (b)
the ability of any Borrower Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Borrower Subsidiary or
to Guarantee Indebtedness of the Borrower or any other Borrower Subsidiary,
provided that (i) the foregoing shall not apply to restrictions and
conditions imposed by law or by any Loan Document, (ii) the foregoing shall
not apply to restrictions and conditions existing on the date hereof
identified on Schedule 6.11 (but shall apply to any extension or renewal of,
or any amendment or modification expanding the scope of, any such restriction
or condition), (iii) the foregoing shall not apply to customary restrictions
and conditions contained in agreements relating to the sale of a Subsidiary
pending such sale, provided such restrictions and conditions apply only to
the Subsidiary that is to be sold and such sale is permitted hereunder, (iv)
clause (a) of this Section shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (v) clause (a) of this Section shall
not apply to customary provisions in leases restricting the assignment
thereof.
SECTION 6.12. Amendment of Material Documents. Holdings,
the Borrower and, prior to the Merger, Acqco will not, and will not permit
any Subsidiary to, amend, modify or waive any of its rights under (a) its
certificate of incorporation, by-laws or other organizational documents, (b)
the Merger Agreement, the Equity Tender Offer Materials or the Debt Tender
Offer Materials or (c) the Investor Agreement to the extent that such
amendment, modification or waiver would be adverse to the Lenders.
<PAGE>
SECTION 6.13. Capital Expenditures. Holdings and the
Borrower will not permit the aggregate amount of Capital Expenditures made by
the Borrower and the Borrower Subsidiaries in any fiscal year to exceed the
amount set forth below opposite such year, provided that for any period set
forth below, the dates constituting the beginning and end of such period
shall refer to the first and last day of the fiscal year of Holdings
beginning and ending, respectively, on or about such dates:
Fiscal Year Amount
----------- ------
February 2, 1998--January 31, 1999 $22,000,000
February 1, 1999--January 30, 2000 $27,000,000
January 31, 2000--January 28, 2001 $28,500,000
January 29, 2001--January 27, 2002 $26,500,000
January 28, 2002--January 26, 2003 $28,000,000
January 27, 2003--January 25, 2004 $29,500,000
January 26, 2004--January 30, 2005 $31,000,000
The amount of permitted Capital Expenditures set forth above in respect of
any fiscal year shall be increased by the lesser of (a)(i) the unused
permitted Capital Expenditures for the immediately preceding fiscal year less
(ii) an amount equal to unused Capital Expenditures carried forward to such
preceding fiscal year and (b) $12,000,000.
SECTION 6.14. Leverage Ratio. (a) Prior to such time as
the Subordinated Notes are issued, Holdings, the Borrower and, prior to the
Merger, Acqco will not permit the Leverage Ratio as of the end of any four-
fiscal-quarter period ending during any period set forth below to be in
excess of the ratio set forth below opposite such period, provided that for
any period set forth below, the dates constituting the beginning and end of
such period shall refer to the last day of the fiscal period of Holdings
ending on or about such dates:
Period Ratio
------ -----
May 23, 1999--January 30, 2000 3.85 to 1.00
May 21, 2000--January 28, 2001 3.25 to 1.00
May 20, 2001--January 27, 2002 2.50 to 1.00
May 19, 2002--January 26, 2003 2.00 to 1.00
May 18, 2003--thereafter 1.50 to 1.00
(b) Following the issuance of the Subordinated Notes,
Holdings, the Borrower and, prior to the Merger, Acqco will not permit the
Leverage Ratio as of the end of any four-fiscal-quarter period ending during
any period set forth below to be in excess of the ratio set forth below
opposite such period, provided that for any period set forth below, the dates
constituting the beginning and end of such period shall refer to the last day
of the fiscal period of Holdings ending on or about such dates:
Period Ratio
------ -----
May 23, 1999--January 30, 2000 5.00 to 1.00
May 21, 2000--January 28, 2001 4.50 to 1.00
May 20, 2001--January 27, 2002 3.75 to 1.00
May 19, 2002--January 26, 2003 3.25 to 1.00
May 18, 2003--January 25, 2004 3.00 to 1.00
May 16, 2004--thereafter 2.50 to 1.00
<PAGE>
SECTION 6.15. Consolidated Net Cash Interest Expense
Coverage Ratio. (a) Prior to such time as the Subordinated Notes are issued,
Holdings, the Borrower and, prior to the Merger, Acqco will not permit the
ratio of (i) Consolidated EBITDA to (ii) Consolidated Net Cash Interest
Expense (A) for the fiscal quarter ending May 24, 1998, to be less than 2.65
to 1.00, (B) for the two-fiscal-quarter period ending August 16, 1998, to be
less than 2.65 to 1.00, (C) for the three-fiscal-quarter period ending
November 8, 1998, to be less than 2.65 to 1.00 or (D) for any four-fiscal-
quarter period ending on any date or during any period set forth below to be
less than the ratio set forth below opposite such period, provided that for
any period set forth below, the dates constituting the beginning and end of
such period shall refer to the first and last day of the fiscal period of
Holdings ending on or about such dates:
Date or Period Ratio
-------------- -----
January 31, 1999 2.65 to 1.00
May 23, 1999--January 30, 2000 3.00 to 1.00
May 21, 2000--January 28, 2001 3.50 to 1.00
May 20, 2001--January 27, 2002 3.75 to 1.00
May 19, 2002--thereafter 4.00 to 1.00
(b) Following the issuance of the Subordinated Notes,
Holdings, the Borrower and, prior to the Merger, Acqco will not permit the
ratio of (i) Consolidated EBITDA to (ii) Consolidated Net Cash Interest
Expense (A) for the fiscal quarter ending May 24, 1998, to be less than 1.75
to 1.00, (B) for the two-fiscal-quarter period ending August 16, 1998, to be
less than 1.75 to 1.00, (C) for the three-fiscal-quarter period ending
November 8, 1998, to be less than 1.75 to 1.00 or (D) for any
four-fiscal-quarter period ending on any date or during any period set forth
below to be less than the ratio set forth below opposite such period,
provided that for any period set forth below, the dates constituting the
beginning and end of such period shall refer to the last day of the fiscal
period of Holdings ending on or about such dates:
Date or Period Ratio
-------------- -----
January 31, 1999 1.75 to 1.00
May 23, 1999--January 30, 2000 2.10 to 1.00
May 21, 2000--January 28, 2001 2.40 to 1.00
May 20, 2001--January 27, 2002 2.75 to 1.00
May 19, 2002--thereafter 3.00 to 1.00
SECTION 6.16. Fixed Charge Coverage Ratio. Prior to such
time as the Subordinated Notes are issued, Holdings, the Borrower and, prior
to the Merger, Acqco will not permit the ratio of (a) the sum of
(i) Consolidated EBITDA and (ii) Consolidated Lease Expense to (b) Fixed
Charges (w) for the fiscal quarter ending May 24, 1998, to be less than 1.00
to 1.00, (x) for the two-fiscal-quarter period ending August 16, 1998, to be
less than 1.00 to 1.00, (y) for the three-fiscal-quarter period ending
November 8, 1998, to be less than 1.00 to 1.00 or (z) for any four-fiscal-
quarter period ending on any date or during any period set forth below to be
less than the ratio set forth below opposite such period, provided that for
any period set forth below, the dates constituting the beginning and end of
such period shall refer to the last day of the fiscal period of Holdings
ending on or about such dates:
<PAGE>
Date or Period Ratio
-------------- -----
January 31, 1999 1.00 to 1.00
May 23, 1999--January 30, 2000 1.00 to 1.00
May 21, 2000--January 28, 2001 1.05 to 1.00
May 20, 2001--January 27, 2002 1.15 to 1.00
May 19, 2002--thereafter 1.20 to 1.00
SECTION 6.17. Additional Subsidiaries. Holdings, the
Borrower and, prior to the Merger, Acqco will not, and will not permit any
Subsidiary to, create any additional Subsidiary, unless such Subsidiary is a
Borrower Subsidiary.
SECTION 6.18. Merger Consideration; Redemption of Senior
Notes and Convertible Subordinated Notes; Prepayment of Existing Mortgages.
(a) Acqco and Holdings will not pay in the aggregate more than $137,400,000
(net of any cash paid to Holdings upon the exercise of outstanding options to
acquire Shares, assuming that no holder of Convertible Subordinated Notes
exercises its right to convert such notes to Shares prior to the consummation
of the Merger and assuming no exercise of stockholders' appraisal rights) to
shareholders of Holdings and to holders of options to acquire Shares to
acquire all the outstanding Shares and acquire, redeem or terminate all
outstanding rights to acquire Shares.
(b) Holdings will not pay in the aggregate (i) more than
$83,000,000 (plus accrued interest) to holders of the Senior Notes to redeem,
or repurchase pursuant to the Debt Tender Offer, all the outstanding Senior
Notes, (ii) more than $66,500,000 (plus accrued interest) to holders of the
Convertible Subordinated Notes to redeem or repurchase all the outstanding
Convertible Subordinated Notes and (iii) more than $20,000,000 (including
call premiums and accrued interest) to prepay any Existing Mortgages.
SECTION 6.19. Fiscal Year. Holdings will not, and will not
permit the Subsidiaries to, change the financial reporting convention by
which Holdings and the Subsidiaries determine the dates on which their fiscal
years and fiscal quarters will end; provided, however, that Holdings and the
Subsidiaries may, upon 30 days' prior written notice to the Administrative
Agent, change the financial reporting convention so long as (a) such change
applies to Holdings and all the Subsidiaries and (b) such financial reporting
convention specified above is reasonably acceptable to the Administrative
Agent, in which case Holdings and the Administrative Agent will, and are
hereby authorized by the Lenders to, make any adjustments to this Agreement
that are necessary in order to reflect such change in financial reporting
convention.
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any
Loan or any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or otherwise;
<PAGE>
(b) the Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement or any other
Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of five days;
(c) any representation or warranty made or deemed made by
or on behalf of Holdings, the Borrower, any other Subsidiary or Acqco
in or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report,
certificate, financial statement or other document furnished pursuant
to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been
incorrect in any material respect when made or deemed made;
(d) Holdings, the Borrower or, prior to the Merger, Acqco
shall fail to observe or perform any covenant, condition or agreement
contained in Section 5.02, 5.04 (with respect to the existence of
Holdings, the Borrower or, prior to the Merger, Acqco), 5.11 or 5.15,
in the second sentence of Section 5.16, in Section 5.17 or in
Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document
(other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of
30 days after notice thereof from the Administrative Agent to the
Borrower (which notice will be given at the request of any Lender);
(f) Holdings, the Borrower, any other Subsidiary or, prior
to the Merger, Acqco shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and
payable;
(g) any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled maturity or
that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity, provided that (i) this clause (g) shall not
apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness and (ii) this clause (g) shall not apply to (A) any
right of any holder of the Convertible Subordinated Notes to require
Holdings to redeem such Convertible Subordinated Notes in connection
with the occurrence of a "Redemption Event" (as defined in the
Convertible Subordinated Notes Indenture) arising from the
Transactions or (B) any Existing Mortgage to the extent that the
relevant event under such Existing Mortgage arises from the
Transactions;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of Holdings, the Borrower,
<PAGE>
any other Subsidiary or, prior to the Merger, Acqco or its debts, or
of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for
Holdings, the Borrower, any other Subsidiary or, prior to the Merger,
Acqco or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall continue undismissed for 60 days or
an order or decree approving or ordering any of the foregoing shall
be entered;
(i) Holdings, the Borrower, any other Subsidiary or, prior
to the Merger, Acqco shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or other relief
under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent
to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for
Holdings, the Borrower, any other Subsidiary or, prior to the Merger,
Acqco or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) Holdings, the Borrower, any other Subsidiary or, prior
to the Merger, Acqco shall admit in writing its inability or fail
generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 shall be rendered against
Holdings, the Borrower, any Subsidiary or, prior to the Merger, Acqco
or any combination thereof and the same shall remain undischarged for
a period of 45 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of Holdings, the
Borrower, any other Subsidiary or, prior to the Merger, Acqco to
enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion
of the Required Lenders, when taken together with all other ERISA
Events that have occurred, could reasonably be expected to result in
liability of Holdings, the Borrower, any other Subsidiary or, prior
to the Merger, Acqco in an aggregate amount exceeding (i) $1,000,000
in any year or (ii) $5,000,000 for all periods;
(m) (i) any Loan Document (other than any Letter of Credit)
shall, at any time, cease to be in full force and effect (unless
released as permitted under this Agreement) or shall be declared null
and void, or the validity or enforceability in any respect thereof
shall be contested by any Loan Party or (ii) any Lien purported to be
created under any Security Document shall cease to be, or shall be
asserted by any Loan Party not to be, a valid and perfected Lien on
Collateral with a fair market value of $1,000,000 or more, with the
priority required by the applicable Security Document, except (A) as
<PAGE>
a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan Documents or (B)
as a result of the Administrative Agent's failure to maintain
possession of any stock certificates, promissory notes or other
instruments delivered to it under the Pledge Agreement or to file any
continuation statements with respect to the Collateral; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the
Borrower described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or
different times: (i) terminate the Commitments, and thereupon the
Commitments shall terminate immediately, and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall become due and
payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and Issuing Banks hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
The bank serving as Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not the Administrative
Agent, and such bank and its Affiliates may accept deposits from, lend money
to and generally engage in any kind of business with Holdings, the Borrower,
any other Subsidiary or other Affiliate thereof or, prior to the Merger,
Acqco as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (a) the Administrative Agent shall
not be subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing, (b) the Administrative
Agent shall not have any duty to take any discretionary action or exercise
any discretionary powers, except discretionary rights and powers expressly
<PAGE>
contemplated by the Loan Documents that the Administrative Agent is required
to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and (c) except as expressly set forth in the Loan
Documents, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
Holdings, the Borrower, any of the other Subsidiaries or, prior to the
Merger, Acqco that is communicated to or obtained by the bank serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by
it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall not be
deemed to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by Holdings, the Borrower, a
Lender or, prior to the Merger, Acqco and the Administrative Agent shall not
be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered thereunder or in connection therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions
set forth in any Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document or (v) the satisfaction of any condition set forth in
Article IV or elsewhere in any Loan Document, other than to confirm receipt
of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
believed by it to be genuine and to have been signed or sent by the proper
Person. The Administrative Agent also may rely upon any statement made to it
orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Administrative
Agent may consult with legal counsel (who may be counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice
of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and
powers through their respective Related Parties. The exculpatory provisions
of the preceding paragraphs shall apply to any such sub-agent and to the
Related Parties of each Administrative Agent and any such sub-agent, and
shall apply to their respective activities in connection with the syndication
of the credit facilities provided for herein as well as activities as
Administrative Agent.
Subject to the appointment and acceptance of a successor to
the Administrative Agent as provided in this paragraph, the Administrative
Agent may resign at any time by notifying the Lenders, the Issuing Banks,
Holdings, the Borrower and, prior to the Merger, Acqco. Upon any such
resignation, the Required Lenders shall have the right, in consultation with
Holdings, the Borrower, and, prior to the Merger, Acqco to appoint a
<PAGE>
successor. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Banks, appoint a successor Administrative Agent that shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent,
and the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article
and Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document or related agreement or any document
furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified
or registered mail or sent by telecopy, as follows:
(a) if to Holdings or the Borrower, to it at Frank's Nursery
& Crafts, Inc., 6501 East Nevada, Detroit, Michigan 48234-2864,
Attention: Chief Financial Officer (Telecopy No. (313) 564-2084);
(b) if to Acqco, to it at Cyrus Acquisition Corp., c/o The
Cypress Group, 65 East 55th Street, New York, New York 10022,
Attention: David P. Spalding (Telecopy No. (212) 705-0199);
(c) if to the Administrative Agent, the Collateral Agent or
the Primary Issuing Bank, to The Chase Manhattan Bank, c/o The Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Janet Belden (Telecopy No. (212)
552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue,
New York, New York 10017, Attention of Neil Boylan (Telecopy
No. (212) 270-1848); and
<PAGE>
(d) if to any other Lender or Issuing Bank, to it at its
address (or telecopy number) set forth in its Administrative
Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the
date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or
delay by the Administrative Agent, any Issuing Bank or any Lender in
exercising any right or power hereunder or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Administrative Agent, any Issuing Bank, the Swingline Lender and the other
Lenders hereunder and under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of any Loan Document or consent to any departure by
any Loan Party therefrom shall in any event be effective unless the same
shall be permitted by paragraph (b) of this Section, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given. Without limiting the generality of the foregoing, the
making of a Loan or issuance of a Letter of Credit shall not be construed as
a waiver of any Default, regardless of whether the Administrative Agent, the
Swingline Lender, any other Lender or any Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor
any provision hereof or thereof may be waived, amended or modified except, in
the case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent, Holdings, the Borrower, the
Required Lenders and, prior to the Merger, Acqco or, in the case of any other
Loan Document, pursuant to an agreement or agreements in writing entered into
by the Administrative Agent and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required Lenders,
provided that no such agreement shall (i) increase the Commitment of any
Lender without the written consent of such Lender, (ii) reduce the principal
amount of any Loan or LC Disbursement or reduce the rate of interest thereon,
or reduce any fees payable hereunder, without the written consent of each
Lender affected thereby, (iii) postpone the scheduled date of payment of the
principal amount of any Loan or LC Disbursement, or any interest thereon, or
any fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby, (iv) change
Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender, (v)
change any of the provisions of this Section or the definition of the term
"Required Lenders" or any other provision of any Loan Document specifying the
number or percentage of Lenders (or Lenders of any Class) required to waive,
amend or modify any rights thereunder or make any determination or grant any
consent thereunder, without the written consent of each Lender (or each
Lender of such Class, as the case may be), (vi) release Holdings, any
Subsidiary Loan Party or, prior to the Merger, Acqco from its Guarantee under
the applicable Guarantee Agreement (except as expressly provided in such
<PAGE>
Guarantee Agreement), or limit its liability in respect of such Guarantee,
without the written consent of each Lender, or (vii) release all or
substantially all of the Collateral from the Liens of the Security Documents
(except as expressly permitted by the Loan Documents), without the written
consent of each Lender, and provided further that (A) no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent, any Issuing Bank or the Swingline Lender without the prior written
consent of the Administrative Agent, the applicable Issuing Bank or the
Swingline Lender, as the case may be, and (B) any waiver, amendment or
modification of this Agreement that by its terms affects the rights or duties
under this Agreement of the Revolving Lenders (but not the Term Lenders) or
the Term Lenders (but not the Revolving Lenders) may be effected by an
agreement or agreements in writing entered into by Holdings, the Borrower,
the requisite percentage in interest of the affected Class of Lenders and,
prior to the Merger, Acqco.
SECTION 9.03. Expenses; Indemnity; Damage Waiver.
(a) Holdings, the Borrower and, prior to the Merger, Acqco shall pay (i) all
reasonable out-of-pocket expenses incurred by the Agents and their respective
Affiliates, including the reasonable fees, charges and disbursements of a
single counsel for the Agents in each jurisdiction, in connection with the
syndication of the credit facilities provided for herein, the preparation and
administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all reasonable
out-of-pocket expenses incurred by any Issuing Bank in connection with the
issuance, amendment, renewal or extension of any Letter of Credit by such
Issuing Bank or any demand for payment thereunder and (iii) all out-of-pocket
expenses incurred by the Agents, any Issuing Bank, the Swingline Lender or
any other Lender, including the fees, charges and disbursements of any
counsel for the Agents, any Issuing Bank, the Swingline Lender or any other
Lender, in connection with the enforcement or protection of their rights in
connection with the Loan Documents, including their rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) Each of Holdings, the Borrower and, prior to the
Merger, Acqco shall indemnify the Agents, each Issuing Bank, the Swingline
Lender and each other Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold
each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable fees, charges and
disbursements of any single counsel for such Indemnitee, and any other
Indemnitees as to which no conflict of interest exists, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby, the performance by the parties
to the Loan Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan or Letter of Credit or the use of the proceeds
therefrom (including any refusal by an Issuing Bank to honor a demand for
payment under a Letter of Credit issued by such Issuing Bank if the documents
presented in connection with such demand do not strictly comply with the
terms of such Letter of Credit), (iii) any actual or alleged presence or
release of Hazardous Materials on or from any Mortgaged Property or any other
<PAGE>
property currently or formerly owned or operated by Holdings, the Borrower or
any of the Subsidiaries, or any Environmental Liability related in any way to
the Borrower, any of the Subsidiaries or, prior to the Merger, Acqco, or (iv)
any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any
other theory and regardless of whether any Indemnitee is a party thereto,
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
resulted from the gross negligence or wilful misconduct of such Indemnitee or
any Affiliate of such Indemnitee (or of any officer, director, employee,
advisor or agent of such Indemnitee or any such Indemnitee's Affiliates.
(c) To the extent that any Loan Party fails to pay any
amount required to be paid by it to the Agents, any Issuing Bank or the
Swingline Lender under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Agents, the applicable Issuing Bank or the
Swingline Lender, as the case may be, such Lender's pro rata share
(determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount, provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the Agents,
such Issuing Bank or the Swingline Lender in its capacity as such. For
purposes hereof, a Lender's "pro rata share" shall be determined based upon
its share of the sum of the total Revolving Exposures, outstanding Term Loans
and unused Commitments at the time.
(d) To the extent permitted by applicable law, Holdings,
the Borrower and, prior to the Merger, Acqco shall not assert, and each
hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to
direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds
thereof.
(e) All amounts due under this Section shall be payable
reasonably promptly after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of any Issuing Bank that issues any Letter of
Credit), except that none of Holdings, the Borrower and, prior to the Merger,
Acqco may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed
to confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of any
Issuing Bank that issues any Letter of Credit) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Agents, each Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or
by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it), provided
<PAGE>
that (i) except in the case of an assignment to a Lender or an Affiliate of a
Lender, each of the Borrower and the Administrative Agent (and, in the case
of an assignment of all or a portion of a Revolving Commitment or any
Lender's obligations in respect of its LC Exposure or Swingline Exposure,
each Issuing Bank and the Swingline Lender) must give their prior written
consent to such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender's Commitment or Loans, the amount of the Commitment or Loans
of the assigning Lender subject to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000
unless each of the Borrower and the Administrative Agent otherwise consent,
(iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement, except that this clause (iii) shall not be construed to
prohibit the assignment of a proportionate part of all the assigning Lender's
rights and obligations in respect of one Class of Commitments or Loans, (iv)
the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a processing
and recordation fee of $3,500, and (v) the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire, and provided further that any consent of the Borrower
otherwise required under this paragraph shall not be required if an Event of
Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance
covering all of the assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but shall continue to
be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of
New York a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and
the Commitment of, and principal amount of the Loans and LC Disbursements
owing to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive, and Holdings,
the Borrower, the Administrative Agent, each Issuing Bank, the Lenders and,
prior to the Merger, Acqco may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, any Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
<PAGE>
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be
a Lender hereunder), the processing and recordation fee referred to in
paragraph (b) of this Section and any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall
accept such Assignment and Acceptance and record the information contained
therein in the Register. No assignment shall be effective for purposes of
this Agreement unless it has been recorded in the Register as provided in
this paragraph.
(e) Any Lender may, without the consent of any party, sell
participations to one or more banks or other entities (a "Participant") in
all or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it),
provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent, any Issuing Bank, the Swingline Lender,
the other Lenders and, prior to the Merger, Acqco shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement. Any agreement or instrument pursuant
to which a Lender sells such a participation shall provide that such Lender
shall retain the sole right to enforce the Loan Documents and to approve any
amendment, modification or waiver of any provision of the Loan Documents,
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the
Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to paragraph (b) of this
Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.18(c) as though it were a
Lender.
(f) A Participant shall not be entitled to receive any
greater payment under Section 2.15, 2.16 or 2.17 than the applicable Lender
would have been entitled to receive with respect to the participation sold to
such Participant, unless the sale of the participation to such Participant is
made with the Borrower's prior written consent and, prior to giving such
consent, the Borrower is made aware of any additional costs to which such
Participant may be entitled. A Participant that would be a Foreign Lender if
it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrower, to comply with
Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to
any such pledge or assignment of a security interest, provided that no such
pledge or assignment of a security interest shall release a Lender from any
of its obligations hereunder or substitute any such pledgee or assignee for
such Lender as a party hereto.
<PAGE>
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans and
issuance of any Letters of Credit, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and
unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17
and 9.03 and Article VIII shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Letters of
Credit and the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract. This Agreement, the other Loan Document and any separate letter
agreements with respect to fees payable to the Agents constitute the entire
contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been
executed by the Agents and when the Administrative Agent shall have received
counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this
Agreement held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default
shall have occurred and be continuing, each Lender and each of its Affiliates
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
obligations at any time owing by such Lender or Affiliate to or for the
credit or the account of the Borrower against any of and all the obligations
of the Borrower now or hereafter existing under this Agreement held by such
Lender, and then due and owing, whether by acceleration or otherwise. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) that such Lender may have.
<PAGE>
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process. (a) This Agreement shall be construed in accordance
with and governed by the law of the State of New York.
(b) Each of Holdings, the Borrower and, prior to the
Merger, Acqco hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of the Supreme Court of the
State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to
any Loan Document, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided
by law. Nothing in this Agreement or any other Loan Document shall affect
any right that the Agents, any Issuing Bank or any Lender may otherwise have
to bring any action or proceeding relating to this Agreement or any other
Loan Document against Holdings, the Borrower, its properties or, prior to the
Merger, Acqco in the courts of any jurisdiction.
(c) Each of Holdings, the Borrower and, prior to the
Merger, Acqco hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any other Loan Document in
any court referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01.
Nothing in this Agreement or any other Loan Document will affect the right of
any party to this Agreement to serve process in any other manner permitted by
law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 9.11. Headings. Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
<PAGE>
SECTION 9.12. Confidentiality. Each of the Agents, the
Issuing Banks, the Swingline Lender and the other Lenders agrees to maintain
the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates' directors,
officers, employees and agents, including accountants, legal counsel and
other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent
requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process,
(d) to any other party to this Agreement, (e) in connection with the exercise
of any remedies hereunder or any suit, action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights hereunder
or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of Holdings,
the Borrower and, prior to the Merger, Acqco or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach
of this Section or (ii) becomes available to the Agents, any Issuing Bank or
any Lender on a nonconfidential basis from a source other than Holdings or
the Borrower. For the purposes of this Section, the term "Information" means
all information received from Holdings, the Borrower or, prior to the Merger,
Acqco relating to Holdings, the Borrower, its business or, prior to the
Merger, Acqco, other than any such information that is available to the
Agents, any Issuing Bank or any Lender on a nonconfidential basis prior to
disclosure by Holdings or the Borrower, provided that, in the case of
information received from Holdings, the Borrower or, prior to the Merger,
Acqco after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable
to any Loan, together with all fees, charges and other amounts that are
treated as interest on such Loan under applicable law (collectively, the
"Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") that
may be contracted for, charged, taken, received or reserved by the Lender
holding such Loan in accordance with applicable law, the rate of interest
payable in respect of such Loan hereunder, together with all Charges payable
in respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of
such Loan but were not payable as a result of the operation of this Section
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall
have been received by such Lender.
SECTION 9.14. Pre-Funding Escrow Arrangements. The
Borrower currently intends that the Effective Date will occur on December 24,
1997, and currently desires that the Lenders make available on the Effective
Date (a) Term Loans in an aggregate amount equal to $[ ] and
(b) Revolving Loans in an aggregate amount equal to $[ ] (such aggregate
<PAGE>
amount of the Borrowings to be made on the Effective Date, the "Estimated
Initial Loan Amount"). In order to ensure that the Estimated Initial Loan
Amount will be available at 9:00 a.m., New York City time, on December 24,
1997, the Borrower (a) will deliver a Borrowing Request (a "Pre-Funding
Request") to the Administrative Agent not later than 1:00 p.m., New York City
time, on December 23, 1997, and (b) will request pursuant to such Pre-Funding
Request that the Lenders transfer an amount equal to the Estimated Initial
Loan Amount (such amount, the "Delivered Funds") to an account designated by
the Administrative Agent (the "Escrow Account") on December 23, 1997. The
Borrower further desires that the amount (the "Returned Amount") that is
equal to the difference, if any, between (i) the Delivered Amount and
(ii) the amount (the "Actual Initial Loan Amount") identified in a Borrowing
Request that the Borrower will deliver to the Administrative Agent at 12:00
a.m. on December 24, 1997, will be returned to the Lenders from the Escrow
Account. The following agreements and understandings will apply with respect
to (a) the arrangements for the availability of funds to enable the funding
by the Lenders of the Estimated Initial Loan Amount upon the satisfaction of
the conditions set forth in Sections 4.01 and 4.02 of this Agreement (the
"Closing") and (b) the release of the Actual Initial Loan Amount upon the
Closing:
(i) The Administrative Agent, on behalf of the Lenders,
shall have sole and exclusive dominion over and control of the Escrow
Account and all property from time to time deposited therein.
(ii) Upon receipt from the Borrower of a Pre-Funding
Request, the Administrative Agent will provide notice to each Lender,
in the manner that would be applicable to a Borrowing Request under
Section 2.03, that such Lender should make available to the
Administrative Agent not later than 2:00 p.m., New York City time, on
December 23, 1997, such Lender's pro rata portion of the Delivered
Funds, as such pro rata portion may be determined by the
Administrative Agent pursuant to the respective Commitments of the
Lenders as set forth on Schedule 2.01. Each Lender shall make its
pro rata portion of the Delivered Funds available to the
Administrative Agent by wire transfer of immediately available funds
to the Escrow Account.
(iii) Notwithstanding anything in this Agreement or any
other document to the contrary, (A) the Administrative Agent shall
hold the Delivered Funds for the account of the Lenders pending
release of the Actual Initial Loan Amount pursuant to paragraph (v)
below and (B) the Borrower shall have no right, title or interest in
or to the Delivered Funds pending such release. To the extent that
the Administrative Agent has any interest in the Delivered Funds, the
Administrative Agent hereby grants a Lien on such interest to the
Collateral Agent for the benefit of the Lenders. The Administrative
Agent shall use commercially reasonable efforts to invest in a time
deposit with the Nassau, Bahamas, branch of the Administrative Agent
such of the Delivered Funds as are on deposit in the Escrow Account
at 2:30 p.m., New York City time, on December 23, 1997. All earnings
on the Delivered Funds (the "Investment Earnings") shall be paid into
the Escrow Account. The Administrative Agent shall not be liable to
any Person for any loss suffered in connection with any investment of
funds made by it in accordance with this Section 9.14.
<PAGE>
(iv) The Borrower shall reimburse each Lender for its
cost of delivery of the Delivered Funds to the Administrative Agent.
Such reimbursement shall, as to each Lender, be equal to the product
of (A) such Lender's pro rata portion (determined as set forth above)
of the Delivered Funds times (B) a percentage equal to the Alternate
Base Rate plus the margin that would be applicable to such Lender's
ABR Loans as of the Effective Date multiplied by (C) a fraction the
numerator of which is the actual number of days elapsed from
December 23, 1997, to the date the Actual Initial Loan Amount is
released to the Borrower or all of the Delivered Funds are
distributed to the Lenders pursuant to paragraph (v) below, as the
case may be, and the denominator of which is 365. Such reimbursement
in respect of the Delivered Funds shall be paid by the Borrower to
the Administrative Agent on behalf of the Lenders on the first
Interest Payment Date to occur after the Effective Date pursuant to
the terms of this Agreement; provided, however, that if all of the
Delivered Funds are released to the Lenders (and the Actual Initial
Loan Amount is not released to the Borrower) pursuant to
paragraph (v) below, such reimbursement amount shall be payable by
the Borrower immediately upon release of the Delivered Funds.
(v) Upon the occurrence of the Closing on December 24,
1997, the Administrative Agent is authorized to release to and
thereby make available (A) to the Borrower (x) the Actual Initial
Loan Amount and (y) all Investment Earnings and (B) to the Lenders,
the Returned Amount. If the Closing has not occurred by 11:59 p.m.,
New York City time, on December 24, 1997, all of the Delivered Funds
shall be immediately released to the Administrative Agent for
distribution to the Lenders on December 26, 1997, and all Investment
Earnings shall be released to the Administrative Agent to the extent
necessary to offset amounts payable by the Borrower to the Lenders.
(vi) In order to induce the Administrative Agent to act
under this Section 9.14, Holdings, the Borrower, Acqco, the
Administrative Agent and the Lenders agree that:
(A) The duties and obligations of the
Administrative Agent under this Section 9.14 are those
herein specifically provided and no other. The
Administrative Agent shall not incur any liability
whatsoever other than for its own wilful misconduct or gross
negligence.
(B) The Administrative Agent shall not have any
responsibility for the genuineness or validity of any
document or other material presented to or deposited with it
pursuant to this Section 9.14, nor any liability for any
action taken, suffered or omitted in accordance with any
written instructions or certificates given to it hereunder
and believed by it to be signed by the proper party or
parties pursuant to this Section 9.14.
(C) In the event that the Administrative Agent
shall be uncertain as to its duties or rights hereunder or
shall receive instructions, claims or demands from any party
hereto that, in its opinion, conflict with any of the
provisions under this Section 9.14, the Administrative Agent
<PAGE>
shall be entitled to refrain from taking any action and its
sole obligation shall be to keep safely all property held in
escrow until it shall be directed otherwise in writing by
all the other parties hereto or by a final order or judgment
of a court of competent jurisdiction.
(D) The Administrative Agent shall not be bound by
any modification, amendment, termination, cancellation,
rescission or supersession of this Section 9.14 unless the
same shall be in writing and signed by all the other parties
hereto, and, if its rights, duties or immunities as
Administrative Agent are affected thereby, unless it shall
have given its prior written consent thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
FRANK'S NURSERY & CRAFTS, INC.,
by /s/ Joseph R. Baczko
---------------------------
Name: Joseph Baczko
Title: President and Chief
Executive Officer
CYRUS ACQUISITION CORP.,
by /s/ Bahram Shirazi
---------------------------
Name: Bahram Shirazi
Title: Vice President
GENERAL HOST CORPORATION,
by /s/ Joseph Baczko
---------------------------
Name: Joseph Baczko
Title: President and Chief
Executive Officer
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
Collateral Agent, Issuing Bank and Swingline Lender,
by /s/ Lawrence Palumbo, Jr.
---------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
GOLDMAN SACHS CREDIT PARTNERS L.P.,
individually and as Documentation Agent,
by /s/ Edward C. Forst
---------------------------
Name: Edward C. Forst
Title: Authorized Signatory
[OTHER BANKS],
by /s/ Mark H. Minter
---------------------------
Name: Mark H. Minter
Title: Director
<PAGE>
SCHEDULE 1.01(a)
TO CREDIT AGREEMENT
MORTGAGED PROPERTIES
Store Address Town State Zip
- ----- ------- ---- ----- ---
5 25488 MICHIGAN AVENUE DEARBORN HGTS. MI 48125
15 2170 DIX ROAD LINCOLN PARK MI 48146
23 5580 W. STATE ST. SAGINAW MI 48603
26 7141 E. BROAD COLUMBUS OH 43213
27 5500 W. BROAD ST. COLUMBUS OH 43228
28 6303 S. ANTHONY FT. WAYNE IN 46816
29 1133 COLISEUM BLVD. FT. WAYNE IN 46805
30 47340 VAN DYKE UTICA MI 48317
45 7940 PENN AVE. S. BLOOMINGTON MN 55431
58 3333 REFUGEE ROAD COLUMBUS OH 43232
81 3001 28TH ST. S.W. GRANDVILLE MI 49418
85 325 MALL DRIVE PORTAGE MI 49002
86 8032 KEN-18 BURLINGTON PK. FLORENCE KY 41042
93 5737 S. PENNSYLVANIA LANSING MI 48911
94 6142 TELEGRAPH TOLEDO OH 43612
102 10901 BUSTLETON PHILADELPHIA PA 19116
104 10550 REISTERSTOWN RD. OWINGS MILLS MD 21117
105 190 W. LINCOLN HWY. EXTON PA 19341
110 4315 E. BAY DRIVE CLEARWATER FL 34624
111 5501 49TH ST. N. ST. PETERSBURG FL 33709
112 255 89TH AVENUE BLAINE MN 55434
113 4720 U.S. 19 NEW PORT RICHEY FL 34652
117 6401 W. WATERS AVENUE TAMPA FL 33634
118 4366 PIERSON ROAD FLINT MI 48504
119 12756 WALSINGHAM RD. LARGO FL 34644
120 3805 MAPLEDALE BLVD. TAMPA FL 33624
134 15031 MANCHESTER ROAD BALLWIN MO 63011
141 7456 SOUTH STATE RD. BEDFORD PARK IL 60638
151 2295 10 MILE ROAD WARREN MI 48091
164 2997 E. WILDER ROAD BAY CITY MI 48706
178 2685 TITTABAWASSEE RD. SAGINAW MI 48604
179 4532 WOODVILLE RD. NORTHWOOD OH 43619
181 3530 MONA KAI DRIVE NORTON SHORES MI 49441
188 448 N. LEXINGTON PARKWAY ST. PAUL MN 55104
189 1210 N. BYRNE TOLEDO OH 43607
199 1238 UPPER VALLEY PIKE RD. SPRINGFIELD OH 45505
202 3365 HIGHLAND AVE. CINCINNATI OH 45213
213 4902 CORTEZ RD. BRADENTON FL 34210
240 7325 OLD TROY PIKE HUBER HEIGHTS OH 45424
259 5225 N. GRAPE RD. MISHAWAKA IN 46545
266 10808 MONTGOMERY RD. CINCINNATI OH 45242
272 20 E. MAIN STREET WESTFIELD MA 01085
286 2145 HIGHWAY 35 WALL TWP. SEA GIRT NJ 08750
605 210 MONMOUTH ROAD W. LONG BRANCH NJ 07764
622 945 NORTH STREET MILFORD CT 06460
624 840 ROUTE 46 KENVIL NJ 07847
625 2931 HIGHWAY 35 HAZLET NJ 07730
<PAGE>
638 4250 ROUTE 9 SOUTH HOWELL NJ 07731
645 447 WINTHROP ST. (RTE. 44) TAUNTON MA 02780
648 76 CAMPANELLI DRIVE BROCKTON MA 02401
649 310 RUSSELL ST. (RTE. 9) HADLEY MA 01035
652 840 BOSTON ROAD (RTE. 20) SPRINGFIELD MA 01119
84 43473 FORD ROAD CANTON TWP. MI 48188
87 3720 95TH ST. EVERGREEN PARK IL 60642
88 720 N. GREEN BAY RD. WAUKEGAN IL 60087
90 2999 E. LINCOLN HWY. MERRILLVILLE IN 46410
92(40 15300 HALL ROAD CLINTON TOWNSHIP MI 48038
1)
98 1950 STATE ST. ST. CHARLES IL 60174
103 3707 COON RAPIDS BLVD. COON RAPIDS MN 55433
107 1520 AURORA NAPERVILLE IL 60563
156 3822 S. FRANKLIN MICHIGAN CITY IN 46360
214 3526 TOWNE BLVD. FRANKLIN OH 45005
219 3075 MIDDLE ROAD COLUMBUS IN 47203
269 1910 E. IRELAND RD. SOUTH BEND IN 46614
184 13943 E. EIGHT MILE WARREN MI 48089
616 894 SUNRISE HWY. BAY SHORE NY 11706
<PAGE>
SCHEDULE 1.01(b)
TO CREDIT AGREEMENT
EXISTING MORTGAGES
1. Mortgages, Security Agreements and Assignments of Leases and Rents
(or the local jurisdiction equivalent) dated as of April 22, 1996 by Borrower
to First Union National Bank of North Carolina<F1> securing the following
properties:
Store Address Town State Zip
- ----- ------- ---- ----- ---
32 1700 E. DUBLIN- COLUMBUS OH 43229
GRANDVILLE
33 4180 PLAINFIELD N.E. GRAND RAPIDS MI 49505
80 G-5054 MILLER RD. FLINT MI 48507
142 801 EASTGATE DRIVE CINCINNATI OH 45245
205 5354 DIXIE HWY. LOUISVILLE KY 40216
208 4810 OUTER LOOP LOUISVILLE KY 40219
2. Mortgage dated August 4, 1994 made by Borrower to
N.A.D. Realty Co. Inc., with related Mortgage Note dated as
of August 4, 1994<F2>, securing the following property:
Store Address Town State Zip
- ----- ------- ---- ----- ---
610 715 DOBBS FERRY ROAD WHITE PLAINS NY 10607
3. First Mortgage, Assignment of Rent, Security
Agreement and Fixture Filing made by Borrower in favor of
National Realty Funding, L.L.C., dated August 19, 1997, with
related Promissory Note, Assignment of Rents, Leases and
Profits, Guaranty Agreement, Completion/Repair Escrow and
Security Agreement, Borrower's Certificate of Representations
and Warranties, Environmental Escrow Agreement and
Environmental Indemnity Agreement, all dated as of August 19,
1997, securing the following property:
Store Address Town State Zip
- ----- ------- ---- ----- ---
601 1081 E. JERICHO TURNPIKE HUNTINGTON NY 11743
4. Commercial Mortgages made by Borrower to MetLife
Capital Financial Corporation, dated as of August 31, 1995,
with related Security Agreements, Assignments of Rents and
Leases, Guaranties, Promissory Notes, Borrowers' Certificates
and Certificates of Hazardous Substances, all dated August
31, 1995**, securing the following properties:
<F1> Upon the consummation of the Tender Offers there will be a default
and/or a right of the lender to require repayment under these
mortgages.
<F2> To be repaid and terminated on or prior to the Effective Date.
<PAGE>
84 43473 FORD ROAD CANTON TWP. MI 48188
87 3720 95TH ST. EVERGREEN IL 60642
PARK
88 720 N. GREEN BAY RD. WAUKEGAN IL 60087
90 2999 E. LINCOLN HWY. MERRILLVILLE IN 46410
92(401) 15300 HALL ROAD CLINTON MI 48038
TOWNSHIP
98 1950 STATE ST. ST. CHARLES IL 60174
103 3707 COON RAPIDS BLVD. COON RAPIDS MN 55433
107 1520 AURORA NAPERVILLE IL 60563
156 3822 S. FRANKLIN ST. MICHIGAN IN 46360
CITY
214 3526 TOWNE BOULEVARD FRANKLIN OH 45005
219 3075 MIDDLE ROAD COLUMBUS IN 47203
267 1910 E. IRELAND RD. SOUTH BEND IN 46614
5. Mortgage Deeds and Security Agreements dated as of
January 25, 1996 made by Borrower to People's Bank, with
related Mortgage Note, Assignment of Rents and Leases,
Guaranty and Indemnity Agreement and Escrow Agreement
securing the following properties:
Store Address Town State Zip
- ----- ------- ---- ----- ---
631 479 EAST MAIN STREET BRANFORD CT 06405
632 400 TALCOTTVILLE RD. VERNON CT 06066
633 1198 QUEEN STREET SOUTHINGTON CT 06489
636 361 SCOTT SWAMP ROAD FARMINGTON CT 06032
643 656 SILVER LANE EAST CT 06118
HARTFORD
Mortgage and Security Agreements dated as of January
25, 1996 made by Borrower to People's Bank, with related
Mortgage Note, Assignment of Rents and Leases, Guaranty and
Indemnity Agreement and Escrow Agreement securing the
following property:
Store Address Town State Zip
- ----- ------- ---- ----- ---
639 RTE. #9 W. KIEFFER LANE KINGSTON NY 12401
6. Mortgages dated as of October 16, 1995, as amended
as of December 1, 1995, made by Borrower to Midland
Commercial Financing Corp., with related Amended and Restated
Promissory Note dated as of December 1, 1995, Assignments of
Rents and Leases dated as of October 16, 1995, amended as of
December 1, 1995, Amended and Restated Guaranty dated as of
December 1, 1995, Escrow Agreements dated as of October 13,
1995, Borrower's Certificate dated January 26, 1996 and
Environmental Indemnity Agreement dated January 26, 1996,
securing the following properties:
34 1941 GRAND RIVER OKEMOS MI 48864
100 1395 LARKIN JOLIET IL 60435
<PAGE>
7. Mortgages dated as of January 26, 1996 made by
Borrower to Midland Loan Services, L.P., with related
Promissory Notes, Assignment of Rents and Leases, Guaranties,
Escrow Agreements, Borrower's Certificate and Environmental
Indemnity Agreement, all dated as of January 26, 1996,
securing the following properties:
Store Address Town State Zip
- ----- ------- ---- ----- ---
65 1800 HIGHWAY #36 ROSEVILLE MN 55113
99 4703 EDGEMONT BROOKHAVEN PA 19015
101 1729 DEPTFORD CENTER RD. DEPTFORD NJ 08096
106 1600 S. MILWAUKEE LIBERTYVILLE IL 60048
135 12253 ST. CHARLES ROCK BRIDGETON MO 63044
RD.
139 3725 HARRY S. TRUMAN ST. CHARLES MO 63301
140 195 S. RAND ROAD LAKE ZURICH IL 60047
163 5701 E. N.W. HIGHWAY CRYSTAL LAKE IL 60014
167 1850 IRVING PARK RD. SCHAUMBURG IL 60193
168 5738 BECKLEY RD. BATTLE CREEK MI 49015
244 8040 GLEN LANE EDEN PRAIRIE MN 55344
245 1360 DUCKWOOD DRIVE EAGAN MN 55123
265 4630 HWY 94 N OUTER RD. ST. CHARLES MO 63304
277 2050 S. TELEGRAPH BLOOMFIELD MI 48302
TWP.
623 450 NEW DORP LANE STATEN NY 10306
ISLAND
626 116 BRICK BOULEVARD BRICKTOWN NJ 08723
628 794 HIGHWAY 202 SOUTH BRIDGEWATER NJ 08807
8. Mortgage, Security Agreement and Assignment of
Leases and Rents dated as of March 14, 1996 made by Borrower
to Midland Loan Services, L.P., with related Promissory Note,
Assignment of Rents and Leases, Guaranty and Escrow
Agreement, all dated as of March 14, 1996, securing the
following property:
<PAGE>
25 2450 28TH ST. S.E. GRAND RAPIDS MI 49512
9. Mortgages, Security Agreements, Assignments of
Leases and Rents, Fixture Filings and Financing
Statements made by Borrower to Comerica Bank, dated
as of November 29, 1996, with related Mortgage-
Backed Credit Agreement dated as of November 29,
1996, First Amendment to Mortgage-Backed Credit
Agreement dated as of June 13, 1997, Second
Amendment to Mortgage-Backed Credit Agreement dated
as of July 25, 1997 and Mortgage-Backed Note dated
as of November 29, 1996** securing the following
properties:
Store Address Town State Zip
- ----- ------- ---- ----- ---
5 25488 MICHIGAN AVENUE DEARBORN MI 48125
HGTS.
15 2170 DIX ROAD LINCOLN PARK MI 48146
23 5580 W. STATE ST. SAGINAW MI 48603
26 7141 E. BROAD COLUMBUS OH 43213
27 5500 W. BROAD ST. COLUMBUS OH 43228
28 6303 S. ANTHONY FT. WAYNE IN 46816
29 1133 COLISEUM BLVD. FT. WAYNE IN 46805
30 47340 VAN DYKE UTICA MI 48317
45 7940 PENN AVE. S. BLOOMINGTON MN 55431
58 3333 REFUGEE ROAD COLUMBUS OH 43232
81 3001 28TH ST. S.W. GRANDVILLE MI 49418
85 325 MALL DRIVE PORTAGE MI 49002
86 8032 KEN-18 BURLINGTON FLORENCE KY 41042
PK.
93 5737 S. PENNSYLVANIA LANSING MI 48911
94 6142 TELEGRAPH TOLEDO OH 43612
102 10901 BUSTLETON PHILADELPHIA PA 19116
104 10550 REISTERSTOWN RD. OWINGS MILLS MD 21117
105 190 W. LINCOLN HWY. EXTON PA 19341
110 4315 E. BAY DRIVE CLEARWATER FL 34624
111 5501 49TH ST. N. ST. FL 33709
PETERSBURG
112 255 89TH AVENUE BLAINE MN 55434
113 4720 U.S. 19 NEW PORT FL 34652
RICHEY
117 6401 W. WATERS AVENUE TAMPA FL 33634
118 4366 PIERSON ROAD FLINT MI 48504
119 12756 WALSINGHAM RD. LARGO FL 34644
120 3805 MAPLEDALE BLVD. TAMPA FL 33624
134 15031 MANCHESTER ROAD BALLWIN MO 63011
141 7456 SOUTH STATE RD. BEDFORD PARK IL 60638
151 2295 10 MILE ROAD WARREN MI 48091
164 2997 E. WILDER ROAD BAY CITY MI 48706
178 2685 TITTABAWASSEE RD. SAGINAW MI 48604
179 4532 WOODVILLE RD. NORTHWOOD OH 43619
181 3530 MONA KAI DRIVE NORTON MI 49441
SHORES
188 448 N. LEXINGTON PARKWAY ST. PAUL MN 55104
189 1210 N. BYRNE TOLEDO OH 43607
<PAGE>
199 1238 UPPER VALLEY PIKE SPRINGFIELD OH 45505
RD.
202 3365 HIGHLAND AVE. CINCINNATI OH 45213
213 4902 CORTEZ RD. BRADENTON FL 34210
240 7325 OLD TROY PIKE HUBER OH 45424
HEIGHTS
259 5225 N. GRAPE RD. MISHAWAKA IN 46545
266 10808 MONTGOMERY RD. CINCINNATI OH 45242
272 20 E. MAIN STREET WESTFIELD MA 01085
286 2145 HIGHWAY 35 WALL SEA GIRT NJ 08750
TWP.
605 210 MONMOUTH ROAD W. LONG NJ 07764
BRANCH
622 945 NORTH STREET MILFORD CT 06460
624 840 ROUTE 46 KENVIL NJ 07847
625 2931 HIGHWAY 35 HAZLET NJ 07730
638 4250 ROUTE 9 SOUTH HOWELL NJ 07731
645 447 WINTHROP ST. (RTE. TAUNTON MA 02780
44)
648 76 CAMPANELLI DRIVE BROCKTON MA 02401
649 310 RUSSELL ST. (RTE. 9) HADLEY MA 01035
652 840 BOSTON ROAD (RTE. SPRINGFIELD MA 01119
20)
<PAGE>
SCHEDULE 1.01(c)
TO CREDIT AGREEMENT
CAPITAL LEASES
(Real Property)
Store Address Town State Zip
- ----- ------- ---- ----- ---
8 27650 SCHOOLCRAFT LIVONIA MI 48150
10 30110 HARPER ST. CLAIR SHORES MI 48082
17 3590 WASHTENAW ANN ARBOR MI 48104
36 2520 S. REYNOLDS TOLEDO OH 43614
38 817 WEST GOLF SCHAUMBURG IL 60194
40 730 E. NORTH AVE. CAROL STREAM IL 60187
47 10870 HAMILTON AVE. CINCINNATI OH 45231
48 80 NORTH ADAMS ROCHESTER HILLS MI 48309
50 497 LAKE COOK RD. DEERFIELD IL 60015
51 700 E. ROOSEVELT LOMBARD IL 60148
52 1785 RIVER OAKS ROAD CALUMET CITY IL 60409
56 25101 ALLEN RD. WOODHAVEN MI 48183
62 6302 E. 82ND ST. CASTLETON IN 46250
63 8802 U.S. 31 SOUTH INDIANAPOLIS IN 46227
66 1970 S. ROBERT ST. WEST ST. PAUL MN 55118
67 7520 W. 159TH ST. ORLAND PARK IL 60462
68 2501 W. 75TH ST. WOODRIDGE IL 60515
69 1902 SOUTH ELMHURST MT. PROSPECT IL 60056
71 4231 EBENEZER ROAD BALTIMORE MD 21236
72 6503 BALTIMORE NAT. PIKE BALTIMORE MD 21228
74 2325 18 MILE ROAD STERLING HEIGHTS MI 48310
75 9701 E. WASHINGTON INDIANAPOLIS IN 46229
76 4500 ROOSEVELT ROAD HILLSIDE IL 60162
77 250 E. INDIAN TRAIL AURORA IL 60505
79 7222 ROCKVILLE RD. INDIANAPOLIS IN 46224
82 522 RITCHIE HWY. SEVERNA PARK MD 21146
83 7350 87TH ST. BRIDGEVIEW IL 60455
91 3271 SOUTH BLVD. E. AUBURN HILLS MI 48326
108 7401 W. 24TH ST. N. RIVERSIDE IL 60546
114 9023 LITTLE ROAD NEW PORT RICHEY FL 34654
152 89 W. CENTRAL AVE. EDGEWATER MD 21037
157 3250 OLD WASHINGTON ROAD WALDORF MD 20601
175 1845 E. COUNTY RD. D MAPLEWOOD MN 55109
190 2016 STATE RD. #9 ANDERSON IN 46013
201 1920 DEMPSTER ST. EVANSTON IL 60202
204 3555 STATE RD. #38 LAFAYETTE IN 47905
217 6560A W. FULLERTON AVE. CHICAGO IL 60707
227 8287 SPRINGBORO PIKE MIAMISBURG OH 45342
<PAGE>
SCHEDULE 1.01(d)
TO CREDIT AGREEMENT
INACTIVE SUBSIDIARIES
Nursery Distributors, Inc.
General Host Holding Corp.
AMS Industries, Inc.
AMS Salt Industries, Inc.
Bay Resources, Inc.
SNG Acquisition Company, Inc.
<PAGE>
SCHEDULE 3.05
TO CREDIT AGREEMENT
REAL PROPERTY
Leased Stores
Store Address Town State Zip
- ----- ------- ---- ----- ---
3 23090 COOLIDGE OAK PARK MI 48237
6 14601 EUREKA ROAD SOUTHGATE MI 48195
9 34900 GROESBECK CLINTON TWP. MI 48035
12 27650 VAN DYKE WARREN MI 48093
14 44 BATCHEWANA CLAWSON MI 48017
16 31590 GRAND RIVER FARMINGTON MI 48336
19 4202 S. DORT HIGHWAY FLINT MI 48507
21 5919 HIGHLAND RD. WATERFORD MI 48327
22 34700 FORD ROAD WESTLAND MI 48185
24 4832 W. SAGINAW HWY. LANSING MI 48917
31 5135 MONROE ST. TOLEDO OH 43623
35 5474 W. MAIN KALAMAZOO MI 49001
37 250 RAND RD. ARLINGTON HGTS. IL 60004
39 6715 DEMPSTER MORTON GROVE IL 60053
42 5620 WINNETKA AVE. N. NEW HOPE MN 55428
44 5016 COUNTY ROAD 101 MINNETONKA MN 55345
46 7835 KENWOOD RD. CINCINNATI OH 45236
53 4260 W. 211TH MATTESON IL 60443
54 2719 N. MANNHEIM FRANKLIN PARK IL 60131
55 4009 W. HARRISON CHEVIOT OH 45211
57 155 N. MAPLE RD. ANN ARBOR MI 48103
59 4261 W. DUBLIN-GRANVILLE DUBLIN OH 43017
64 5150 W. 38TH ST. INDIANAPOLIS IN 46254
70 6639 GOV. RITCHIE HWY. GLEN BURNIE MD 21061
73 7928 EASTERN BLVD. BALTIMORE MD 21224
78 330 WEST RIDGE ROAD GRIFFITH IN 46319
89 506 W. LAKE RD. ADDISON IL 60101
95 31 AIRPORT SQUARE NORTH WALES PA 19454
96 160 S. STATE ST. SPRINGFIELD PA 19064
97 72 COUNTRYSIDE PLAZA COUNTRYSIDE IL 60525
109 700 45TH AVE. HILLTOP MN 55421
115 1901 STATE ROAD 60 VALRICO FL 33594
116 4701 34TH ST. SO. ST. PETERSBURG FL 33711
121 3804 S. DALE MABRY TAMPA FL 33611
122 706A HIGHWAY 131 CLARKSVILLE IN 47130
123 1808 HURSTBOURNE PKY. LOUISVILLE KY 40220
124 8053 LIBERTY ROAD BALTIMORE MD 21244
125 2308 BEL AIR ROAD FALLSTON MD 21047
127 2730 DEKALB PIKE-RTE. 202 NORRISTOWN PA 19401
128 6300 GREENBELT ROAD GREENBELT MD 20770
129 1524 E. JOPPA RD. TOWSON MD 21204
130 8124 JUMPERS JUNCTION PASADENA MD 21122
131 201 BOWIE RD. LAUREL MD 20707
133 10930 LEE HIGHWAY FAIRFAX VA 22030
136 11015 OLD HALLS FERRY RD. ST. LOUIS MO 63136
137 125 KENRICK PLAZA DR. SHREWSBURY MO 63119
<PAGE>
138 1135 S. KIRKWOOD BLVD. KIRKWOOD MO 63122
144 7702 RICHMOND HWY. ALEXANDRIA VA 22306
145 5610 LINDA LANE CAMP SPRINGS MD 20748
146 30701 U.S. HIGHWAY 19 S PALM HARBOR FL 34684
147 850 STATE ROAD 434 LONGWOOD FL 32750
150 6380 TUSSING REYNOLDSBURG OH 43068
159 5837 UNIVERSITY DRIVE TAMARAC FL 33321
162 251 HIKES LANE LOUISVILLE KY 40218
165 7235 N. KEYSTONE (431) INDIANAPOLIS IN 46240
173 4383 WINSTON AVENUE COVINGTON KY 41015
174 14308 BURNHAVEN DRIVE BURNSVILLE MN 55306
176 116 WALKER AVE. W. BERLIN NJ 08091
177 1487 WEST STREET RD. WARMINSTER PA 18974
180 110 COMMERCE LANE FAIRVIEW HTS. IL 62208
182 4650 LANDSDOWNE ST. LOUIS MO 63116
183 8901 PAGE OVERLAND MO 63114
184 13943 E. EIGHT MILE WARREN MI 48089
185 90 W. KEMPER RD. SPRINGDALE OH 45246
186 7067A W. BROWARD PLANTATION FL 33317
187 1257 JEFFERSON DAVIS HWY. FREDERICKSBURG VA 22401
192 2100 W. UNION BLVD. BETHLEHEM PA 18018
195 2925 N. MILITARY TRAIL WEST PALM BEACH FL 33409
196 5201 BELAIR GARDENVILLE MD 21206
198 4910 DENLINGER RD. DAYTON OH 45426
200 2605 STREET RD. BENSALEM PA 19020
203 EASTON & CHELTENHAM RDS.
CEDARBROOK MALL WYNCOTE PA 19095
207 710 CHICAGO DRIVE HOLLAND MI 49423
212 4700 BABCOCK STREET N.E., PALM BAY FL 32905
UNIT 27
215 2108 MACARTHUR RD. WHITEHALL PA 18052
216 4037 ROUTE 130 SOUTH DELRAN NJ 08075
221 328 W. ARMY TRAIL RD. BLOOMINGDALE IL 60108
225 3804 NOLENSVILLE NASHVILLE TN 37211
<PAGE>
228 160 N. GULPH KING OF PRUSSIA
PLAZA KING OF PRUSSIA PA 19406
229 S. EVERGREEN AVE & ELM ST. WOODBURY NJ 08096
230 5210 BALTIMORE PIKE CLIFTON HGTS. PA 19018
231 757 HUNTINGDON PIKE ROCKLEDGE PA 19006
232 6351 ROOSEVELT BLVD. PHILADELPHIA PA 19149
234 ROUTE 38 & CHURCH RD. CHERRY HILL NJ 08034
235 191 LINCOLN HIGHWAY FAIRLESS HILLS PA 19030
236 849 PAOLI PIKE WEST GOSHEN PA 19380
237 110 WELSH ROAD HORSHAM PA 19044
238 46 ROUTE 70 WEST MARLTON NJ 08053
241 1950 EAST STROOP RD. KETTERING OH 45429
242 7151 DIXIE HIGHWAY CLARKSTON MI 48346
243 36624 FIVE MILE LIVONIA MI 48154
246 63 RICE LAKE SQUARE WHEATON IL 60187
248 1738 BOSTON POST RD. MILFORD CT 06460
249 641 CONNECTICUT AVE. NORWALK CT 06856
250 4190 VINEWOOD LN. N. #138 PLYMOUTH MN 55442
251 5057 WESTFIELDS BLVD. CENTERVILLE VA 22020
252 5552 OLD HICKORY BLVD. HERMITAGE TN 37076
253 9463 ANNAPOLIS RD. LANHAM MD 20706
254 3660 S. TUTTLE AVE. TUTTLE
BEE PLAZA SARASOTA FL 34239
255 13770 SMOKETOWN RD. DALE CITY VA 22192
256 105 GARRISONVILLE RD. STAFFORD COUNTY VA 22554
260 7300 HAGGERTY ROAD WEST BLOOMFIELD MI 48322
261 14641 U.S. 31 NORTH CARMEL IN 46032
262 7350 153RD ST. WEST APPLE VALLEY MN 55124
264 40 TUNXIS AVENUE BLOOMFIELD CT 06002
268 246 MAIN STREET MONROE CT 06468
269 45 FRIENDLY LANE POUGHKEEPSIE NY 12603
270 3137 BERLIN TURNPIKE NEWINGTON CT 06111
273 235 S. MAIN STREET MIDDLETON MA 01949
284 1202 PROVIDENCE HWY. NORWOOD MA 02062
289 1475 QUEENS DRIVE
(VILLAGE GREEN SHOPPING WOODBURY MN 55125
CTR.)
290 4585 SUNRISE HWY. BOHEMIA NY 11716
291 1770 MIDDLE COUNTRY ROAD CENTEREACH NY 11720
299 10870 HAMILTON AVENUE CINCINNATI OH 45231
602 2458 CENTRAL PARK AVENUE YONKERS NY 10710
604 348 ROUTE 9 N. (MANALAPAN, ENGLISHTOWN NJ 07726
NJ)
606 4067 JERICHO TURNPIKE EAST NORTHPORT NY 11731
607 2626 MIDDLE COUNTRY ROAD CENTEREACH NY 11720
608 30 WESTMINSTER ROAD WEST HEMPSTEAD NY 11552
611 3767 HEMPSTEAD TURNPIKE LEVITTOWN NY 11756
612 714 SMITHTOWN BYPASS SMITHTOWN NY 11787
615 167 E. SUNRISE HWY. PATCHOGUE NY 11772
616 894 SUNRISE HWY. BAY SHORE NY 11706
617 RT. 25A & ROCKY POINT RD.
POINT PLAZA ROCKY POINT NY 11778
620 705 MERRICK ROAD COPIAGUE NY 11726
621 1797 DUTCH BROADWAY ELMONT NY 11003
641 RTE. 6 (WESTCHESTER MALL) MOHEGAN LAKE NY 10547
644 1425 ROUTE 300 NEWBURGH NY 12550
646 49 PALOMBA DRIVE ENFIELD CT 06082
<PAGE>
647 645 ROUTE 130 TRENTON NJ 08691
751 31036 VAN DYKE WARREN MI 48093
752 34700 WARREN RD. WESTLAND MI 48185
8 27650 SCHOOLCRAFT LIVONIA MI 48150
10 30110 HARPER ST. CLAIR SHORES MI 48082
17 3590 WASHTENAW ANN ARBOR MI 48104
36 2520 S. REYNOLDS TOLEDO OH 43614
38 817 WEST GOLF SCHAUMBURG IL 60194
40 730 E. NORTH AVE. CAROL STREAM IL 60187
47 10870 HAMILTON AVE. CINCINNATI OH 45231
48 80 NORTH ADAMS ROCHESTER HILLS MI 48309
50 497 LAKE COOK RD. DEERFIELD IL 60015
51 700 E. ROOSEVELT LOMBARD IL 60148
52 1785 RIVER OAKS ROAD CALUMET CITY IL 60409
56 25101 ALLEN RD. WOODHAVEN MI 48183
62 6302 E. 82ND ST. CASTLETON IN 46250
63 8802 U.S. 31 SOUTH INDIANAPOLIS IN 46227
66 1970 S. ROBERT ST. WEST ST. PAUL MN 55118
67 7520 W. 159TH ST. ORLAND PARK IL 60462
68 2501 W. 75TH ST. WOODRIDGE IL 60515
69 1902 SOUTH ELMHURST MT. PROSPECT IL 60056
71 4231 EBENEZER ROAD BALTIMORE MD 21236
72 6503 BALTIMORE NAT. PIKE BALTIMORE MD 21228
74 2325 18 MILE ROAD STERLING HEIGHTS MI 48310
75 9701 E. WASHINGTON INDIANAPOLIS IN 46229
76 4500 ROOSEVELT ROAD HILLSIDE IL 60162
77 250 E. INDIAN TRAIL AURORA IL 60505
79 7222 ROCKVILLE RD. INDIANAPOLIS IN 46224
82 522 RITCHIE HWY. SEVERNA PARK MD 21146
83 7350 87TH ST. BRIDGEVIEW IL 60455
91 3271 SOUTH BLVD. E. AUBURN HILLS MI 48326
108 7401 W. 24TH ST. N. RIVERSIDE IL 60546
114 9023 LITTLE ROAD NEW PORT RICHEY FL 34654
152 89 W. CENTRAL AVE. EDGEWATER MD 21037
157 3250 OLD WASHINGTON ROAD WALDORF MD 20601
175 1845 E. COUNTY RD. D MAPLEWOOD MN 55109
190 2016 STATE RD. #9 ANDERSON IN 46013
201 1920 DEMPSTER ST. EVANSTON IL 60202
204 3555 STATE RD. #38 LAFAYETTE IN 47905
217 6560A W. FULLERTON AVE. CHICAGO IL 60707
227 8287 SPRINGBORO PIKE MIAMISBURG OH 45342
<PAGE>
OFFICES:
1175 WEST LONG LAKE ROAD TROY MI 48098
ONE STATION PLACE STAMFORD CT 06902
6399, 6400 & 6501 EAST DETROIT MI 48234
NEVADA
WAREHOUSES:
3400 INDUSTRIAL ROAD HARRISBURG PA 17110
8055 NORTH STATE ROAD #9 HOWE IN 46746
Owned Stores
32 1700 E. DUBLIN-GRANDVILLE COLUMBUS OH 43229
33 4180 PLAINFIELD N.E. GRAND RAPIDS MI 49505
80 G-5054 MILLER RD. FLINT MI 48507
142 801 EASTGATE DRIVE CINCINNATI OH 45245
205 5354 DIXIE HWY. LOUISVILLE KY 40216
208 4810 OUTER LOOP LOUISVILLE KY 40219
610 715 DOBBS FERRY ROAD WHITE PLAINS NY 10607
601 1081 E. JERICHO TURNPIKE HUNTINGTON NY 11743
84 43473 FORD ROAD CANTON TWP. MI 48188
87 3720 95TH ST. EVERGREEN PARK IL 60642
88 720 N. GREEN BAY RD. WAUKEGAN IL 60087
90 2999 E. LINCOLN HWY. MERRILLVILLE IN 46410
92 15300 HALL ROAD CLINTON TOWNSHIP MI
98 1950 STATE ST. ST. CHARLES IL 60174
103 3707 COON RAPIDS BLVD. COON RAPIDS MN 55433
107 1520 AURORA NAPERVILLE IL 60563
156 3822 S. FRANKLIN ST. MICHIGAN CITY IN 46360
214 3526 TOWNE BOULEVARD FRANKLIN OH 45005
219 3075 MIDDLE ROAD COLUMBUS IN 47203
267 1910 E. IRELAND RD. SOUTH BEND IN 46614
631 479 EAST MAIN STREET BRANFORD CT 06405
632 400 TALCOTTVILLE RD. VERNON CT 06066
633 1198 QUEEN STREET SOUTHINGTON CT 06489
636 361 SCOTT SWAMP ROAD FARMINGTON CT 06032
639 RTE. #9 W. KIEFFER LANE KINGSTON NY 12401
643 656 SILVER LANE EAST HARTFORD CT 06118
34 1941 GRAND RIVER OKEMOS MI 48864
100 1395 LARKIN JOLIET IL 60435
65 1800 HIGHWAY #36 ROSEVILLE MN 55113
99 4703 EDGEMONT BROOKHAVEN PA 19015
101 1729 DEPTFORD CENTER RD. DEPTFORD NJ 08096
106 1600 S. MILWAUKEE LIBERTYVILLE IL 60048
135 12253 ST. CHARLES ROCK RD. BRIDGETON MO 63044
139 3725 HARRY S. TRUMAN ST. CHARLES MO 63301
140 195 S. RAND ROAD LAKE ZURICH IL 60047
163 5701 E. N.W. HIGHWAY CRYSTAL LAKE IL 60014
167 1850 IRVING PARK RD. SCHAUMBURG IL 60193
168 5738 BECKLEY RD. BATTLE CREEK MI 49015
244 8040 GLEN LANE EDEN PRAIRIE MN 55344
245 1360 DUCKWOOD DRIVE EAGAN MN 55123
265 4630 HWY 94 N OUTER RD. ST. CHARLES MO 63304
277 2050 S. TELEGRAPH BLOOMFIELD TWP. MI 48302
<PAGE>
623 450 NEW DORP LANE STATEN ISLAND NY 10306
626 116 BRICK BOULEVARD BRICKTOWN NJ 08723
628 794 HIGHWAY 202 SOUTH BRIDGEWATER NJ 08807
25 2450 28TH ST. S.E. GRAND RAPIDS MI 49512
5 25488 MICHIGAN AVENUE DEARBORN HGTS. MI 48125
15 2170 DIX ROAD LINCOLN PARK MI 48146
23 5580 W. STATE ST. SAGINAW MI 48603
26 7141 E. BROAD COLUMBUS OH 43213
27 5500 W. BROAD ST. COLUMBUS OH 43228
28 6303 S. ANTHONY FT. WAYNE IN 46816
29 1133 COLISEUM BLVD. FT. WAYNE IN 46805
30 47340 VAN DYKE UTICA MI 48317
45 7940 PENN AVE. S. BLOOMINGTON MN 55431
58 3333 REFUGEE ROAD COLUMBUS OH 43232
81 3001 28TH ST. S.W. GRANDVILLE MI 49418
85 325 MALL DRIVE PORTAGE MI 49002
86 8032 KEN-18 BURLINGTON PK. FLORENCE KY 41042
93 5737 S. PENNSYLVANIA LANSING MI 48911
94 6142 TELEGRAPH TOLEDO OH 43612
102 10901 BUSTLETON PHILADELPHIA PA 19116
104 10550 REISTERSTOWN RD. OWINGS MILLS MD 21117
105 190 W. LINCOLN HWY. EXTON PA 19341
110 4315 E. BAY DRIVE CLEARWATER FL 34624
111 5501 49TH ST. N. ST. PETERSBURG FL 33709
112 255 89TH AVENUE BLAINE MN 55434
113 4720 U.S. 19 NEW PORT RICHEY FL 34652
117 6401 W. WATERS AVENUE TAMPA FL 33634
118 4366 PIERSON ROAD FLINT MI 48504
119 12756 WALSINGHAM RD. LARGO FL 34644
120 15910 MAPLEDALE BLVD. TAMPA FL 33624
134 15031 MANCHESTER ROAD BALLWIN MO 63011
141 7456 SOUTH STATE RD. BEDFORD PARK IL 60638
151 2295 10 MILE ROAD WARREN MI 48091
164 2997 E. WILDER ROAD BAY CITY MI 48706
178 2685 TITTABAWASSEE RD. SAGINAW MI 48604
179 4532 WOODVILLE RD. NORTHWOOD OH 43619
181 3530 MONA KAI DRIVE NORTON SHORES MI 49441
188 448 N. LEXINGTON PARKWAY ST. PAUL MN 55104
189 1210 N. BYRNE TOLEDO OH 43607
199 1238 UPPER VALLEY PIKE RD. SPRINGFIELD OH 45505
202 3365 HIGHLAND AVE. CINCINNATI OH 45213
213 4902 CORTEZ RD. BRADENTON FL 34210
240 7325 OLD TROY PIKE HUBER HEIGHTS OH 45424
259 5225 N. GRAPE RD. MISHAWAKA IN 46545
266 10808 MONTGOMERY RD. CINCINNATI OH 45242
272 20 E. MAIN STREET WESTFIELD MA 01085
286 2145 HIGHWAY 35 WALL TWP. SEA GIRT NJ 08750
605 210 MONMOUTH ROAD W. LONG BRANCH NJ 07764
622 945 NORTH STREET MILFORD CT 06460
624 840 ROUTE 46 KENVIL NJ 07847
625 2931 HIGHWAY 35 HAZLET NJ 07730
638 4250 ROUTE 9 SOUTH HOWELL NJ 07731
645 447 WINTHROP ST. (RTE. 44) TAUNTON MA 02780
648 76 CAMPANELLI DRIVE BROCKTON MA 02401
649 310 RUSSELL ST. (RTE. 9) HADLEY MA 01035
652 840 BOSTON ROAD (RTE. 20) SPRINGFIELD MA 01119
<PAGE>
Closed Stores
149 1460 TUSKAWILLA CASSELBERRY FL 32707
166 3401 DEER CREEK COUNTRY CLUB DEERFIELD BEACH FL 33442
BLVD.
194 10131 SOUTH US #1 PORT ST. LUCIE FL 34952
642 54 MIDDLETOWN AVENUE NORTH HAVEN CT 06473
<PAGE>
SCHEDULE 3.06
TO CREDIT AGREEMENT
DISCLOSED MATTERS<F3>
Litigation
----------
Principal Financial Securities, Inc. & Loeb Partners Corp. v. Sunbelt Nursery
Group, Inc., General Host Corp., Lyndale Garden Center, Inc. and Timothy
Duoss, District Court of Tarrant County, Texas.
This case involves claims against General Host Corporation, Sunbelt,
the purchaser of General Host Corporation's interest in Sunbelt and other
defendants for commissions allegedly due the plaintiffs, a financial advisor,
in connection with financing the plaintiffs were engaged to arrange for
Sunbelt.
Environmental Matters
---------------------
A. Borrower (Frank's Nursery & Crafts, Inc.)
-----------------------------------------
1. Borrower currently owns approximately 100 facilities and
leases approximately 170 facilities. Environmental review of these
properties revealed issues involving potential liabilities with respect to
underground storage tank investigation and remediation, asbestos
contamination, and other miscellaneous matters, such as operations that may
require implementation of management plans.
2. The headquarters facilities in Detroit, Michigan are subject
to continuing remediation of environmental contamination.
3. In 1994, the New York State Department of Environmental
Conservation imposed a fine against Borrower for $100,000.
4. Borrower formerly owned a facility in Blue Point, Long
Island that operated a nursery business.
B. Holdings (General Host Corporation)
-----------------------------------
Holdings has a history of dispositions of various business, including
without limitation the following assets, former assets, or operations of
which may result in Environmental Liabilities:
1. American Salt Co. In 1988, Holdings sold the American Salt Co.,
which operated salt mine facilities in Lyons, Kansas. (1) There was a
judgment against Holdings in the amount of approximately $1.1 million for
<F3> The inclusion of an item on this Schedule shall not be deemed to be
an admission that such item is expected to have a material and
adverse effect on Holdings or its Subsidiaries.
<PAGE>
salt contamination which Holdings paid on December 5, 1997. (2) A lawsuit
was recently filed against Holdings by the same plaintiffs, who had
previously won a damage award against Holdings regarding alleged saltwater
contamination and damages resulting therefrom.
2. Li'l General Stores. In 1984, Holdings sold its Li'l General
Stores facilities. Prior to that date, Holdings owned or leased
approximately 480 Li'l General convenience stores throughout the United
States. Leaseholds for 115 of these leased facilities were rejected by the
buyer, Circle K Corporation, in bankruptcy. To date, to the Company's
knowledge 21 of these facilities have been the subject of environmental
investigation or remediation.
3. Allied Leather Corporation. Holdings disposed of Allied Leather
Corporation in 1978. (1) This business is allegedly the source of
contamination at four offsite locations: the Solvents Recovery Service of
New England federal Superfund site in Connecticut, the Old Southington
Landfill federal Superfund site in Connecticut, the Buzby landfill state
Superfund site in New Jersey, and the Kramer landfill federal Superfund site
in New Jersey. (2) Holdings is also aware that properties at which Allied
Leather Corporation operated or reportedly disposed of certain wastes in the
areas of Pennacook, Boscawen, and Concord, New Hampshire, and Waterboro,
Maine, are being or have been investigated by environmental authorities for
possible contamination apparently relating to the disposal of hides and
tanning wastes. There may be substances on those properties which may
require further investigation and/or remediation. To the knowledge of
Holdings, no claims have been asserted against Holdings at these sites.
4. Other Dispositions. In addition to those noted above, Holdings
has disposed of several other businesses, including the following:
-- Sunbelt Nursery Group
-- Calloway's Nursery, Inc.
-- Codo, Inc.
-- The All American Gourmet Company
-- Milk Specialties Company
-- Hot Sam Companies
-- Van de Kamp's Division
-- Cudahy Company
-- Yellowstone Park Company
C. Other Offsite Disposal
1. Holdings has been named as a potentially responsible party
at the Tulalip Landfill in the state of Washington.
2. In addition, as discussed above with respect to the Allied
Leather Corporation disposition, Holdings has been named as a potentially
responsible party at the following Superfund sites: (1) the Solvents
Recovery Service of New England federal Superfund site in Connecticut, (2)
the old Southington Landfill federal Superfund site in Connecticut, (3) the
Buzby landfill state Superfund site in New Jersey, and (4) the Kramer
landfill federal Superfund site in New Jersey.
<PAGE>
SCHEDULE 3.12
TO CREDIT AGREEMENT
SUBSIDIARIES
Direct or Indirect
Name<F4> Ownership Interest of Holdings
- ---- ------------------------------
Frank's Nursery & Crafts, Inc. 100%
Nursery Distributors, Inc. 100%
General Host Holding Corp. 100%
AMS Industries, Inc. 100%
AMS Salt Industries, Inc. 100%
Bay Resources, Inc. 100%
SNG Acquisition Company, Inc. 100%
<F4> Frank's Nursery & Crafts, Inc. is the only subsidiary which is a
Subsidiary Loan Party.
<PAGE>
SCHEDULE 3.16(d)
TO CREDIT AGREEMENT
MORTGAGE FILING OFFICES
Store Town, State Filing Office
- ----- ----------- -------------
5 Dearborn Heights, MI Wayne County Register of Deeds
15 Lincoln Park, MI Wayne County Register of Deeds
23 Saginaw, MI Saginaw County Register of Deeds
26 Columbus, OH Franklin County Recorder
27 Columbus, OH Franklin County Recorder
28 Ft. Wayne, IN Allen County Clerk
29 Ft. Wayne, IN Allen County Clerk
30 Utica, MI Macomb County Register of Deeds
45 Bloomington, MN Hennepin County Recorder
58 Columbus, OH Franklin County Recorder
81 Grandville, MI Kent County Register of Deeds
85 Portage, MI Kalamazoo County Register of Deeds
86 Florence, KY Boone County Clerk
93 Lansing, MI Ingham County Register of Deeds
94 Toledo, OH Lucas County Recorder
102 Philadelphia, PA Philadelphia County Recorder of
Deeds
104 Owings Mills, MD Baltimore County Recorder
105 Exton, PA Chester County Recorder of Deeds
110 Clearwater, FL Pinellas County Clerk of the
Circuit Court
111 St. Petersburg, FL Pinellas County Clerk of the
Circuit Court
<PAGE>
Store Town, State Filing Office
- ----- ----------- -------------
112 Blaine, MN Anoka County Clerk
113 New Port Richey, FL Pasco County Clerk of the Circuit
Court
117 Tampa, FL Hillsborough County Clerk of the
Circuit Court
118 Flint, MI Genesee County Register of Deeds
119 Largo, FL Pinellas County Clerk of the
Circuit Court
120 Tampa, FL Hillsborough County Clerk of the
Circuit Court
134 Ballwin, MO St. Louis County Recorder od Deeds
141 Bedford, IL Cook County Recorder
151 Warren, MI Macomb County Register of Deeds
164 Bay City, MI Bay County Register of Deeds
178 Saginaw, MI Saginaw County Register of Deeds
179 Northwood, OH Wood County Recorder
181 Norton Shores, MI Muskegon County Register of Deeds
188 St. Paul, MN Ramsey County Clerk
189 Toledo, OH Lucas County Recorder
199 Springfield, OH Clark County Recorder
202 Cincinnati, OH Hamilton County Recorder
213 Bradenton, FL Manatee County Clerk of the Circuit
Court
240 Huber Heights, OH Montgomery County Recorder
259 Mishwaka, IN St. Joseph County Clerk
266 Cincinnati, OH Hamilton County Recorder
272 Westfield, MA Hampden County Register of Deeds
<PAGE>
Store Town, State Filing Office
- ----- ----------- -------------
286 Sea Girt, NJ Monmouth County Register of Deeds
605 W. Long Branch, NJ Monmouth County Register of Deeds
622 Milford, CT Milford Town Clerk
624 Kenvil, NJ Morris County Register of Deeds
625 Hazlet, NJ Monmouth County Register of Deeds
638 Howell, NJ Monmouth County Register of Deeds
645 Taunton, MA Bristol County Register of Deeds
648 Brockton, MA Plymouth County Register of Deeds
649 Hadley, MA Hampshire County Register of Deeds
652 Springfield, MA Hampden County Register of Deeds
84 Canton Twp., MI Wayne County Register of Deeds
87 Evergreen Park, IL Cook County Recorder
88 Waukegan, IL Lake County Recorder
90 Merrillville, IN Lake County Recorder
92(401) Clinton Twp., MI Macomb County Register of Deeds
98 St. Charles, IL Kane County Recorder
103 Coon Rapids, MN Anoka County Clerk
107 Naperville, IL Du Page County Recorder
156 Michigan City, IN La Porte County Recorder
214 Franklin, OH Warren County Recorder
219 Columbus, IN Bartholomew County Recorder
267 South Bend, IN St. Joseph County Recorder
<PAGE>
Store Town, State Filing Office
- ----- ----------- -------------
610 White Plains, NY Westchester County Clerk
184 Warren, MI Warren County Register of Deeds
616 Bay Shore, NY Suffolk County Clerk
<PAGE>
SCHEDULE 6.01
TO CREDIT AGREEMENT
EXISTING INDEBTEDNESS
1. Indebtedness set forth on Schedules 1.01(b) and 1.01(c).
2. The 11-1/2% Senior Notes due 2002 of Holdings issued under the
indenture dated as of February 28, 1992 by and among Holdings, as
issuer, the guarantors party thereto and Bankers Trust Company, as
Trustee.
3. The 8% Convertible Subordinated Notes due 2002 of Holdings issued
under the indenture dated as of February 28, 1992, by and between
Holdings, as issuer, and United States Trust Company of New York, as
trustee.
4. Guarantees by General Host of obligations of Frank's Nursery &
Crafts, Inc. set forth below on Schedule 1.01(b).
5. The intercompany indebtedness set forth below.
INTERCOMPANY ACCOUNTS
Payor Payee Principal Amount
- ----- ----- ----------------
General Host Corporation General Host Holding Corp. $123,039,680
General Host Corporation AMS Industries, Inc. $119,737,169
General Host Corporation SNG Acquisition Company, Inc. $ 5,491,427
Frank's Nursery & Crafts, Inc. General Host Corporation $221,262,607*
* To be contributed to the capital of Frank's Nursery & Crafts, Inc. at
closing after partial repayment.
<PAGE>
SCHEDULE 6.02
TO CREDIT AGREEMENT
EXISTING LIENS
1. Liens set forth on Schedule 1.01(b) or arising out of the Capital
Leases set forth on Schedule 1.01(c).
2. Liens set forth on Annex I to this Schedule.
<PAGE>
SCHEDULE 6.04
TO CREDIT AGREEMENT
INVESTMENTS
1. The intercompany indebtedness set forth on Schedule 6.01.
2. Milk Specialties Company $1,066,670 principal amount 15% Subordinated
Note due February 1, 1999, payable to General Host Corporation.
3. Investments in the capital stock of Holdings and Subsidiaries set
forth on Schedule 3.12.
4. The following loans owed to Frank's Nursery & Crafts, Inc. and
General Host Corporation outstanding as of the closing date:
Principal
Name Amount Maturity
---- --------- --------
C. Whitcomb Alden $123,650.00 30 days after termination as
director or upon sale of the
shares purchased with loan
proceeds
Harris J. Ashton $1,231,341.00 One year following his
termination
Carol M. Cox $25,067.77 Upon sale of the shares
purchased with loan proceeds
Joseph H. Haley $4,215.00 Upon sale of the shares
purchased with loan proceeds
David K. Strang $4,412.00 Upon sale of the shares
purchased with loan proceeds
Edward J. Jackson $9,582.50 Upon sale of the shares
purchased with loan proceeds
David G. Fraser, III $ 59,822.90 6/2/99
<PAGE>
SCHEDULE 6.11
TO CREDIT AGREEMENT
EXISTING RESTRICTIONS
1. Restrictions on the creation, incurrence or existence of Liens
contained in the Existing Mortgages set forth on Schedule 1.01(b).
<PAGE>
Exhibit 12.1
FRANK'S NURSERY & CRAFTS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
48 Weeks 4 Weeks
Ended Ended Pro Forma
12/28/97 1/25/98 1997 1996 1996 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from operations before
income taxes . . . . . . . . . . . . . ($19,715) ($11,654) ($29,362) ($11,791) ($7,751) $ 2,113
Fixed charges against earnings . . . . . 26,263 2,156 27,676 27,881 31,008 29,603
120 13 133 219 217 215
Amortization of capitalized interest . . -------- -------- -------- -------- ------- --------
Total earnings . . . . . . . . . . . . $ 6,668 ($ 9,485) ($1,553) $16,309 $23,474 $31,931
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest and debt . . . . . . . . . . . . 19,632 1,601 $20,490 $20,863 $23,845 $22,911
33 1/3% of net minimum rent expense . . . 6,631 555 7,186 7,018 7,163 6,692
-------- -------- -------- -------- -------- -------
Fixed charges against earnings . . . . . 26,263 2,156 27,676 27,881 31,008 29,603
Interest capitalized . . . . . . . . . . 48 9 57 231 76 28
-------- -------- -------- -------- -------- --------
Total fixed charges . . . . . . . . . . $ 26,311 $ 2,165 $27,733 $28,112 $31,084 $29,631
========= ======== ======== ======== ======== ========
Excess (deficiency) . . . . . . . . . . . ($19,643) ($11,650) ($29,286) ($11,803) ($7,610) $ 2,300
========= ======== ======== ======== ========= ========
Ratio . . . . . . . . . . . . . . . . . . 0.25 (4.38) (0.06) 0.58 0.76 1.08
========= ======== ========= ========= ========= ========
Minimum rent expense . . . . . . . . . . $ 19,895 $1,664 $21,559 $21,056 $21,492 $20,077
========= ======== ========= ========= ========= ========
</TABLE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-4 of Frank's Nursery & Crafts, Inc. of
our report dated March 13, 1998 relating to the financial statements of
Frank's Nursery & Crafts, Inc., which appears in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Financial Data."
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Bloomfield Hills, Michigan
April 23, 1998
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
Bankers Trust Company
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
FRANK'S NURSERY & CRAFTS, INC.
(Exact name of obligor as specified in its charter)
Michigan 38-1561374
(State or other I.R.S. employer
jurisdiction of Identification no.)
Incorporation or
organization)
1175 West Long Lake Road
Troy, Michigan 48098
(Address of principal executive offices)
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 1008
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Name Address
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
Item 3.-15. Not Applicable
Item 16. List of Exhibits.
Exhibit 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990, Certificate of
Amendment of the Organization Certificate of Bankers
Trust Company dated June 21, 1995 - Incorporated
herein by reference to Exhibit 1 filed with Form T-1
Statement, Registration No. 33-65171, Certificate of
Amendment of the Organization Certificate of Bankers
Trust Company dated March 20, 1996, incorporate by
referenced to Exhibit 1 filed with Form T-1
Statement, Registration No. 333-25843 and
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated June 19,
1997, copy attached.
Exhibit 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed
with Form T-1 Statement, Registration No. 33- 21047.
Exhibit 3 - Authorization of the Trustee to exercise corporate
trust powers - Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust Company, as
amended on November 18, 1997. Copy attached.
Exhibit 5 - Not applicable.
<PAGE>
Exhibit 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. - Incorporated herein by
reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 22-18864.
Exhibit 7 - The latest report of condition of Bankers Trust
Company dated as of December 31, 1997. Copy
attached.
Exhibit 8 - Not Applicable.
Exhibit 9 - Not Applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State of New
York, on the 17th day of April, 1998.
BANKERS TRUST COMPANY
By: /s/ Susan Johnson
Susan Johnson
Assistant Vice President
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of
New York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY Under
Section 8005 of the Banking Law," dated June 19, 1997, providing for an
increase in authorized capital stock from $1,601,666,670 consisting of
100,166,667 shares with a par value of $10 each designated as Common Stock
and 600 shares with a par value of $1,000,000 each designated as Series
Preferred Stock to $2,001,666,670 consisting of 100,166,667 shares with a par
value of $10 each designated as Common Stock and 1,000 shares with a par
value of $1,000,000 each designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the
City of New York, this 27th day of June in the Year of our Lord one thousand
nine hundred and ninety-seven.
/s/ Manuel Kursky
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a
Managing Director and an Assistant Secretary of Bankers Trust Company, do
hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of march, 1903.
3. The organization certificate as heretofore amended is hereby
amended to increase the aggregate number of shares which the corporation
shall have authority to issue and to increase the amount of its authorized
capital stock in conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock
outstanding, which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into One
Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 600 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all
outstanding shares entitled to vote thereon.
<PAGE>
IN WITNESS WHEREOF, we have made and subscribed this certificate
this 19th day of June, 1997.
James T. Byrne, Jr.
James T. Byrne, Jr.
Managing Director
Lea Lahtinen
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an
Assistant Secretary of Bankers Trust Company, the corporation described in
the foregoing certificate; that she has read the foregoing certificate and
knows the contents thereof, and that the statements herein contained are
true.
Lea Lahtinen
Lea Lahtinen
Sworn to before me this 19th day
of June, 1997.
Sandra L. West
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE>
BY-LAWS
NOVEMBER 18, 1997
Bankers Trust Company
New York
<PAGE>
BY-LAWS
of
Bankers Trust Company
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall
be held at the office of the Company in the Borough of Manhattan, City of New
York, on the third Tuesday in January of each year, for the election of
directors and such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall
be the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present,
either in person or by proxy, stockholders owning a majority of the capital
stock of the Company, in order to constitute a quorum, except at special
elections of directors, as provided by law, but less than a quorum shall have
power to adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief
Executive Officer or, in his absence, the President or, in their absence, the
senior officer present, shall preside at meetings of the stockholders and
shall direct the proceedings and the order of business. The Secretary shall
act as secretary of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate
powers exercised by a Board of Directors consisting of such number of
directors, but not less than ten nor more than twenty-five, as may from time
to time be fixed by resolution adopted by a majority of the directors then in
office, or by the stockholders. In the event of any increase in the number
of directors, additional directors may be elected within the limitations so
fixed, either by the stockholders or within the limitations imposed by law,
by a majority of directors then in office. One-third of the number of
directors, as fixed from time to time, shall constitute a quorum. Any one or
more members of the Board of Directors or any Committee thereof may
participate in a meeting of the Board of Directors or Committee thereof by
means of a conference telephone or similar communications equipment which
allows all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in person
at such a meeting.
All directors hereafter elected shall hold office until the next annual
meeting of the stockholders and until their successors are elected and have
qualified. No person who shall have attained age 72 shall be eligible to be
<PAGE>
elected or re-elected a director. Such director may, however, remain a
director of the Company until the next annual meeting of the stockholders of
Bankers Trust New York Corporation (the Company's parent) so that such
director's retirement will coincide with the retirement date from Bankers
Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes
his responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the
Board of Directors may be filled by the affirmative vote of a majority of the
directors then in office, and the directors so elected shall hold office for
the balance of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the
Board of Directors. In his absence, the Chief Executive Officer or, in his
absence, such other director as the Board of Directors from time to time may
designate shall preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations
for the conduct of its meetings and the management of the affairs of the
Company as it may deem proper, not inconsistent with the laws of the State of
New York, or these By-Laws, and all officers and employees shall strictly
adhere to, and be bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from
time to time on the third Tuesday of the month. If the day appointed for
holding such regular meetings shall be a legal holiday, the regular meeting
to be held on such day shall be held on the next business day thereafter.
Special meetings of the Board of Directors may be called upon at least two
day's notice whenever it may be deemed proper by the Chairman of the Board
or, the Chief Executive Officer or, in their absence, by such other director
as the Board of Directors may have designated pursuant to Section 3 of this
Article, and shall be called upon like notice whenever any three of the
directors so request in writing.
SECTION 6. The compensation of directors as such or as members of
committees shall be fixed from time to time by resolution of the Board of
Directors.
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting
of not less than five directors who shall be appointed annually by the Board
of Directors. The Chairman of the Board shall preside at meetings of the
Executive Committee. In his absence, the Chief Executive Officer or, in his
absence, such other member of the Committee as the Committee from time to
time may designate shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented
to the Board of Directors at its next subsequent meeting. All acts done and
<PAGE>
powers and authority conferred by the Executive Committee from time to time
shall be and be deemed to be, and may be certified as being, the act and
under the authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may
act only by the concurrent vote of not less than one-third of its members, at
least one of whom must be a director other than an officer. Any one or more
directors, even though not members of the Executive Committee, may attend any
meeting of the Committee, and the member or members of the Committee present,
even though less than a quorum, may designate any one or more of such
directors as a substitute or substitutes for any absent member or members of
the Committee, and each such substitute or substitutes shall be counted for
quorum, voting, and all other purposes as a member or members of the
Committee.
SECTION 2. There shall be an Audit Committee appointed annually by
resolution adopted by a majority of the entire Board of Directors which shall
consist of such number of directors, who are not also officers of the
Company, as may from time to time be fixed by resolution adopted by the Board
of Directors. The Chairman shall be designated by the Board of Directors, who
shall also from time to time fix a quorum for meetings of the Committee.
Such Committee shall conduct the annual directors' examinations of the
Company as required by the New York State Banking Law; shall review the
reports of all examinations made of the Company by public authorities and
report thereon to the Board of Directors; and shall report to the Board of
Directors such other matters as it deems advisable with respect to the
Company, its various departments and the conduct of its operations.
In the performance of its duties, the Audit Committee may employ or retain,
from time to time, expert assistants, independent of the officers or
personnel of the Company, to make studies of the Company's assets and
liabilities as the Committee may request and to make an examination of the
accounting and auditing methods of the Company and its system of internal
protective controls to the extent considered necessary or advisable in order
to determine that the operations of the Company, including its fiduciary
departments, are being audited by the General Auditor in such a manner as to
provide prudent and adequate protection. The Committee also may direct the
General Auditor to make such investigation as it deems necessary or advisable
with respect to the Company, its various departments and the conduct of its
operations. The Committee shall hold regular quarterly meetings and during
the intervals thereof shall meet at other times on call of the Chairman.
SECTION 3. The Board of Directors shall have the power to appoint any
other Committees as may seem necessary, and from time to time to suspend or
continue the powers and duties of such Committees. Each Committee appointed
pursuant to this Article shall serve at the pleasure of the Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a
Chairman of the Board and a Chief Executive Officer; and shall also elect a
President, and may also elect a Senior Vice Chairman, one or more Vice
Chairmen, one or more Executive Vice Presidents, one or more Senior Managing
<PAGE>
Directors, one or more Managing Directors, one or more Senior Vice
Presidents, one or more Principals, one or more Vice Presidents, one or more
General Managers, a Secretary, a Controller, a Treasurer, a General Counsel,
one or more Associate General Counsels, a General Auditor, a General Credit
Auditor, and one or more Deputy Auditors, who need not be directors. The
officers of the corporation may also include such other officers or assistant
officers as shall from time to time be elected or appointed by the Board.
The Chairman of the Board or the Chief Executive Officer or, in their
absence, the President, the Senior Vice Chairman or any Vice Chairman, may
from time to time appoint assistant officers. All officers elected or
appointed by the Board of Directors shall hold their respective offices
during the pleasure of the Board of Directors, and all assistant officers
shall hold office at the pleasure of the Board or the Chairman of the Board
or the Chief Executive Officer or, in their absence, the President, the
Senior Vice Chairman or any Vice Chairman. The Board of Directors may
require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive
Officer of the Company who may also hold the additional title of Chairman of
the Board, President, Senior Vice Chairman or Vice Chairman and such person
shall have, subject to the supervision and direction of the Board of
Directors or the Executive Committee, all of the powers vested in such Chief
Executive Officer by law or by these By-Laws, or which usually attach or
pertain to such office. The other officers shall have, subject to the
supervision and direction of the Board of Directors or the Executive
Committee or the Chairman of the Board or, the Chief Executive Officer, the
powers vested by law or by these By-Laws in them as holders of their
respective offices and, in addition, shall perform such other duties as shall
be assigned to them by the Board of Directors or the Executive Committee or
the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal
controls. Subject to the Board of Directors, the General Auditor shall have
and may exercise all the powers and shall perform all the duties usual to
such office and shall have such other powers as may be prescribed or assigned
to him from time to time by the Board of Directors or vested in him by law or
by these By-Laws. He shall perform such other duties and shall make such
investigations, examinations and reports as may be prescribed or required by
the Audit Committee. The General Auditor shall have unrestricted access to
all records and premises of the Company and shall delegate such authority to
his subordinates. He shall have the duty to report to the Audit Committee on
all matters concerning the internal audit program and the adequacy of the
system of internal controls of the Company which he deems advisable or which
the Audit Committee may request. Additionally, the General Auditor shall
have the duty of reporting independently of all officers of the Company to
the Audit Committee at least quarterly on any matters concerning the internal
audit program and the adequacy of the system of internal controls of the
Company that should be brought to the attention of the directors except those
matters responsibility for which has been vested in the General Credit
Auditor. Should the General Auditor deem any matter to be of special
immediate importance, he shall report thereon forthwith to the Audit
Committee. The General Auditor shall report to the Chief Financial Officer
only for administrative purposes.
<PAGE>
The General Credit Auditor shall be responsible to the Chief Executive
Officer and, through the Audit Committee, to the Board of Directors for the
systems of internal credit audit, shall perform such other duties as the
Chief Executive Officer may prescribe, and shall make such examinations and
reports as may be required by the Audit Committee. The General Credit
Auditor shall have unrestricted access to all records and may delegate such
authority to subordinates.
SECTION 3. The compensation of all officers shall be fixed under such
plan or plans of position evaluation and salary administration as shall be
approved from time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman
of the Board, the Chief Executive Officer or any person authorized for this
purpose by the Chief Executive Officer, shall appoint or engage all other
employees and agents and fix their compensation. The employment of all such
employees and agents shall continue during the pleasure of the Board of
Directors or the Executive Committee or the Chairman of the Board or the
Chief Executive Officer or any such authorized person; and the Board of
Directors, the Executive Committee, the Chairman of the Board, the Chief
Executive Officer or any such authorized person may discharge any such
employees and agents at will.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section
7018 of the New York Banking Law, indemnify any person who is or was made, or
threatened to be made, a party to an action or proceeding, whether civil or
criminal, whether involving any actual or alleged breach of duty, neglect or
error, any accountability, or any actual or alleged misstatement, misleading
statement or other act or omission and whether brought or threatened in any
court or administrative or legislative body or agency, including an action by
or in the right of the Company to procure a judgment in its favor and an
action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
Company is servicing or served in any capacity at the request of the Company
by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Company, or is serving or served such other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, or
any appeal therein; provided, however, that no indemnification shall be
provided to any such person if a judgment or other final adjudication adverse
to the director or officer establishes that (i) his acts were committed in
bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he
was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company
is permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided
by, the New York Banking Law or other rights created by (i) a resolution of
<PAGE>
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By- Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to
any person referred to in Section 1 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action
or proceeding referred to in Section 1, upon receipt of a written undertaking
by or on behalf of such person to repay such amount(s) if a judgment or other
final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of
action so adjudicated, or (ii) he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the
election of its directors is held by the Company, or (ii) any employee
benefit plan of the Company or any corporation referred to in clause (i) in
any capacity shall be deemed to be doing so at the request of the Company.
In all other cases, the provisions of this Article V will apply (i) only if
the person serving another corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise so served at the specific
request of the Company, evidenced by a written communication signed by the
Chairman of the Board, the Chief Executive Officer or the President, and (ii)
only if and to the extent that, after making such efforts as the Chairman of
the Board, the Chief Executive Officer or the President shall deem adequate
in the circumstances, such person shall be unable to obtain indemnification
from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement
or advancement of expenses as a matter of right pursuant to this Article V
may elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect
at the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or
advancement of expense pursuant to this Article V (i) is a contract right
pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
Company and the director or officer, (ii) is intended to be retroactive and
shall be available with respect to events occurring prior to the adoption
hereof, and (iii) shall continue to exist after the rescission or restrictive
modification hereof with respect to events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company,
the claimant may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled also to be paid the expenses of
prosecuting such claim. Neither the failure of the Company (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of or reimbursement or advancement of expenses to the
<PAGE>
claimant is proper in the circumstance, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant is not entitled to indemnification or to the
reimbursement or advancement of expenses, shall be a defense to the action or
create a presumption that the claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise,
in the defense of a civil or criminal action or proceeding of the character
described in Section 1 shall be entitled to indemnification only as provided
in Sections 1 and 3, notwithstanding any provision of the New York Banking
Law to the contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company,
the counterpart dies of which shall be in the charge of the Secretary of the
Company and such officers as the Chairman of the Board, the Chief Executive
Officer or the Secretary may from time to time direct in writing, to be
affixed to certificates of stock and other documents in accordance with the
directions of the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a
specified occasion and for a specified transaction or transactions, for the
use of a printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the
books of the Company by the registered holder in person, or by power of
attorney, duly executed, witnessed and filed with the Secretary or other
proper officer of the Company, on the surrender of the certificate or
certificates of such shares properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall
be deemed to include the feminine gender.
<PAGE>
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board
of Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
I, _____________________________________, Assistant Secretary of
Bankers Trust Company, New York, New York, hereby certify that the foregoing
is a complete, true and correct copy of the By-Laws of Bankers Trust Company,
and that the same are in full force and effect at this date.
ASSISTANT SECRETARY
DATED:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 12/31/97 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 11
</TABLE>
FDIC Certificate No.: - 0 - 0 - 6 - 2 - 3
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
C400
Dollar Amounts in Thousands RCFD Bil Mil Thou
<S> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):-
a. Noninterest-bearing balances and currency and coin <F1> 00812,121,000 1.a.
b. Interest-bearing balances <F2> 00714,770,000 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 4,015,000 2.b.
3. Federal funds sold and securities purchased under agreements to resell 1350 28,927,000 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 17,692,000 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 659,000 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, 2125 17,033,000 4.d.
allowance, and reserve (item 4.a minus 4.b and 4.c)
5. Trading Assets (from schedule RC-D) 3545 45,488,000 5.
6. Premises and fixed assets (including capitalized leases) 2145 766,000 6.
7. Other real estate owned (from Schedule RC-M) 2150 188,000 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 58,000 8.
9. Customers' liability to this bank on acceptances outstanding 2155 633,000 9.
10. Intangible assets (from Schedule RC-M) 2143 83,000 10.
11. Other assets (from Schedule RC-F). 2160 5,957,000 11.
12. Total assets (sum of items 1 through 11) 2170 110,039,000 12.
<FN>
<F1> Includes cash items in process of collection and unposted debits.
<F2> Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 12/31/97 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006
FDIC Certificate No.: - 0 - 0 - 6 - 2 - 3
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands Bil Mil Thou
<S> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200 24,608,000 13.a.
(1) Noninterest-bearing(1). . . . . . . .RCON 6631 2,856,000 13.a.<F1>
(2) Interest-bearing. . . . . . . . . . .RCON 6636 21,752,000 13.a.<F2>
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule
RC-E part II) RCFN 2200 20,529,000 13.b.
(1) Noninterest-bearing. . . . . . . . . .RCFN 6631 2,122,000 13.b.<F1>
(2) Interest-bearing. . . . . . . . . . .RCFN 6636 18,407,000 13.b.<F2>
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 13,777,000 14.
15 a. Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . . . . . RCON 28400 15.a.
b. Trading liabilities (from Schedule RC-D) . . . . . . . . . . . . . . . . . . . RCFD 3548 24,968,000 15.b.
16. Other borrowed money(includes mortgage indebtednessand obligations under
capitalized leases):
a. With a remaining maturity of one year or less . . . . . . . . . . . . . . . . RCFD 2332 5,810,000 16.a.
b. With a remaining maturity of more than one year through three years . . . . . A547 4,702,000 16.b.
c. With a remaining maturity of more than three years . . . . . . . . . . . . . . A548 1,750,000 16.c
17. Not Applicable. 17.
18. Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . RCFD 2920 633,000 18.
19. Subordinated notes and debentures (2) . . . . . . . . . . . . . . . . . . . . . . . RCFD 3200 1,307,000 19.
20. Other liabilities (from Schedule RC-G) . . . . . . . . . . . . . . . . . . . . . . RCFD 2930 5,961,000 20.
21. Total liabilities (sum of items 13 through 20) . . . . . . . . . . . . . . . . . . RCFD 2948 104,045,000 21.
22. Not Applicable
22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . RCFD 3838 1,000,000 23.
24. Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RCFD 3230 1,352,000 24.
25. Surplus (exclude all surplus related to preferred stock) . . . . . . . . . . . . . RCFD 3839 540,000 25.
26. a. Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . RCFD 3632 3,526,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities . . . . RCFD 8434 (45,000) 26.b.
27. Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . RCFD 3284 (379,000) 27.
28. Total equity capital (sum of items 23 through 27) . . . . . . . . . . . . . . . . RCFD 3210 5,994,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28) . . . . . . . . . . RCFD 3300 110,039,000 29
<FN>
<F1> Including total demand deposits and noninterest-bearing time and savings deposits.
<F2> Includes limited-life preferred stock and related surplus.
</TABLE>
<PAGE>
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 independent external
auditors as of any date during 199
Number
RCFD 6724 N/A M.1
1 = Independent audit of the bank conducted in
accordance with generally accepted auditing
standards by a certified public accounting firm
which submits a report on the bank
2 = Independent audit of the bank's parent holding
company conducted in accordance with
generally accepted auditing standards by a
certified public accounting firm which submits a
report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing
standards by a certified public accounting firm
(may be required by state chartering authority)
4 = Directors' examination of the bank performed by
other external auditors (may be required by
state chartering authority)
5 = Review of the bank's financial statements by
external auditors
6 = Compilation of the bank's financial statements
by external auditors
7 = Other audit procedures (excluding tax
preparation work)
8 = No external audit work
